To join or not, the rcep conundrum

Our manufactured exports have done dismally. In most years they have posted negative or near-flat growth, except in 2017 and 2018.

India is on the horns of a dilemma over its participation in the Regional Comprehensive Economic Partnership, the mega-trading pact that will account for nearly 40% of global GDP. India’s leadership have realised that staying out as the nation did when ASEAN was formed may well be self-defeating. However, they also realise that joining at the current juncture and agreeing to accept deep tariff cuts and opening up the markets to imports may be detrimental to the health of the country’s own industry. The scope for dithering is limited as other partner nations have already made and accepted tariff offers and want to wrap up the deal by next month.

India’s industry has been suffering from an unprecedented slowdown with manufacturing growing by just 0.6% in this financial year’s first quarter. Since then, automobile, which accounts for 49% of our manufacturing GDP, has been shrinking in double digits. So opening up the markets now to the import of cheap automobile parts, textiles or even dairy products may not be a win-win for the economy.

The argument in favour of a free-trade pact is that cheaper import of components and capital machinery would make the local industry more competitive, and that lowering of tariffs by partner nations will give our manufacturers a larger market. In India’s case, the FTAs it has signed with ASEAN countries, Japan and South Korea, all of whom will be members of the RCEP along with China, Australia and New Zealand, has not been so smooth a story.

Our manufactured exports have done dismally. In most years they have posted negative or near-flat growth, except in 2017 and 2018. On the other hand, India’s domestic industry has increasingly lost out to cheaper imports from trading partners. This is across sectors, from electronics to textiles to steel. India’s trade deficit with ASEAN, less than $8 billion in 2009-10, has risen to $22 billion by 2018-19. One cannot help but wonder what would happen to India’s trade deficit with China, which in 2018 stood at $57.86 billion, once India opens up wider to Chinese exports after the RCEP’s signing.