India pulling out of 16-country Regional Comprehensive Economic Partnership (RCEP) in the Bangkok meeting this month may have surprised the other member countries, but elated many in India. Even the main Opposition, the Congress party welcomed the decision. The business sector was happy as it would protect them from the unequal competition with Chinese manufactured goods. In particular, the farmers, MSMEs, dairy, manufacturing sector, pharmaceutical, steel and chemical industries will benefit from having not to compete with Chinese and ASEAN companies at this stage of India’s economy. The decision was held as an assertion of India’s confidence and reaffirmation of its economic nationalism.
Since RCEP is potentially a big bloc of economic powers, covering half of world’s population and nearly 30 per cent of global GDP, the biggest trade pact after the WTO, India opting out of it should merit a debate. Noted economists like Arvind Panagariya, the first vice-chairman of NITI Aayog argue that India stands to lose outside RCEP. It should have joined the new bloc and asserted its position from within. Whether this perspective has political economic merit is what I would like to engage with here.
Obviously, there were political, economic and cultural forces against joining the Bloc. Political issues tilting BJP against joining were mainly: BJP did not do so well in the State polls, the winter session of Parliament is coming up soon, where BJP may not want to face the Opposition’ ire, and the farmers bodies and MSMEs turning against the government. The economic arguments included; the threat to “Make in India” strategy, the fear of being flooded by low quality, low priced Chinese goods, competition with Chinese manufactures, absence of credible assurances to market access and non-tariff barriers for Indian goods.
The cultural pressures came from Swadeshi Jagarn Manch (SJM), the Bharatiya Kisan Sangh (BKS) both affiliates of Rashtriya Swayam Sevak Sangh (RSS), which vigorously defends ‘Indian culture’. RSS also is the ideological parent of BJP. The SJM went to the press saying the ‘Make in India’ efforts will be undone by joining RCEP, and apart from hitting the small and medium sector, and farmers, it will make out data unsafe. Prime Minister Modi in his speech said, “The present form of the agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It does not address satisfactorily India’s outstanding issues and concerns. In such a situation, it is not possible for India to join the RCEP agreement”.
Indeed, Modi’s complaint was serious. The RCEP was not following the founding principles. One could expect this if China is involved. But two of India’s Quad partners Japan and Australia too are parts of the Bloc, albeit in an indirect way. The mega free trade agreement is originally between 10 ASEAN countries plus 6 of their FTA partners. These countries have made room for India to join later. Whether India will rethink on it is another matter.
Arguably, India’s geopolitical position and economic conditions are against joining RCEP. The export competitiveness of India is questionable. Out of 15 other countries in RCEP, India runs a trade deficit to the tune of $105 billion with 11, out of which $53 billion is with China. The RCEP would have opened up the Indian market making Indigenous companies even more vulnerable; that too, without reciprocity from China which would have increased the trade imbalance.
Secondly, India is not in the best of terms with China, in fact, is in an adversarial position. China is making sporadic claims on Indian territories, meddling in Indian internal affairs, chipping away India’s neighbors. More than any other power, even super powers, China wants other countries like India to be subservient to Beijing or face its economic and military might. This is not acceptable to India with its bigger footprint in international political arena than China.
New Delhi should think of alternative options. It was negotiating a Free Trade Agreement with the European Union. The EU is still the biggest trading partner of India. New Delhi should resume the negotiation and conclude the FTA. Now, in the face of competition from China, the EU will also dilute its position to come to an agreement with India. When Angela Merkel, the German Chancellor was in Delhi, she made it amply clear that EU will be inclined to sign the FTA.
Merkel also made it clear that Germany and European Union would like India to be the political and economic counter-weight to China. She said any trade talks with India will be conducted with the China angle. It is high time India moves fast to do it. European Union is the natural partner of the Union of India, given the similarity of their political and social structures. Also, the EU realises the mistake it has committed by investing heavily in China, whose politics runs counter to the values and ideals that founded the European Union.
The other major power, the only super Power is the United States which has been waiting for India to take a pro-active position vis a vis China in Asian politics. It is India which has been dithering. New Delhi must talk to President Trump, before the end of his first term, to sign a Free Trade Agreement. It is alright to have gala function and extend support to Trump in his next elections, but in return, USA needs to back India to emerge as an equal player with China in the India-Pacific Region.
New Delhi has done, after quite a bit of dilly dallying in regard to China, with all these swing-stroll-and-supper diplomacy, two correct moves; one is not to join China’s Belt-and-Road project, and the RCEP. But that is the start. China will not stop needling India by propping up Pakistan and poaching on countries like Nepal. So New Delhi needs to build its strategic economic and security alliances as soon as practicable.
The next steps, therefore, is moving closer to Europe and United starts and consolidating ties with its time-tested partners like Japan, Australia, and countries in the Middle East. New Delhi needs to also continue its mutually beneficial relations with ASEAN countries. Two of the engagements with ASEAN in the recent past testify that New Delhi can work closely with it. One was when the heads of 10 ASEAN countries attended the Republic Day parade on 26 January 2018 and the same year, Modi being invited as the key note speaker at the Sangri-La dialogue in Singapore, where he enunciated his India-Pacific vision and said it will be ASEAN-specific. ASEAN countries have their own dynamics with China; New Delhi could continue to have bilateral relations with them.
For quite a while, some of us have been arguing for taking a firm stand in regard to China. New Delhi’s recent rebuff to China on latter’s Kashmir concerns, and now pulling out of RCEP indicate that Modi government is nudging itself to do so. One hopes such stance will continue unless China radically changes its expansionist and hegemonic stance.
The writer is Prof. International Politics, JMI