In India's RCEP Exit, Domestic Compulsions Sideline Fear of Being Isolated

Opposition to the RCEP in India has been stiff and led by the BJP’s home base.

New Delhi: In the background of intense domestic pressure, India has decided to not sign the Regional Comprehensive Economic Partnership (RCEP) for now. 

Domestic opposition to the RCEP has been stiff and led by the BJP’s home base. The Rashtriya Swayamsevak Sangh’s economic wing – the Swadeshi Jagran Manch – organised a ten-day nation-wide agitation in October against the proposed free trade agreement. 

Farmer and industry bodies also joined the protests demanding that India stay away from signing the agreement. The bodies feared that the influx of cheaper goods from the 16 nations part of the proposed RCEP would lead to local industry and framers being at a comparative disadvantage.

Farmers’ concerns

Farmers and the dairy industry have been a worried lot with the prospect of RCEP. They held protests and even burned the effigy of Piyush Goyal, the minister in charge of negotiations. 

The prime concern in this area was that with RCEP, relatively cheaper milk and milk products from Australia and New Zealand could enter Indian shores and prove a threat to the livelihoods of Indian farmers. 

It was expected that the price of milk could reduce by between Rs 8 and 10 a kilogram if greater access to India’s markets was provided to members of the trade agreement through liberalised tariff rate quotas and phased duty reductions. 

Also read: India Exits Asia’s Mega Trade Pact, Decides Not to Join RCEP Agreement

Minsters within the government expressed reservations about the RCEP. Minister for agriculture and farmers’ welfare Narendra Tomar said in October that the “farmers’ interest is our priority and that must be kept in mind”. Prior to that, animal husbandry minister Sanjeev Balyan had also made the position of the dairy industry clear. 

Industry concerns

In an interview to The Wire, SJM’s national co-convenor, Ashwani Mahajan had said, “When we talk to the industry, we find that they are simply not ready for it. They will not be able to withstand the competition coming from outside. Industries will close.” 

Mahajan had also accused accused Indian bureaucrats of exceeding their brief and negotiating on terms that the political leadership was not keen on.

Manufacturers of appliances, iron and steel, aluminium, electrical machinery, plastic articles and furniture feared that with RCEP there would be increased dumping of cheaper goods into India which would make it difficult for local industry to survive. 

It was also expected that the Indian pharma industry could suffer as a result of a clause which would give more years of patent monopoly to patent holders. 

Concerns were also raised about India’s rising trade deficit with China which could have worsened with the free trade pact. 

Also read: How Consultative Has India’s RCEP Strategy Really Been?

While they haven’t mentioned China, Indian government sources also said that rising trade deficit with RCEP nations was one of the factors which led to India pulling out from the agreement. This government has also blamed past decisions taken during the UPA-era that led to such big deficits.  

“Indian domestic industry is still reeling under the impact of these decisions. Govt. under PM Modi has sought to solve these issues and these negotiations are continuing. It is therefore evident that India could not sign a further unequal deal under RCEP without resolving past issues in previous FTAs including ASEAN and ensuring a strict and fair framework in RCEP,” said government sources. 

One school of thought in this regard argues that India needs to prepare its own game-plan with regard to exports. This includes making  various manufacturing sectors more competitive first, which will then put New Delhi in a place to take better advantage of a mega free trade agreement.

Free trade visions

However, there is also another view on this – the pro free trade view. Well-known economist Arvind Panagariya recently wrote that India should not let the fear of increase trade deficit with China determine the fate of negotiations. 

He has argued that while India does have a significant trade deficit with China, its trade balance overall is healthy and does not have ‘unduly’ high foreign currency debt. 

“In its negotiations, India must also pay particular attention to the benefits it can reap from membership in RCEP through a large-scale movement of multinational enterprises. It is a reasonable expectation that its large domestic market, large pool of labour and relatively low wages would combine to make India a progressively attractive production base for multinational enterprises. Membership in the large RCEP market would multiply this attractiveness manifold for two reasons,” the former vice-chairman of Niti Aayog has noted.

“First, the membership will give multinationals locating in India tariff-free access to the vast RCEP market. And second, movement of inputs without tariffs and other frictions across borders of sixteen member countries would make the multinationals doubly competitive. Such movement is especially important in modern times because supply chain management requires inputs to cross international borders multiple times before being assembled into the final product. If tariff and friction characterise each crossing, costs multiply. ”

 The Confederation of Indian Industry has also recently spoken out in favour of the RCEP. It said that not signing the agreement would ‘hinder investments from many RCEP countries’ and push India back in its efforts to connect with regional and global chains. 

“Not being part of the block is tantamount to not having an even footing in terms of preferential access and losing export competitiveness. This will only harm India’s export and investment flow in the future,” the CII said.