Prime Minister Narendra Modi has said his conscience, as guided by “Gandhiji’s talisman”, does not allow him to sign the Regional Economic Cooperation Agreement (RCEP), the largest free-trade block covering 50% of the world population and over one-third the size of global GDP and trade.
It could be argued that the prime minister is merely invoking Mahatma Gandhi to hide deep, structural weaknesses plaguing the economy and doesn’t feel confident at all about deriving benefits from the free-trade block. If truth be told, India’s rhetoric and hype about being a major economic power is not matched by the reality on the ground. This poses a deep dilemma to India when it is confronted with situations like the offer to join RCEP, which must theoretically benefit everyone.
The logic of the Goods and Services Tax creating a common market, enhancing efficiency and productivity across 29 India states, also applies to creating free-flowing trade in goods and services across 16 Asia-Pacific economies, where real incremental growth will be visible over the next 20 years. Even if one agrees with the decision not to join RCEP at this stage, it is equally important to honestly go into the reasons why India doesn’t feel confident that RCEP will benefit its farmers, informal sector workers and small and medium industries who are most vulnerable to economic globalisation, which by all accounts produces net gains but distributes them unevenly.
Indeed, it is a pertinent question whether Gandhiji’s talisman has really guided the prime minister and his government to create domestic policy reforms to strengthen India’s farm sector, MSMEs and the millions of self-employed service providers who move from state to state seeking jobs. These are the most vulnerable sections, and any free-trade agreement must benefit them.
Indeed, India today is caught between its rhetoric and the harsh reality like never before. The BJP’s rhetoric, based on deceptive calculations, is that farmers’ incomes have doubled in the last five years. If so, why is the prime minister invoking Gandhiji to suggest farmers are vulnerable? The point is rhetoric and “jumlas” work in domestic politics, where it is easy for the ruling party and its leaders to twist and turn data to show “all is well” with the economy. And it is even easier, given the state of the opposition parties, for Modi and his massive PR machine to divert attention away from economic distress to hyper nationalism around Kashmir and the National Register for Citizens.
However, when Modi sits with the top leaders of 15 Asia-Pacific nations, with China in the lead, all the hype around our economy doesn’t help and decisions have to be made based on the realities facing our 1.3 billion people. Then Mahatma Gandhi comes to the rescue!
But the question, is how long with this self-deception continue? It is here that Modi needs to show strong leadership and tell world leaders that India is not afraid to be part of the largest free-trade block in the Asia-Pacific, and yet protect its vulnerable farmers and small businesses. Unfortunately, as of now India is doing neither. This is the most tragic aspect of India staying out of the RCEP.
It will be wrong to prematurely celebrate our isolationist approach. True, the opposition parties, Swadeshi Jagran Manch and many others who rejected RCEP – some even for the right reasons – will claim victory in pushing Modi into invoking Gandhiji’s talisman.
But even Gandhiji would not advocate a permanent state of isolationism in global engagement. The notion of “Vasudaiva Kutumbakam (the world is one family)”, which our political leaders and public intellectuals have peddled ad nauseam, can be built based on fair and equitable rules of the game, which is the natural operating principle of any large family.
For this, the government must work with much greater vigour and sincerity to strengthen the domestic economy and enable its vulnerable sections – small farmers, self-employed entrepreneurs and micro/small industries – to compete globally.
In this context, some of the issues India has raised at RCEP are valid. India’s farm and diary sector is most vulnerable today and needs nothing short of a transformation to be able to compete globally. Other nations in RCEP such as Australia, New Zealand and Malaysia have managed to greatly enhance competitiveness in farm, edible oil and diary products. Compared to them, India is yet to create economic competitiveness in the farm sector, which is currently driven by survival economics.
India can buy time to open up the farm sector, and this can be achieved in the structured bilateral dialogue between India and China decided at the recent meeting between Xi Jinping and Modi. The structured interaction between the Indian finance minister and Chinese vice-premier is to address the skew in India-China trade and the massive and rising trade deficit, which has reportedly crossed $70 billion.
India sees China as the key threat within RCEP and fears China will dump goods into India by circumventing rules of origin and thus hurt our small businesses. If truth be told, some of this is already happening via third countries like Nepal.
One way to deal with China is to attract massive Chinese investments in joint ventures with local businesses, and thus create domestic employment and exports out of India. One thing we often forget is that trade is driven by investments in a big way. India is a big auto exporter because global auto companies, starting with Suzuki, set up base in India in the 1980-1990s and created an auto hub. This is one big success story demonstrated by India. Why can’t this success story be replicated, with some Chinese companies in new products and technologies where China is a global leader?
The other major flaw in RCEP, of course, is that trade in services – especially movement of skilled and semi-skilled workers – which is India’s biggest strength, is getting sequentially backloaded. India has a vast pool of self-employed entrepreneurs in both the blue- and white-collar spaces. Work visa access to them is a necessary condition of any free trade agreement in goods and services. This is a political issue which gets aggravated in times of nationalist populism. This instinct must be curbed by all nations when agreements like RCEP get discussed. India must also be careful to not stoke such sentiments in its domestic politics.
Overall, agreements like RCEP require a certain rational temperament and mutually evolved notion of surrendering some of the economic sovereignty by each nation for the larger benefit of half the world population. This can happen only if domestic politics and economies of these 16 nations are aligned at some level. Creating such alignment requires a high degree of statesmanship, especially on the part of populous nations like India and China.
Finally, it is very easy to stay out of such arrangements and carry on with ones ways. In fact, China used its entry into WTO, in the early 2000s, to create reforms and transform its economy’s competitiveness. India also has a chance with RCEP, provided it is sincere about such a transformation. True, India is unprepared at this juncture and it must take its time to think about how it wants to approach RCEP. But simply staying out will be a lazy act if ever there was one.