After much speculation regarding its stand on the Regional Comprehensive Economic Partnership (RCEP), India on Monday decided to hold off on signing the agreement. The 16-country partnership accounts for a third of the global gross domestic product (GDP) and a half of its population, which would have made the pact the world's largest free trade agreement (FTA) but for India’s refusal to sign it.
Announcing India’s decision at the Asean Summit in Bangkok, Thailand, Prime Minister Narendra Modi said: “The present form of the RCEP Agreement does not fully reflect the basic spirit and the agreed guiding principles of RCEP. It also 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."
The RCEP comprises of the ten South East Asian countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam — plus China, Japan, South Korea, Australia, New Zealand, and India.
The pact, which is likely to be signed in February 2020, will now have the 15 nations minus India.
Why didn’t India sign it?
The RCEP aims to remove trade barriers, including tariffs and duties, among its 16 members for a seamless flow of goods and services. However, at a time when India is going through an economic slowdown, the signing of the pact could have put further strain on an already struggling economy.
In the lead up to the events of Monday, India’s potential signing of the agreement had raised much consternation domestically. The manufacturing and farming industries had raised concerns about lack of trade protection when cheap imports from China would have flown into the country with even fewer barriers. India already runs a $50 billion trade deficit with China and RCEP would have stretched the chasm even wider.
India’s concerns for protection for its domestic industries were not adequately answered leading to it pulling the plug.
Farmers' organisation All India Kisan Sangharsh Coordination Committee (AIKSCC), which had railed against the RCEP, expressed satisfaction about India’s decision.
"AIKSCC is happy that good sense has prevailed on this government and its decision to barter away the lives and livelihoods of crores of farmers, workers and small businesses has been averted," AIKSCC convenor VM Singh was quoted as saying by IANS.
The Swadeshi Jagran Manch (SJM), the economic wing of the Rashtriya Swayamsevak Sangh (RSS), had relentlessly tried to dissuade Modi from signing the pact. SJM’s national co convenor Ashwani Mahajan said that the move was in favour of Indian economy.
“We welcome the PM’s decisions and congratulate him for taking such a bold move that is in favour of the country and its economy,” Mahajan told the Hindustan Times. “The decision to not go ahead (by signing the agreement) will boost Make in India, which has been a flagship scheme of the government to give a fillip to production as well as employment,” he added.
The RSS is the ideological parent of the ruling Bharatiya Janata Party (BJP).
What comes next?
At a time when trade protectionism is on the rise with countries increasingly looking inwards, led by the Donald Trump administration in the United States with its fondness for imposing punishing tariffs, especially on China, the RCEP appears to be China’s bid to protecting its interests.
However, India’s refusal to sign the pact significantly weakens the RCEP depriving the other member states of a massive market.
Despite India’s last-minute refusal, the door remains open if it decides to become part of the agreement in the future.
An RCEP statement said: “India has significant outstanding issues, which remain unresolved. All RCEP participating countries will work together to resolve these outstanding issues in a mutually satisfactory way. India’s final decision will depend on satisfactory resolution of these issues.”
There have been voices of discontent at home as well on the government’s stand.
Arvind Panagariya, former vice-chairman of the NITI Aayog, has said that India has a lot to gain from joining the RCEP if it can negotiate better terms.
“Whatever I have read in the press, it appears that there are a number of things which have not yet been addressed. So, if that is how it is and we eventually join RCEP it is a good thing because we will join with better terms but if the eventual outcome is we chose not to join RCEP at all then that is not a good outcome,” Panagariya told CNBC-TV18 in an interview.
He added: “I remain firm in my belief that ultimately we have to join this group as there is a lot for us to gain from it.
“From India’s point of view this agreement can be a very big catalyst to attract a lot of multinationals to its shores because it then gives them access to markets in India as well as in China.”
First Published: IST