homeviews NewsTo be or not to be: Decoding India’s trade agreement dilemma

To be or not to be: Decoding India’s trade-agreement dilemma

To be or not to be: Decoding India’s trade-agreement dilemma
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By Kartik Malhotra  Nov 7, 2019 1:50:49 PM IST (Published)

For once, the government and the opposition are speaking the same language. But to a student of economics, this language will need considerable translation.

Prime Minister Narendra Modi has dodged the RCEP bullet stating that in its present form, the partnership does not address the concerns of India. He also quoted the Mahatma, stating, “When I measure the RCEP agreement with respect to the interests of all Indians, I do not get a positive answer. Therefore, neither the Talisman of Gandhiji nor my own conscience permits me to join RCEP.”

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For once, the government and the opposition are speaking the same language. But to a student of economics, this language will need considerable translation.
There’s no denying that any partnership must be mutually beneficial to all signing parties, even though arriving at a win-win solution is often utopic. There are tradeoffs to be measured with an eye on the long term rather than taking a myopic view of immediate returns.
For India, the long-term vision must be to enable all sectors of the economy to transform themselves into globally competitive ones. Those unable to play the international cost and quality game have no business of being in business. Protectionist policies will yield protectionist returns.
External threat or internal weakness?
If India’s concern is China undercutting our export potential, then well, China has already won that hand. It leads in export of aluminum and ferrous iron as well – a key sector for India’s domestic and global supply.
If it’s about cheaper goods flooding Indian markets, then we are no closer to winning that round with or without RCEP. Increasing import duties – one of the areas of negotiation between RCEP and India – will only leave the domestic industry reeling under a high production cost, low innovation regime. Consumers will also stand to lose for lack of choices.
By not signing RCEP, we’ve just distanced ourselves from the world’s largest trade bloc that contributes a third of global GDP. While this increased economic distance from China possibly results is a reduced political distance with the USA – the tradeoff must be statistically analysed before lauding or condemning the decision.
No deal not a first for India
India’s farm sector is heavily subsidised. A strategy that no government has challenged because it keeps inflation, supply and votes under check. India’s grouse with the WTO in Doha and Cancun in the early part of the millennium during the Vajpayee-led NDA government was also on farm subsidies. Then commerce minister Arun Jaitley was unequivocally appreciated for standing ground amidst western pressure to stand off the threat to India’s agriculture.
In September 2003, at the fifth WTO Ministerial in Cancun, Jaitley had said “The legitimate concerns of the billions of farmers in the developing countries, most of them earning less than one dollar a day, cannot be sacrificed to maintain profits of a few millions elsewhere through $1 billion subsidy per day.”
But what if Jaitley had not stood off the ‘threat’? Could India have progressed towards a globally competitive farm sector in the 15 years that followed? Could the savings on subsidies have prompted the genesis of modern agriculture technology for Indian farmers?
Decisions are right or wrong only in hindsight. As India must protect its domestic interests at global stages, it must, simultaneously, take a long-term view of making all areas of economic activity stand on their own feet.
RCEP or no RCEP – India will have to pull all the stops to make every sector of the economy globally competitive to stand off the vagaries of time.
Kartik Malhotra is Senior Executive Producer and Editor, Special Projects at Network 18. He is an alumnus of IIM Lucknow and, when not behind the camera, indulges in armchair analysis of strategy, technology and economy.
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