Prime Minister Narendra Modi’s decision not to sign the Regional Comprehensive Economic Partnership (RCEP) agreement is a welcome step as India is not yet prepared to join the world’s largest trading block even though it deprives India favourable market access in the region.
RCEP is a free trade agreement in the Asia-Pacific region between the ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philipines, Singapore, Thailand, and Vietnam) and their five FTA partners (Australia, China, Japan, New Zealand and South Korea).
It is clear that the prime concern of the government was that RCEP would have an adverse impact on the Indian economy, which is passing through one of the worst slowdown. Almost all economic indicators are down. In India, manufacturing industry associations, service sector and farmer organisations were opposed to any move to sign the agreement. India’s agriculture is passing through a lot of stress. It needs right kind of policies and infusion of lot of funds to compete globally.
We are still far behind in farming and diary sector than many countries. India can’t compete with them in an open market. Similarly, India doesn’t stand anywhere close to China in manufacturing sector. The government brought up its ambitious make in India initiative in the last tenure. However, it didn’t produce the desired results.
At the most, what Indian companies did was to assemble mobile phones that has Chinese components. Only branding was Indian. No wonder, there is a trade deficit of $70 billion with China. What we buy from China is mainly high tech electronic and engineering goods, while we export is primarily raw material.
In such a situation, there is a real threat of China dumping goods in India. It would be a big challenge to protect domestic companies if India signed the RCEP. If India wants to become a manufacturing hub, the government will have to create an environment that is conducive to big investments. Real manufacturing requires strong R&D.
The government can follow China’s example that became a manufacturing hub through joint ventures with the global giants. First, China made it mandatory for the foreign technology giants like Alcatel, Nokia, Ericsson to set up their manufacturing units in China if they wanted to supply to Chinese telecom operators. When its manpower gained enough experience, China focused on research and development and as a result there were global giants like Huawei and ZTE.
Provisions related to the services such as movement of skilled and semi-skilled workers doesn’t suit India. It is important that all the nations should agree to free movement of workforce within member nations.
In a nutshell, it was a good decision to move out of RCEP. However, the reality is that India should have been prepared to join such an important group and exploit its full potential. Only then it can meet its aspirations of becoming a global economic super power.