Domestic political concerns drive New Delhi’s decision on RCEP

By Mao Keji Source:Global Times Published: 2019/11/5 19:18:41

Photo: IC

India on Monday decided to opt out of the ongoing RCEP negotiations at the RCEP summit in Bangkok, Thailand. Given its previous reluctance for this trade pact, its decision is not that surprising.

The move is partly driven by India's cost-benefit analysis of its national interests. India's industrial structure and limited state capacity make sure that the South Asian nation can hardly bring itself to undertake the desired reforms through "opening-up" like what China did in the past. 

So far, India has signed free trade agreements (FTA) with several countries or groups and is one of the top countries in Asia with the maximum number of FTAs. However, India's trade deficit with its FTA partners has been growing. 

Take India-Korea Comprehensive Economic Partnership Agreement. Indian imports from South Korea have surged faster than imports from the world, while the growth rate of exports to South Korea has been much slower than India's overall exports. This has led to a considerable increase in India's trade deficit with South Korea from $5 billion around 2009 to $12 billion in 2018-19. 

This has alarmed decision-makers in New Delhi as well as the ordinary people who fear that RCEP will cause damage to India even to a greater extent because of China's participation. 

India's domestic politics also plays a key role. The recently concluded assembly elections in Maharashtra and Haryana states have shown that the support base of the Bharatiya Janata Party led by Indian Prime Minister Narendra Modi has shifted somewhat toward urban centers. This means that employment and industrial development have now become more important goals for the Modi administration. When the government is unable to address the concerns of those who benefit from an FTA and those who suffer losses because of it, avoiding the RCEP is a safe choice. After all, unemployment and low industrial growth have badly hit India's urban economy. 

In addition, on the RCEP issue, Modi has faced joint opposition from the rightist Rashtriya Swayamsevak Sangh and its affiliate Swadeshi Jagran Manch and center-left Indian National Congress and the leftist Communist Party of India. 

Both sides have held protests against the Modi administration signing the RCEP. While the RCEP has been highly politicized, economic benefits and long-term interests count for little. The RCEP is an international issue, but Modi's decision not to join by catering to public demands turns it into a purely domestic farce.

Nonetheless, without India's participation, the RCEP is still the world's largest free trade zone and the remaining 15 countries can negotiate and set an example where nations with different systems can cooperate and coordinate in economy and trade.

If India cannot join the RCEP under an administration led by a leader as strong as Modi, there is hardly any possibility of India joining any free trade partnership of this kind in the future. 

India has wasted the opportunity to integrate into the industrial ecological system of East Asia at a low cost as a founding member of the RCEP, so Southeast Asian countries may well further squeeze the industrial spaces that could have been taken up by India.

India and the US have been embroiled in trade disputes for months that have led to tit-for-tat tariffs. India also views the RCEP as a "China-led" trade alliance. It is possible that New Delhi uses its decision to quit the RCEP as a bargaining chip in trade negotiations with the US and approach Washington by putting the US above RCEP on trade deal. 

The author is a distinguished research fellow at the Institute of India Studies, Yunnan Academy of Social Sciences.

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