What are the economic implications of India opting out of RCEP?RCEP

15 countries solidified their participation in the Regional Comprehensive Economic Partnership (RCEP). Even as India opted to stay out after walking out of discussions last year, the new trading bloc has made it clear that the door will remain open for India to return to the negotiating table.

Described as the “largest” regional trading agreement to this day, RCEP was originally being negotiated between 16 countries — ASEAN members and countries with which they have free trade agreements (FTAs), namely Australia, China, Korea, Japan, New Zealand and India.

The purpose of RCEP was to make it easier for products and services of each of these countries to be available across this region. Negotiations to chart out this deal had been on since 2013, and India was expected to be a signatory until its decision last November.

Why did India walk out?

On November 4, 2019, India decided to exit discussions over “significant outstanding issues”. According to a government official, India had been “consistently” raising “fundamental issues” and concerns throughout the negotiations and was prompted to take this stand as they had not been resolved by the deadline to commit to signing the deal. It decided to safeguard the interests of industries like agriculture and dairy and to give an advantage to the country’s services sector. According to officials, the current structure of RCEP still does not address these issues and concerns.

What can the decision cost India?

There are concerns that India’s decision would impact its bilateral trade ties with RCEP member nations, as they may be more inclined to focus on bolstering economic ties within the bloc. The move could potentially leave India with less scope to tap the large market that RCEP presents —the size of the deal is mammoth, as the countries involved account for over 2 billion of the world’s population.

Given attempts by countries like Japan to get India back into the deal, there are also worries that India’s decision could impact the Australia-India-Japan network in the Indo-Pacific. It could potentially put a spanner in the works on informal talks to promote a Supply Chain Resilience Initiative among the three.

However, India’s stance on the deal also comes as a result of learning from unfavorable trade balances that it has with several RCEP members, with some of which it even has FTAs. An internal assessment by the government has revealed that the growth in trade (CAGR) with partners over the last five financial years was a modest 7.1%. While “there has been growth rate in both imports from and exports to these FTA partners”, the “utilization rate” of FTAs both for India and its partners has been “moderate” across sectors, according to this study, which covers pacts with Sri Lanka, Afghanistan, Thailand, Singapore, Japan, Bhutan, Nepal, Republic of Korea and Malaysia.

India has trade deficits with 11 of the 15 RCEP countries, and some experts feel that India has been unable to leverage its existing bilateral free trade agreements with several RCEP members to increase exports.

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