RCEP : Was INDIA right in leaving the Deal … ?????

REGIONAL COMPREHENSIVE ECONOMIC PARTNERSHIP (RCEP) an agreement India was having Discussion over a long time that whether India should get into the deal which already has CHINA and ASEAN Nations . Our honourable prime minister while leaving the deal said ” When I measure the RCEP Deal with respect to all Indians I do not find a positive answer so neither the GANDHIJI’s Talisman nor my own conscience allows me to enter into it ” .

BJP was high in praising the move terming it COURAGEOUS and said it will boost MAKE IN INDIA as India’s entrance could have been Detrimental for it . But how right or wrong this statement is and whether we should have entered into it or not . Let’s discuss it with the help of arguments and counter arguments and then finally conclude the result .

Basically this deal is kind of a Free Trade agreement which will allow all the members countries to easily export it’s products in other members . What India is fearing that countries like CHINA will easily dump away their exports in our countries which will badly hurt our local producers specially the small ones . Already India’s trade deficit with the RCEP Members is $105 billion with $54 billion alone from China without entering the deal so just imagine what it could be after we entering into it . But on contrast if we look at the ECONOMIC SURVEY 2015-16 clearly says that the FTA’s we have with ASEAN nations is very successful and the industries included in here have seen exports rising by 23% as compared to only 13% of industries who weren’t a part of it . So although we are having a deficit but still we are exporting as much as we have never been able to .

On the other hand when India looked for assurance from other sides that they won’t abuse the deal and that Indian markets are not flooded by imports in just one go it didn’t got any of such . It feared Free trade agreement doesn’t amount to free trade . E-Commerce and trade remedies were other unsatisfied areas . It also said that earlier India has done this mistake . Poorly negotiated deal under UPA ; exploring IND-CHINA Free Trade agreements (FTAs) in 2007 and joining RCEP negotiations in 2011-12 increased India’s deficit with RCEP nations from $7 billion in 2004 to $78 billion in 2014 . Even tougher negotiations were in front of us when we entered in WTO , our agriculture sector was under threat to be dumped by foreign products and even our service sector was not getting permission to enter foreign markets . But we were successfully able to work out all negotiations at that time . Main reason we were not able to do so this time was that we weren’t prepared enough .

How can we forget that from the time we embraced the big reforms from 1991 , we saw a high surge in growth rate averaged around 6% and also over 8% at times . Before that when we used to have protectionist policy we never saw growth higher than 2-3 % . Also , India entered WORLD TRADE ORGANISATION (WTO) in 1995 , then also similar arguments were coming that how will our domestic industries compete and our farmers will be badly hit but we look at data between 1995 to 2016 India’s share in agricultural exports increased from 0.4% to 2.2% , so instead of dampening our agriculture liberalization made us more competitive . When foreign banks entered many feared that our banks will perish but exactly opposite happened and banking sector improved drastically .

This deal involving over one third of world’s economy and half of the population (All ASEAN Nations) , New Zealand , Australia , China , Japan and South Korea . Unlike unilateral trade agreement , FTAs leads to both trade creation and trade diversion ; where the former one is very clear the latter one diverts Imports from efficient non-members to the members at lower tariff rates . Trade increases as a whole only when trade creation exceeds trade diversion . But according to our prime minister it failed to address India’s outstanding issues and concerns nor did it reflected the principles and spirit RCEP was originally set upon . He said that India had been always been sincerely and constructively engaged in the negotiations for cherished objective of striking balance in the spirit of Give and Take but if the issues and concerns present in Negotiations are not solved India will not enter it . In simple words the argument was other nations will easily dump their products in India but we won’t get that level of access to other countries .

India already has FTA’s with 12 RCEP nations and it also has individual FTA’s with 3 of ASEAN Nations (Thailand , Singapore , Malaysia) so clearly getting in the deal would have lowered barriers only against NZ , AUS , CHINA . They were the ones India feared the most as they are very labour intensive nations and can wipe out Indian manufacturers . BUT , one point everyone is missing out here is that every FTA has a SAFETY VALVE which allows triggering for temporary protection against imports that leads to loss of output and employment in the country . During this period the injured industry is restructured to make it face international competition . So if India was not able to get the standard escape clause it’s a big failure of India’s trade negotiation .

It’s definitely a big failure of our Negotiation , our foreign policy as we were not able to put our conditions and assure security from Blind Dumping of China . Another fear was that why China is so busy in persuading us to join the deal is that they want to make up over all the loss it’s incurring due to it’s Trade War with USA by dumping everything in India at much cheaper tariffs . Yes I do accept that China was trying to act smart but we should have been the one OVERSMARTING them . But these were the things that we needed to negotiate upon , China came with much better preparation than is on this one .If we have to be the largest economy we can’t give the excuse that China can dominate us and how will we compete . India specially under MODI Government is known for it’s aggressive foreign policy , so despite being the second biggest economy of Asia we are staying out of such a big Trade Block . By doing so we have easily served almost the whole Asian economy to China .

One more startling fact which we must keep in mind is that the best performing industries in India are the ones which have opened up for foreign competition and among top 10 industries 5 are manufacturing ones and the ones who have opened up . So it’s a purely misleading fact that opening up our market hampers us . If we will never allow ourselves to compete with the outside world how will we ever grow . Competition always improves your performance . Take all the industries which are not opened up for foreign competition we will find that these are the ones who are most backward ones as well .

Another argument was that if even milk and it’s products start coming from outside (New Zealand who is a big Diary producer) where will our domestic producers go if milk starts getting sold for 20-25 (in contrast to cureent 45-50) . But , here only lies the answer . INDIA is the largest milk producer in the world but also the most expensive seller of that . Milk Inflation is the highest in our country . If we are the largest producer why the price is so high it should have been lower as our dairy industry is quite mature and experienced now .

The reason is the MONOPOLY power of the Cooperatives , it’s these industrialists who benefit the most out of it not the farmers because farmer’s income hasn’t increased including dairy ones . If we allow foreign competition not only we will be getting same if not better product at lower price but also we will witness some never seen products . Yes , there are over 100 dairy products being made (NZ has specialization) while all we ever see is the same Milk , Curd and 2-3 more . These products are not even made in India then how it’s import will hurt us . Opening up would have also modernised our dairy sector . Not only industrialists wouldn’t have been able to earn profits sitting on our shoulders but also milk will reach put to all sections of society at much affordable rates .

ARVIND PANAGARIYA the retired NITI AAYOG vice chairman of the country who resigned last year has purely claimed that the high growth rate that we were able to attain was majorly due to Globalization , out of 8-9% credit of 4-5 % should go to the fact that we opened our market . ARVIND SUBRAMIAN the economic advisor of country who resigned last year was also continuously stressing for India to liberalize .

Even this government only gave the statement in last Dec-Jan that RCEP is a great deal as it will help our small domestic industries to enter ASIA’s market . But NaMo knows what suddenly changed their mind so much . Perhaps , the domestic Lobbies and big industrialists made pressure as they didn’t wanted to face any competition and keep on charging higher prices . I personally think industries like RELIANCE must been the ones pressurizing the government as they along with AIRTEL and VODA-IDEA are enjoying a similar dominance in Telecom sector . I don’t know whether Telecom was a part of RCEP or not but if we get Telecom options from outside world it will drive down prices at reasonable level .

If we look at it from one more point of view , our growth rate is meagerly struggling at 4.5% which should have been around 9% . If we think that we will be able to reach there just on the basis of domestic consumption we are badly wrong . As I also said above all of our high growth rates were witnessed due to higher exports . Without having a great performance in export sector we can never see this RECESSION ending . And now with even CONSUMPTION falling (first time in almost 50 years) we need to highly make it up with exports .

So , here after so many arguments and counter arguments I rest my case . In my opinion we should have entered into it and even all the Economic Data confirm the same . It’s never too late for something good and India needs to strongly work on this and join the deal . If we never open up , never compete and never test ourselves we will never be able to reach at the world class level . Come on India …. OPEN UP ….. Open Up before it’s too late .



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