Jammu and Kashmir, economic slowdown could push India to sign RCEP

The final part of the series looks at how situations at home are putting pressure on the Modi govt to deepen its economic diplomacy

Over the last couple of months, Singapore has held symposiums in Mumbai and New Delhi to swing the mood among Indian policymakers and industry to sign on the Regional Comprehensive Economic Partnership (RCEP) of 10 ASEAN countries with its six free-trade agreement (FTA) partners — India, China, Australia, New Zealand, Japan and South Korea. 

In November, India and the other nations will have another go at signing the trade agreement in Singapore, a meet which will be attended by Prime Minister Narendra Modi as well. The odds of India signing up are favourable because, contrary to its uncertain attitude last year, this time India has an added political reason to come on board. After the recent developments in Jammu and Kashmir, a deeper economic engagement with key nations could give it more bargaining chips with the international community.

India did not sign on the RCEP at last year’s meet in Singapore purely on economic grounds.  

Economic doldrums at home are also putting pressure on the Modi government to deepen its economic diplomacy. Even though commerce minister Piyush Goyal skipped the RCEP preparatory meet in Beijing in early August —  India was represented by commerce secretary, Anup Wadhawan — the situation has changed considerably since then.

Amitendu Palit, Senior Research Fellow and Research Lead at the Institute of South Asian Studies, National University of Singapore, said India risks being absent from key economic forums if it does not get into trade deals. In an increasingly fractious world, trade blocs represent more than pure economic interests, he said, adding, “India’s ambitions of being a major power and contributing meaningfully to global and regional affairs depends largely on the links it develops.” 

Dr Rajeev Kher, Distinguished Fellow, Research and Information System for Developing Countries, agreed. Pointing out that countries were increasingly using trade policy as a geo-strategic tool, Kher said, “India should focus on joining new coalitions and develop a stance that serves its own interests beyond just WTO.” 

Incidentally, the finance ministry has begun a review of some of India’s trade agreements, a task usually considered to be the turf of the commerce ministry. 

Take the Asia Africa Growth Corridor (AAGC), India’s agreement with Japan to invest jointly in Africa and other continents. India has an interest in keeping it alive even though Japan has not shown much enthusiasm for it from the time it was signed in 2016. The Australian government has again sent feelers to India to resume negotiations on the mutual free trade agreements, said a source in Canberra. Without deals like the AAGC or the RCEP in its pocket, India risks remaining isolated from major economic alignments.

A report by S&P Global Ratings says that the stand China, India and Indonesia (who have so far been RCEP outliers) take in the next few months will determine if “Factory Asia” will prosper. “The months ahead may tell us whether policymakers in the region are moving to bolster or undermine Factory Asia, the world's largest beneficiary of production sharing,” notes its publication, “What To Watch On Trade”.

For India, domestic industry remains a stumbling block to international trade deals, because the latter has no reason to back the government on signing the RCEP or any other trade agreement. And yet sections within the government recognise that domestic industry has not exactly been able to utilise their space to make significant strides in the Make in India programme. 

Besides, in the absence of mutual deals, preferential trade arrangements alone have not succeeded in raising India’s volume of exports. Commerce ministry data shows that excluding USA, exports to the seven countries with which India has preferential trade arrangements, including Australia and the EU, have risen by only 1.57 per cent in the last five years.  

A way out for India could be to sign on to the RCEP’s chapters on goods trade while staying away from the agreement on services. In Beijing, Wadhawan made the point to all the trade partners about skewed trade relations in services. His said that expansion of the services trade will support both goods trade and investment. To Thailand, his exhortation was to improve its offer in goods and services, while he urged Singapore to support operationalisation of the mutually agreed standards on nursing.

Palit of Singapore’s Institute of South Asian Studies said that if RCEP trade talks prove to be difficult, India should explore trade arrangements with Russia and central Asia as these could become examples of geopolitical engagements enabled by economic efforts.

Series concludes