Mega free trade agreement likely to be a closed chapter for India

Examining instead Japan-India-Australia Supply Chain Resilience Initiative for free, transparent trade and investment

The Indian government does not expect to sign the Regional Comprehensive Economic Cooperation (RCEP) agreement ever, despite the open invitation from the 15-member group.
 

“We see more value in the trilateral Supply Chain Resilience Initiative (SCRI) to cut our dependency on China,” said a top government source commenting on the signing of the RCEP on Sunday.
 

“We are not going to stay out of a trade bloc,” the source said. India shall not, however, issue any statement on the signing of the RCEP deal. It is quite a political distance from last year when at about the same time in November, Prime Minister Narendra Modi was at Bangkok till almost the eleventh hour before pulling back from the deal. He explained his reasons for the pullout on unmet “significant outstanding issues”.
 

“Politically and economically, RCEP is a finished chapter for India,” said Rajeev Kher, former commerce secretary. India has gone further ahead with the announcement of production-linked incentives (PLI) for 13 sectors that clearly entail offering them protection from imports by a ring of duties, he said.
 

Last week, Finance Minister Nirmala Sitharaman announced the extension of the PLI at a financial commitment of over Rs 1.45 trillion (about $20 billion). “We have now clearly set on an industrial policy that makes it impossible to examine RCEP with any interest,” said the government source.
 

India is instead examining the SCRI proposals keenly as an alternative. The SCRI mandate is to create a trade environment for the signatory countries that is “free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment and (keeps) markets open”. Though it is still at a nascent stage, SCRI — promoted by Japan and endorsed at a virtual session between India, Japan and Australia — is clearly aimed as a trade bloc to counter China. These countries have invited other nations in the region to join it.
 

Being the world’s fastest growing region that includes China, India and Japan, besides the ASEAN nations, a fight for establishing a dominant trade bloc is a key development theme for Asia. The RCEP members account for about 29 per cent of the global GDP.
 

SCRI, too, will not be an easy option for India. “We have continuing difficulties in simplifying our logistics, land and labour costs,” said the government source.
 

The government will, however, study with interest the draft proposals that Japan sends and expects it will encourage inward investments into India without having to undertake significant tariff concessions.
 

Kher said it is impossible to even expect India to sign any economic deal that includes China, going ahead.
 

Under the open invitation the 15 countries have offered, New Delhi can join the agreement at any stage in future. But it will have to fast-forward cuts in tariff. This means that if hypothetically India were to join the RCEP in 2022, it can do so but it shall have to match the lower tariffs already achieved by the other countries by then.
 

The former commerce secretary said this will make mincemeat of India’s promise to companies that offer to set up production base under PLI here. The rough political equation with China means offering such concessions shall be politically suicidal, he added.