Back out of RCEP – an insightful decision

India has been pro-actively, constructively and meaningfully engaged in the Regional Comprehensive Economic Partnership (RCEP), a proposed largest free trade agreement negotiations since inception with fifteen counterparts, ten ASEAN countries and their five FTA partner countries. But India has decided not to join the RCEP agreement as India’s concerns not being addressed in the deal. In the new world order of globalisation, separating from that and isolating from the neighbouring countries for the long term is not a wise decision. From the last five and a half years, the present government has achieved many milestones in the strategic diplomatic relations. India being a part of the RCEP negotiations from the beginning the other fifteen countries get into the agreement without India makes a black shade on diplomatic relations.

It is wise to decide, not joining the agreement now, because India had concerns. These concerns cannot be addressed by anybody else rather than us. We need to have a strong insight on the Domestic issues, where underdeveloped countries and developed countries are keen to be part of the agreement. We need to remember in one decade older ASEAN free trade agreement could give a marginal growth of 15% till today where 20% population is been increased in these countries.

What are our concerns?

India is facing a challenging economic environment. Many of the sectors including manufacturing are struggling. As a result, there are difficulties in creating enough jobs to keep new entrants to the workforce employed. Our products and services are still not competitive enough to get the benefit of partner countries comparing to China, South Korea and Japan. We have to adopt distinct production technologies to increase the productivity and quality towards competitive enough, similarly, the service industry should mature and adopt international standards. Agriculture, the biggest contributor to the total GDP of our country which is 18% and provides 50% of employment of total workforce showed a decline in GDP in the past decade.GDP from Agriculture in India decreased to 4335.47 INR Billion in the second quarter of 2019 from 4860.94 INR Billion in the first quarter of 2019. Imports to India tumbled declined 13.85 per cent over a year earlier to USD 36.89 billion in September 2019, as purchases went down for coal, coke & briquettes (-23.96 per cent); petroleum, crude & products (-18.33 per cent)

India having bilateral free trade pacts with ASEAN, Japan and Korea in this decade. But India could not make a better yield, in fact, the trade deficit increased from 1300cr dollar to 2200Cr dollar in 2018-19 considering the previous year with ASEAN. But we have not reviewed the reasons not to encash the benefit of these pacts. And the trade deficit with China increased five billion in the last four years. But in this situation also India can console that out of 15 countries we have a bilateral free trade agreement with 12 countries, so the chance of losing the opportunity with East Asian counties are baseless. The recent trade war between US and China in these days increase the opportunity for India. Export in India reached an all-time high of 32550 USD Million in March of 2019 where 15% is to the US and last six months the export increased 750 million USD to the United States. We need to tap the markets where Chinese been rejected. A nationalist government need to address these issues before getting into any agreement which could adversely affect the major GDP contribution. Hence India walked out from the RCEP agreement.

In addition, the data released by the National Statistical Office (NSO) on 11th November showed that the country’s industrial output dipped to its lowest level in nearly 8 years. This is due to the sharp contraction in capital goods, manufacturing, mining and electricity sectors. The capital good sector which is the main component of Industrial activity, fell 20.7% during September compared to 6.9% in September 2018. The manufacturing sector fell 3.9% during the month compared to an expansion of 4.8% while the mining sector declined 8.5% in September compared to a 0.1% expansion. These data again strongly supporting the country’s decision to stay away from RCEP.

India needs to address the domestic issues related to competitiveness in the manufacturing segment and the agriculture industry as unpredictable climate changes provide huge uncertainty to farmers. Apart from this the revolutionary steps in service industries by both central and state government to exploit the maximum benefit of the free trade agreements.


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