Our government’s decision to stay out of the Regional Comprehensive Economic Partnership (RCEP) has drawn near-unanimous support from political parties and organisations representing farmers, traders and industries. It is clear recognition that Indian producers will find it difficult to cope with increased import, especially of dairy products from Australia and New Zealand and manufactured goods from China.
In the early ‘90s, the minority government of Narasimha Rao decided to join the World Trade Organization (WTO). This was despite strong opposition from other political parties, sections of industry and farmers. Later, the coalition government of Vajpayee decided to remove the quantity restrictions, despite widespread apprehension about a surge in import to the detriment of domestic producers. Those governments were weaker than the present Modi government that commands a majority in the Lok Sabha. Our economy was also much weaker than now.
As it turned out, Indian business coped with the challenges and became more competitive. That because those decisions were accompanied by several other reform measures. Overall, the economy benefited through globalisation, with increased export and higher growth rates.
Our economy has become more robust but other economies have become even stronger. China, in particular, has built huge manufacturing capacities to reap the economies of scale. Even smaller countries like Vietnam and Bangladesh have become more competitive in some sectors, like textiles. In comparison, our competitiveness has got eroded in a number of products, mainly due to lack of enough meaningful reform in the past 15 years. Our exports have remained stagnant for six years, clear reflection of our inability to cope with increased competition in international markets.
Second, Indian producers have not been able to exploit the better market access that Free or Preferential Trade Agreements gave. While, other countries have taken better advantage of the increased access to Indian markets that they got under these agreements. India ran a merchandise trade deficit with 11 of the 15 other RCEP members in 2018-19, totalling $107.3 billion. Around 34 per cent of India’s import came from this region, while only 21 per cent of our export went to there.
Third, the WTO agreement mainly opened the manufacturing sector but did not do so as much for the farm sector. It also gave flexibility to raise tariffs within the bound rates and sufficient transition time for developing countries. RCEP threatens the livelihoods of farmers in the dairy sector and also allows less flexibility on tariff adjustment.
Fourth, the current economic slowdown and the way the economy has been managed in the past few years have dented the confidence of farmers and business people alike. Many entrepreneurs and businessmen are edgy about government agencies hounding them, partly explaining their reluctance to invest. Many are weary that we have a strong government but a weak economy.
All these factors have contributed to the doubts about our ability to reap the benefits under RCEP. The government has said it is not averse to joining RCEP if its concerns are addressed. Some RCEP members are also keen that India joins. However, unless Indian producers gain confidence that they can take on the competition, it is unlikely the government will change its decision.
via RCEP outcome shows our lack of confidence | Business Standard Column