IASbhai Daily Editorial Hunt | 23rd Nov 2020

“Even if you fall on your face, you’re still moving forward.” – Victor Kiam

Dear Aspirants
IASbhai Editorial Hunt is an initiative to dilute major Editorials of leading Newspapers in India which are most relevant to UPSC preparation –‘THE HINDU, LIVEMINT , INDIAN EXPRESS’ and help millions of readers who find difficulty in answer writing and making notes everyday. Here we choose two editorials on daily basis and analyse them with respect to UPSC MAINS 2020-21.

EDITORIAL HUNT #255 :“10 Reasons : Why India Quits RCEP Happily | UPSC

10 Reasons : Why India Quits RCEP Happily | UPSC

Puja Mehra
10 Reasons : Why India Quits RCEP Happily | UPSC

Puja Mehra is a Delhi-based journalist and author of ‘The Lost Decade (2008-18): How India’s Growth Story Devolved into Growth Without A Story’.

      HEADLINES:

No Minister, the trade agreement pitch is flawed

      CENTRAL THEME:

Citing trade agreements for India’s below-potential growth appears to be a way to deflect blame for policy errors

SYLLABUS COVERED: GS 3 : Economy : Trade

      MAINS QUESTION:

It is true that India is not a big exporter on the global scale with respect to RCEP nations. An “honest” self-assessment of this trade and economic performance is necessary.Comment -(GS 3)

      LEARNING: 

  • An “honest” self-assessment of economic policies
  • 10 reasons why India did not join RCEP
  • An export led path
  • Manufacturing sector in India

      INTRODUCTION: 

  • RATIFICATION : The Regional Comprehensive Economic Partnership (RCEP) was signed by 15 countries led by China, Japan, South Korea, Australia, New Zealand, and the 10-country ASEAN group.

It is billed as one of the world’s largest Free Trade Agreement (FTA), accounting for nearly 30% of the global GDP covering 30% of the world’s population.

  • A PROTECTIONIST MEASURE : India exited the grouping saying it wanted to protect its economy from rising trade deficits with a number of RCEP members.
  • SPECIAL WINDOW : India’s decision is still the subject of much debate, and the RCEP has left a special window open for India to rejoin at a future date.

An “honest” self-assessment of this trade and economic performance is necessary to show what costs India has paid for its economic success.

10 Reasons : Why India Quits RCEP Happily | UPSC

SOURCES : VGP NEWS

      BODY: 

ARE FTAS BAD FOR INDIA?

  • ONGOING FTA : Of the 15 countries in RCEP, India had previously signed an FTA with the Association of South East Asian Nations (ASEAN), and also with Japan and South Korea, all three of which are now under review.

India’s trade deficit with these countries or groups rose very sharply past decade. 

  • INDIA AND ASEAN : India’s trade deficit with ASEAN rose from about $5 billion to about $22 billion.
  • SKYROCKETING TRADE DEFICIT : The trade deficit with China has burgeoned from about $4 billion in 2005-06 to nearly $50 billion today, even without a trade agreement.

WHY ARE TRADE DEFICITS GROWING?

  • TRADE DEFICIT : Trade deficits with India’s bilateral partners accounted for 12.6% of the overall trade deficit in the year 2007.

In 2017, they accounted for a considerably smaller 7.5%.

  • DECLINE IN MANUFACTURING : Another explanation for the growing trade deficits comes from the downturn in India’s GDP since 2016, and the decline in manufacturing.
  • MASS MANUFACTURING HUB(CHINA) : If one looks at China, 75% of the inputs from China on machinery, bulk drugs, chemicals, and other equipment are unique and not available in India.

HOW HAS THE COVID-19 PANDEMIC CHANGED THE DEBATE?

  • A STATE OF DISARRAY : The COVID-19 pandemic has left the global economy in a state of disarray.
  • CREDIT CRUNCH : For the first time in 60 years, nearly every country in the RCEP grouping is facing a recession.
  • PROTECTIONISM : The fears over individual losses, combined with the trend worldwide against globalisation, are driving countries to formulate smaller trading coalitions outside of the World Trade Organization.
  • TRAVEL BANS : In addition, travel between countries is being restricted by the spread of the virus, further promoting local or regional trade and travel bubbles.

China offers potential investment to RCEP countries, and that was another incentive for them to conclude the agreement on schedule. 

  • “VINDICATED” INDIA’S STAND : The continued standoff between their armies have hardened its position on RCEP, and officials say events during the pandemic have only  on staying out of the grouping.

WHO WANTS INDIA IN RCEP?

  • DIVERSE DEMOGRAPHY OF INDIA : For Japan and Australia, the large size of the Indian economy and its negotiating heft would pose a valuable counterpoint to China within the grouping.
  • WAITING ROOM : Japan led the drafting of the special statement on India, which would waive the 18-month mandatory waiting period if India applied formally to rejoin the group.

10 Reasons : Why India Quits RCEP Happily | UPSC

SOURCES : STATISTA, WORLD BANK

  • FOR ASEAN COUNTRIES : India’s presence would provide weight to the centrality of the ASEAN grouping in the region.

The importance of drawing India into the agreement was underlined when leaders of all ten ASEAN countries travelled to India as the Republic Day chief guests in 2018.

  • OPEN MARKETS FOR CHINA : For China, too, having India within the RCEP tent would not just open up India’s market access for Beijing.

DID RCEP ADDRESS INDIA’S CONCERNS? 

  1. PRIMARY DISPUTE : India’s concerns over Chinese goods flooding the Indian market through other markets under the RCEP, without clear guidelines on rules of origin.
  2. PRIVACY AND SERVICE TERMS : There is also a chapter on allowing trade in services (Chapter 8), particularly financial, telecommunications and professional services.
  3. FORUM FOR REDRESSAL : In addition, there is a summary of objections by various RCEP members to different parts of the agreement, which are expected to be resolved in the next few years.
  4. UNFAIR TRADE PRACTISES : the “mantra of an open and globalised economy” was used to justify unfair trade and production practices against India.
  5. OBSERVER STATUS : The next big question is whether India will accept the invitation from RCEP countries to be an “observer” at their meetings.
  6. RESONATING EFFECT : The effect of past trade agreements has been to de-industrialise some sectors.
  7. UNPRECEDENTED CONSEQUENCES : The consequences of future deal would lock India into global commitments, many of them not to our advantage.
  8. ATMANIRBHAR BHARAT : India would prefer to go it alone, or as he put it, have “the courage to think through the problem for ourselves”.
  9. MARKET CYNICISM : There have always been doubts whether the RCEP was promoting “free trade” or a highly discriminatory “managed trade”.
  10. QUAD ? : If India had joined RCEP then there would be a leadership crisis in QUAD (anti-China squad), as U.S. would never be part of RCEP.

SHARP CONTRAST

India has skipped every meeting of the grouping in the past year. 
 

  • But, the final RCEP text of 20 chapters clearly mention rules of origin despite the fact that India is no longer in the grouping.

      IASbhai Windup: 

‘STRONG RUPEE’ APPROACH

  • REAL EFFECTIVE EXCHANGE RATE : India’s exports growth has lost momentum in recent years.The real effective exchange rate has appreciated by about 20% since 2014.

Studies of trade agreements by NITI Aayog show that Indian exporters suffer logistics, compliance and transaction costs twice as high in other countries.

  • ERODED COMPETITIVENESS : This low ease of doing business relative to other exporting countries has further eroded the competitiveness of Indian exports.
  • SECTORIAL ISSUES : The damage to the reputational advantage of India’s pharmaceutical exports after malfeasance fraud was exposed at some manufacturers, has hurt exports.

ON MANUFACTURING

  • AVERAGE GROWTH : Between 1995 and 2018, India’s manufacturing exports (in dollars) grew on average by 12.1%, nearly twice the world average.
  • TOP MANUFACTURERS : This was the third-best performance in the world, surpassed only by China and Vietnam.

During this period, India’s manufacturing export growth ranked within the top 10 among the 50 major exporters.
 

  • GDP GROWTH RATES : Between fiscal years 2006 to 2012, manufacturing-sector GDP grew by an average of 9.5% per year.
  • OPENNESS AND HIGH GROWTH :  India’s trade openness was at its peak during these years of high growth.

This also overlaps with the period when the highest number of Indians in recorded history exited poverty.

SUGGESTED READING : RCEP 
       SOURCES:   THE HINDU EDITORIAL HUNT | 10 Reasons : Why India Quits RCEP Happily | UPSC

 

If you liked this article, then please subscribe to our YouTube Channel for Daily Current Affairs , Editorial Analysis & Answer writing video tutorials. You can also find us on Twitter and Facebook.

0 Shares:
You May Also Like