IASbhai Daily Editorial Hunt | 23rd Nov 2020
“Even if you fall on your face, you’re still moving forward.” – Victor Kiam
EDITORIAL HUNT #255 :“10 Reasons : Why India Quits RCEP Happily | UPSC”
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’.
No Minister, the trade agreement pitch is flawed
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
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)
- An “honest” self-assessment of economic policies
- 10 reasons why India did not join RCEP
- An export led path
- Manufacturing sector in India
- 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.
- 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.
SOURCES : VGP NEWS
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 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.
- 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.
- “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.
SOURCES : STATISTA, WORLD BANK
- FOR ASEAN COUNTRIES : India’s presence would provide weight to the centrality of the ASEAN grouping in the region.
- 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?
- 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.
- PRIVACY AND SERVICE TERMS : There is also a chapter on allowing trade in services (Chapter 8), particularly financial, telecommunications and professional services.
- 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.
- UNFAIR TRADE PRACTISES : the “mantra of an open and globalised economy” was used to justify unfair trade and production practices against India.
- OBSERVER STATUS : The next big question is whether India will accept the invitation from RCEP countries to be an “observer” at their meetings.
- RESONATING EFFECT : The effect of past trade agreements has been to de-industrialise some sectors.
- UNPRECEDENTED CONSEQUENCES : The consequences of future deal would lock India into global commitments, many of them not to our advantage.
- ATMANIRBHAR BHARAT : India would prefer to go it alone, or as he put it, have “the courage to think through the problem for ourselves”.
- MARKET CYNICISM : There have always been doubts whether the RCEP was promoting “free trade” or a highly discriminatory “managed trade”.
- 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.
- But, the final RCEP text of 20 chapters clearly mention rules of origin despite the fact that India is no longer in the grouping.
‘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.
- 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.
- 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.
- 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.
SOURCES: THE HINDU EDITORIAL HUNT | 10 Reasons : Why India Quits RCEP Happily | UPSC