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India’s NO to World’s Biggest Regional Trade deal: Pros and Cons

The contemporary world is full of antipathy, and the growing discontent has triggered the global economic slowdown which led to India’s decision to withdraw from RCEP but there are both pros and cons.

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RCEP Pros and Cons for India | Newsline |

India trade deficit with all the RCEP nations amounted to $105 billion in 2018-19. China alone counts for $54 billion of that. If India would have signed the RCEP agreement, then it could not have been possible for India to reduce the trade deficit, because the cheaper goods will increase the demand, consequentially increasing the trade deficit.

Taking the current scenario, India only exports 20% to the RCEP countries, while the import is accounted for 35%. Furthermore, RCEP members like China are well known for using non-tariff barriers against Indian products in the past, preventing India from growing its export to these countries.

Why is RCEP Needed?

India already has FTA with many RCEP members, including Japan, Malaysia, South Korea and ASEAN, which resulted in increasing India’s trade deficit and also hurting many domestic industries. Therefore, widening India’s trade deficit will only impact India’s foreign exchange reserves by accelerating the faster rate of reduction in foreign reserves.

NITI Aayog found that India’s utilization of FTA has appallingly low between 5% to 25%.

Domestic industry and dairy farmers in India have strong penetration in the Indian market, and signing RCEP could have disturbed the domestic interests because of cheap Chinese manufactured products while Australia and New Zealand eagerly waiting for free access to Indian dairy market.

Pro – Not becoming China’s dumping ground

China provides enormous subsidies to its domestic products and goods. Consequently, this makes it vulnerable to the Indian market which becomes a dumping station. India was also very sceptical of the trade pact as it should not be misused by the non-partner countries, which is highly possible as RCEP members also have FTA with other countries.

China also needs greater access to the Indian market as Chinese companies have been suffering because of the US-China trade war that affected Chinese manufacturing companies in the past 2 years. So, it could have proven to be a detriment to the Indian government’s Make in India initiative.

Pro – Domestic Economy Concerns

India was also worried on keeping 2014 as the base year for tariff reductions, along with it the ongoing E-commerce business and trade remedies were the few concern areas for India that this deal failed to find a satisfactory redressal.

Also, the Indian farmers showed their concern and anxiety over the trade tariffs as the RCEP deal could have brought down the import duties to almost ‘zero’ on most of the agricultural products. Therefore, it is a chance for many agro-based countries who want to capture Indian agro market as India is among the countries who have ‘huge mouths to feed’ and possibly finding India a dumping ground for their cheap agricultural products.


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Pro – Relief for Indian Farmers

In fact, NITI Aayog reported that China almost covered all economies which are under RCEP deal through its trade equation with ASEAN countries after signing ACFTA (ASEAN-China Free Trade Agreement).

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RCEP Summit | Newsline | DKODING

ASEAN countries have a ‘large and cheaper’ plantation of crops mostly including coconut, rubber and the most demandable and edible vegetable cooking oil, i.e., palm oil, which India heavily import from Vietnam and Indonesia. Furthermore, Palm oil is considered to be one of the cheap cooking oil widely used by the proletariat class.

Pro – Protecting India’s Food Sovereignty

IPR (Intellectual Property Rights) stringent clauses are likely to empower the foreign Seed companies to protect their IPR, and it could impinge farmers’ freedom by criminalizing them when they save and exchange seeds.

Farmers opine that RCEP deal could have aggravated the agrarian crisis. The input prices are heavily taxed in India and thus the Indian farmers are not being provided with the profitable prices which result in significant losses and also throwing farmers into a debt trap.

India after green revolution emerged as a self-sufficient country in agricultural product. The RCEP could have brought India’s ‘food sovereignty’ at stake as opening markets. Consequently, this will increase dependency over foreign products and any future dispute will affect India’s import supply chain.

How could RCEP have been beneficial for India? – The Act East Policy

Con – Help in Capturing Foreign Markets

Trade with RCEP nations was a chance for Indian service, IT, health and education sectors to prove its leverage. Hence, it could have also provided India with an opportunity to capture large and vibrant economies by increasing its exports.

‘Rules of origin’ could have also provided a possible chance for India to become a major hub in coordinating with the regional partners and establishing a trustable value chain.

Con – Could have helped India’s exports

So, Confederation of Indian Industry (CII) has called for signing RCEP agreement, as India could have also served as a major market for final goods. We can also say a final market for the 3rd world countries whose relation with India is always stronger.

However, RCEP could have helped India in further export to the 3rd world nations, and primarily to West Asia, Africa and few European countries.

While there are both pros and cons, India’s absence in the RCEP agreement puts it on the sidelines of major key discussions in the Asia-Pacific region and will cost foreign investment in India down the road. It would also have given impetus to India’s Act East Policy.



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