The debate between free trade and protection for the domestic economy is not a new one. Its shadow loomed over India as it declined at the last minute to become a party to the Regional Comprehensive Economic Partnership agreement, which 15 other leading nations subscribed to on Monday.
India participated in the negotiation, but Prime Minister Narendra Modi, who was at the regional summit in Bangkok where the RCEP was deliberated, pulled out at the last minute, arguing that India’s concerns had not been met.
Signatures are to be affixed to the agreement in 2020 and many among the participants, notably Australia, expressed the hope that when India comes on board, the RCEP will be a richer partnership.
There is a lurking fear among many of the “10 plus 6” — the 10 Asean countries and six of their partners — that China will seek to dominate RCEP. With the burgeoning trade dispute between the United States and China, there is concern that China would try to cut itself some slack by seeking to take advantage of RCEP to the detriment of others. If India were in, it might help balance the equation.
The discussions around globalisation at the turn of the century brought home the reality that if a developing nation opted for globalisation, it should prepare itself by improving its export capacity and infrastructure, else it will suffer over balance of payments, and this will have a widening negative impact, hurting domestic producers and consumers. Such a situation would be readymade for political discontent.
After dithering, it’s just as well that India chose to stay out of RCEP, billed as the world’s most significant trade deal. The 16 participating nations made up nearly half the world’s population and 30 per cent of its GDP. Such a large free trade area is likely to confer economic benefits all around, provided the participants export with as much vigour as they import to meet the requirements of an expanding economy.
However, the picture the Indian economy now, following a series of misconceived policy steps in the past five years, didn’t place it in the right frame to take advantage of the free trade area. Manufacturing and export data have been plunging for two years. The banking sector is in turmoil. Agricultural productivity and wages are down. At such a time, joining a free trade area comprising some of the world’s boldest economies is to invite trouble.
No wonder, the Congress Party campaigned against India’s entry into RCEP, and rallied other Opposition parties which had planned a nationwide campaign against the economic situation from Tuesday. A PMO statement Monday morning said the PM “sought to dispel the notion that India is reluctant to join the RCEP trade deal”. Two days earlier, commerce minister Piyush Goyal targeted Congress president Sonia Gandhi on Twitter for opposing India joining RCEP. Just as well, though, that bravado took a backseat....