How India loses by not joining RCEP

Paran Balakrishnan | Updated on November 13, 2019

India could have become the base for more foreign firms, thus giving a fillip to the Make in India initiative and exports

It was during a trip to Brussels back in the 1990s that it was driven home to me just how insignificant India’s economy was in global terms. This was an era when India’s reforms were taking baby steps forward and our politicians would turn up in London and tell groups of bankers that they couldn’t afford to ignore the billion-strong Indian market. In Brussels to meet European Union (EU) officials I discovered a different picture. I was told to meet two officials — the equivalent of Indian joint secretaries — who handled textiles and leather items. Those were the only Indian exports of any consequence to the EU.

How far have we progressed in the last 20 years or so? Now that we’ve decided not to join RCEP (Regional Comprehensive Economic Partnership) it seems like the right time to ask that question. The answer is bluntly: not very far. To be sure the software industry has established itself as a global force and turned Bengaluru into a world-famous hi-tech city. Then there are the Indian pharmaceutical giants that are global players in drug stores from Moscow to Minneapolis even if they haven’t come up with any original disease-busting compounds. There are a handful of other industries but not enough.

Joining RCEP offered multiple risks and opportunities. Crucially, it might have given the government the best chance of turning its Make in India programme into a reality. An India that is an integral part of RCEP could woo foreign investors with the promise of a huge domestic market, and also market itself as a base from which to export to the entire free trade zone. There would, of course, have been dangers like the fact that we would not be able to insist on technology transfers.

Take a look at how the automobile industry has grown. In 2018, international companies like Ford and Volkswagen exported around 700,000 passenger vehicles. At the top of the pack were Ford which exported 167,000 vehicles and Hyundai that put 160,000 vehicles on ships out of Chennai.

In two-wheelers, Indian companies exported around 3.2 million vehicles to different corners of the globe in 2108. Leading the way was Bajaj Auto which had exports of about 1.6 million, up 23 per cent from the year before. Honda Motorcycles and Scooter India exported around 386,000 and another Japanese road-star Yamaha about 261,000.

Honda Motors also exported around ₹1,500 crore of auto components in 2018. As a way to fight the auto industry slowdown, Renault is now looking to double its auto component exports in the coming year.

Mobile phones

Similarly, the world’s top companies are now manufacturing mobile phones in India and that is changing the entire picture of electronics exports and imports. Electronics imports climbed to $55 billion in FY 2019 and are India’s second-largest import category.

But the picture is changing quickly. Till recently India imported huge numbers of mobile instruments but imports of phones fell 15 per cent between April 2018 and February 2019. Instead, we’re importing mobile phone components to go into phones being manufactured here.

And mobile phone exports shot up to ₹11,200 crore in 2018-19 — eight times the year before. That looks like only the beginning of an export boom. Instrument exports soared to ₹7,000 crore between April-July 2019. The Indian Cellular and Electronics Association predicts exports of ₹25,000 crore this year.

Other items like printed circuit boards are also being manufactured here now and will change the export-import figures even more.

Don’t forget, however that China and Vietnam are still far ahead in phone exports and India has a long way to go to catch up with them. Telecom companies will, of course, still invest in India because of the huge mobile phone market. But joining RCEP could have been an added plus point.

What’s the other great export success story of recent years? The answer surprisingly, is processed petroleum products and that’s thanks largely to Mukesh Ambani’s Reliance Industries. Ambani focussed on international markets partly because it is tough to take on the public sector oil companies which received subsidies and had a firm grip on the domestic market.

Petroleum exports have fallen in volumes but were at around $46 billion for 2018.

Stiff opposition

The government’s acutely aware that it needs to attract more industries and also give exports a boost if it wants to have the economy buzzing with action once again. That’s why it was almost willing to push ahead and join RCEP despite the obvious risks. But it began to face strong opposition from a variety of industries including the very powerful dairy farmers and companies like Amul.

That, in turn, began to be reflected in the vernacular Gujarati and Punjab press. Some in government even believe that it lost rural seats both in Haryana and Maharashtra because of the anti-RCEP stories that were appearing in the press. There’s even talk in the BJP that the party lost around 20 seats in Haryana primarily because of RCEP. Besides all that, there was also pressure from the RSS and organisations like the Swadeshi Jagran Manch.

What other dangers do we face after giving RCEP the thumbs down? Trade negotiations with the European Union (EU) and the US are due to get going in the not-too-distant future. We will be in a much weaker position against both now that we’ve backed out of RCEP.

Many RCEP countries have been eager to get India into the trade grouping because we could act as a counter to China. But, in economic terms we can hardly compare with the Chinese who are making big investments in India. Our imports from China include sophisticated telecom products and electronics goods. Also, in 2018-19 about 67 per cent of the active pharmaceutical ingredients (or bulk drugs) that are used to make Indian products — worth about $2.4 billion — came from China. India’s great fear when it came to joining RCEP was that it would face a flood of Chinese products that it wouldn’t be able to effectively stop.

Could we be the RCEP counterweight to China? That would certainly have added to our importance in the Asian political picture. But, there’s also the factor that the US may not have been keen on us joining the mega-trade grouping. Can India get its industries ready to take on the world?

It could take time and, for better or for worse, in the near future it looks like we will be cutting out our own path in the world.

Published on November 13, 2019

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