KUALA LUMPUR: India’s decision not to join the Regional Comprehensive Economic Partnership (RCEP) deal, which significantly reduces the scale of the free trade area, reflects considerable domestic concerns about the potential economic shock to Indian industries from dismantling tariff barriers for trade with the other member nations, according to an economist.
IHS Markit’s Asia Pacific chief economist, Rajiv Biswas, said political parties and industry groups there have been concerned particularly on the potential impact of largely removing tariff barriers for trade with China.
“India feared that many domestic industry sectors would not be able to compete effectively with Chinese manufactures,” he said in a statement today.
He pointed out that unlike Asean, India does not have a bilateral free trade agreement in place with China.
“The Indian government decided that the overall economic and political costs of dismantling bilateral trade barriers with China would far outweigh the economic benefits,” he said, adding that India’s bilateral trade deficit with China was $58 billion ($1=RM4.14) in 2018, notably due to a large imbalance in trade in manufactures.
According to Biswas, the Indian government fears that removing tariff barriers for Chinese imports would further erode its manufacturing market share at a time when it is trying to accelerate the sector through the “Make in India 2025” policy championed by Prime Minister Narendra Modi.
He also noted that India’s manufacturing sector has been facing considerable challenges this year, with the Indian auto industry facing a severe crisis due to slumping vehicle sales.
“Consequently, the Indian industry has heightened concerns about the potential negative impact of an RCEP deal on their own domestic market shares,” he said.
On the reduction in the RCEP free trade area without India, Biswas pointed out that India is already a $3 trillion economy that is equal in size to the 10 Asean member states combined.
However, he envisaged the possibility of India negotiating a later entry date into the RCEP to allow a longer transition period for Indian industry to adapt to the new trade rules.
“Many other member nations are keen to have India as a member of RCEP, particularly since India, which is now the world’s fifth largest economy, would substantially increase the long-term trade and investment benefits of the RCEP agreement,” he said.
Biswas believed the RCEP agreement will make trade easier in the Asia-Pacific region at a time when the region trade has been hit by the US-China trade war.
The deal, which is expected to be signed by governments in February 2020, provides a positive initiative that will boost investment flows among the participating nations, he said.
The RCEP deal currently involves the 10 nations of Asean plus China, Japan, South Korea, Australia and New Zealand. – Bernama
