Important Articles

How RCEP deal can hit India, or be a hit

Why in news ?
India is about to sign the 11th, largest and most controversial free trade agreement (FTA) with a wide swath of 15 other countries from the Asia Pacific.
About RCEP agreement

  • It is a mega free trade agreement (FTA) trade block being negotiated in secret between 10 members of the ASEAN group and its six dialogue partners — South Korea, Australia, China, Japan, New Zealand and India
  • The concept has its genesis in the free trade agreement among ASEAN countries
  • Of the other 15 countries in RCEP, India already has FTAs with 12: ASEAN, Japan and South Korea.
  • For India, the RCEP amounts to FTA with China but there are concerns from Japan, the Philippines, New Zealand and Australia too.
India’s Advantage
  • It can boost India’s inward and outward foreign direct investment, particularly export-oriented FDI.
  • It would also facilitate India’s MSMEs to effectively integrate into the regional value and supply chains.
  • It presents a decisive platform for India which could enhance strategic and economic status in the Asia-Pacific region and can complement its Act East Policy.
  • FTA being negotiated in services where India has advantage, especially in IT, healthcare and education
  • India will integrate with one of the world’s largest trading blocks at a time when the WTO is becoming ineffective
  • India to get integrated in global supply chains passing through the RCEP countries, which means new jobs and investments.
India’s Disadvantage
  • China may divert exports by masking them from other RCEP countries Unpreparedness of dairy sector will be exposed
  • Top political leaders unable to publicly assuage fears as text is secret
  • Comparatively poor productivity, investment and technology to disadvantage farm sector
  • Imports of fully-built units/vehicles to hit steel, ancillary industry too
  • Japan’s insistence on tough IPR norms may hit pharma industry
  • Movement of people remains restricted
  • Tariff elimination due to RCEP could worsen the trade deficit, at $105.2 billion in 2018-19.
  • Since import duties are also a source of revenue for India, it could experience a disproportionate loss of customs revenue.
  • Almost every sector registered its apprehension that once the RCEP agreement was in place, China would harm the domestic market with its cheap exports and would also dump its products.
  • It threatens farm livelihoods, autonomy over seeds and also endangers the country’s self-sufficient dairy sector.
How crucial sectors fear  they would fare if deal is on ?
Dairy farming
Dairy cooperative and private players in Punjab apprehend that inclusion of dairy products in the Regional Comprehensive Economic Partnership (RCEP) pact would allow import of cheaper milk and dairy products, adversely affecting the livelihood of lakhs of farmers in the state.
Textile sector
The RCEP will reportedly allow free import of polyester fabrics from China, Vietnam, Bangladesh and other countries, which could lead to cheaper textiles, affecting an already-hit sector. The apprehension is that cheap Chinese goods may put pressure on domestic sales at a time when the international business has been under threat from Bangladesh and Vietnam.
Auto components
The Automotive Component Manufacturers Association of India (ACMA) feels the RCEP could allow a “back-door entry route” for China. The sector is already in doldrums because of the slowdown in auto sales. The labour-intensive sector has a significant presence in Punjab, especially Ludhiana and Jalandhar, with majority of the units in the micro and small category. The owners claim that signing of the pact will lead to job losses and hurt the ‘Make in India’ project.
Bicycle Industry
the bicycle industry said that imports from China through SAFTA countries has already hit them hard and if the RCEP agreement is accepted for cycles and parts, India’s bicycle industry will not be able to compete and would be forced to diversify.
Should India quit RCEP?
  • India's entry into RCEP will strengthen its strategic weight.
  • India can be diplomatically pressurised from trade partners like ASEAN, Japan, South Korea, with whom India already has FTAs.
  • Given RCEP has the year-end deadline for implementing the pact, it poses a challenge for Indian economic policymakers.
  • In the event of declining economic growth, India should not stay out of the largest free-trade bloc in the world.
  • Apart from this, RCEP provides a chance for India to bring in historic trade reforms, which in itself will cement India's position as a major global economy and make Indian industry competitive.
Conclusion
The RCEP can be a stepping stone to India’s Act East Policy, but at a time of growing protectionism and the US-China trade war, opening our market to China (through RCEP) can prove to be disastrous, given the structural issues in the Indian market.
 
Hence, it is important that India focuses on resolving the structural issues in the domestic market, before concluding the RCEP negotiations.
 
 


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