India’s strategic approach to trade policy has been under intense scrutiny, especially in light of the global economic landscape and the government’s ambitious ‘Make in India’ initiative. While the nation has taken significant strides to bolster its manufacturing sector, concerns persist over the potential impact of regional trade agreements like the Regional Comprehensive Economic Partnership (RCEP).
India’s decision to withdraw from RCEP negotiations in 2019 was driven by fears of adverse consequences for domestic industries. Critics argue that such agreements could erode economic incentives for multinational corporations (MNCs) to establish local production or expand existing operations within the country. Instead, MNCs might opt to consolidate their value chain segments in existing locations across partner countries and import them duty-free into India.
This trend could significantly hinder the growth of domestic component manufacturers, who play a crucial role in reducing import dependency and enhancing domestic value addition. Industries such as electronics, telecom, pharmaceuticals, medical devices, and renewables, which are central to the government’s strategic vision, could be particularly vulnerable.
The prevailing discourse often oversimplifies the concept of global value chain (GVC) integration, overlooking the importance of domestic backward linkages and technological capabilities. While increased GVC participation can boost economic growth, it is essential to ensure that such integration leads to higher domestic value addition and employment opportunities.
To achieve this, India needs to adopt a nuanced approach to trade policy, focusing on policies that leverage the domestic market and support the development of indigenous technological capabilities. This requires a careful balance between liberalisation and protectionism, with the ultimate goal of creating a robust and sustainable manufacturing ecosystem.
As India navigates the complex global trade landscape, it is imperative to prioritise policies that foster domestic value addition and reduce reliance on imports. By striking the right balance between liberalisation and protectionism, India can safeguard its strategic interests and achieve its goal of becoming a global manufacturing powerhouse.
