Five years ago, India made a significant decision to withdraw from the Regional Comprehensive Economic Partnership (RCEP), a move that continues to spark debate among policymakers and industry experts.
The RCEP, now the world’s largest trading bloc, encompasses 15 nations, representing 30% of the global population, trade, and GDP. Had India joined, it would have accelerated economic growth and solidified its position in the global market. However, concerns over potential competition from China, particularly in sectors like dairy and manufacturing, led to India’s withdrawal.
The dairy industry, in particular, expressed fears of a flood of imports from New Zealand, potentially impacting domestic farmers. While India’s milk consumption is below the global average, there’s a pressing need to increase milk intake, especially among children. Joining RCEP could have provided a platform to boost domestic milk production and meet growing demand.
Other industries, including steel, non-ferrous metals, chemicals, automobiles, and plastics, also raised concerns about potential negative impacts. Some argued that joining RCEP could lead to a hollowing out of India’s manufacturing sector due to Chinese competition.
However, a closer examination of the RCEP’s impact on other member countries suggests a different narrative. Countries like Vietnam, Malaysia, and Indonesia have benefited significantly from increased foreign direct investment and participation in regional value chains. India’s absence has limited its ability to capitalise on these opportunities.
Niti Aayog CEO B.V.R. Subrahmanyam has advocated for India’s re-entry into the RCEP, highlighting the potential benefits for MSMEs and the broader economy. A thorough assessment of the potential impact on India’s trade deficit, investment inflows, employment creation, and participation in regional value chains is crucial.
While a trade deficit may increase in the short term, it can be offset by increased investment inflows. Moreover, India’s strong services sector can help balance the trade deficit.
As the global trade landscape evolves, India’s decision to remain outside the RCEP may prove to be a missed opportunity. Joining the bloc would not only boost economic growth but also enhance India’s geopolitical influence in the region. It’s time for a reassessment of this decision and a renewed focus on leveraging global trade for India’s development.
