“Economics cannot function without politics,” said Dr Jaimini Bhagwati, former Indian  ambassador  and well-known economist in his opening remarks of the Changing Asia series lecture on the 'Regional Comprehensive Economic Partnership (RCEP) and India'  that was organised by the Society for Policy Studies in association with the India Habitat Centre in New Delhi on 10 December, 2019.
 
The observation that it is never pure economics when nation states negotiate but political economy set the stage for an interesting discussion on RCEP that was supported by a number of facts and figures.
 
Before getting into whether India should have joined the RCEP bandwagon, Dr Bhagwati - who has served as India's High Commissioner to United Kingdom and Ambassador to the European Union among his diplomatic postings, pointed out that it was vitally important for India to promote trade to boost economic growth by enhancing competitiveness and   increase salaried and informal sector employment opportunities. He also called for a reduction of India’s tariff and non-tariff barriers.
 
Focusing his attention on the current state of Indian economy, he said, “India’s exports of goods has been stagnating for the last six years or so and was at US$ 330 billion in 2018-2019 as compared to US$ 300 billion in 2012-2013. The 2018-2019 value of goods exported was 1.7% of global trade.”
 
“India’s merchandise exports are too tilted towards relatively basic and limited value-added items. India has had a perennial deficit in goods trade for the last 60 years (except curiously during the Emergency year of 1976) and invariably a surplus in the trade in services,” he added.
 
Elaborating on the reasons for the stagnation of exports he said, infrastructure bottlenecks, freight charges, land acquisition roadblocks, labour laws, multiple inspection requirements and lack of proper transportation facilities and a slow legal system are among the many factors hindering growth. He also opined that the rupee was over valued by at least 20 per cent.
 
Turning to agricultural products which do not figure in India’s top exports, he said there is a marked tendency to favour consumers over producers of agricultural products. Referring to frequent changes in pricing policies, he noted that this practice reduces predictability and hence incentives for entrepreuners  to invest in packaging, refrigerated storage and related transportation facilities.
 
He also drew  attention to the fact that India has raised average import tariffs for manufactured products from 11% to 14%. Tariffs on agricultural products have gone up again on average from 33% to 39%.
 
“It is somewhat illogical and self-serving for India to seek to negotiate from current tariffs instead of those prevailing when the RCEP negotiations started more than 6 years back,” he rued.
 
Ponting to the importance of RCEP which potentially included  the 10 ASEAN countries plus Japan, China, South Korea, Australia, New Zealand and India as a trade bloc, he stated that the total GDP of these countries as a percentage of global GDP in 2018 was 25%, global trade 30% and FDI ( Foreign Direct Investment)  26%.
 
These figures assume more prominence at a time when institutions like the World Trade Organisation (WTO) are increasingly becoming irrelevant and the world is looking at bilateral and plurilateral trade agreements and arrangements as more  viable options.
 
Acknowledging that India’s experience so far with trade agreements have not been encouraging with the country’s trade deficit having widened post trade agreements and the Indian government often buckling under pressure from different lobbies, he opined that protectionism is not the answer to these challenges. Bhagwati  pointed out that such measures make the domestic producers non-competetive internationally and India will not be able to make use of its lower labour costs to ensure greater competitiveness.
 
Addressing the China factor which is the single biggest concern for India in joining the RCEP, he said, it needs to be understood that though China is a significant trading partner for the United States and Japan, political strategic imperatives may not override economic factors at present and India needs to define its stance vis-à-vis China independently.
 
“India’s imports from China in 2018-2019 amounted to USD 70.3 billion i.e. 13.7% out of total import. India’s exports to China in the same year totalled USD 16.8 billion i.e. 5.15 of total exports,” he said adding perspective to the magnitude of trade imbalance.
 

 
He said, though India has reason to be concerned that its trade balance with China will worsen if its joins RCEP,  perhaps more sustained  consultations could be  held separately with China for that country to open up to Indian software and pharmaceuticals and  similar products where India has an edge.
 
Dr. Bhagwati  stated that RCEP negotiations have been going on for the last six years and it is not a short time to implement improvements in India’s infrastructure and overcome other constraints including a grossly overvalued exchange and reduction in net household savings.
 
“On an ex-post basis it appears that not enough attention was given to diluting or eliminating India’s concerns about joining RCEP through discussions with China and the other large economy involved namely Japan,” he added.
 
Looking at the options that India had, he said, “India could have sought more time at least a year back and conveyed a qualified YES along with its concerns but in a definitive way and some of this should have been aired in public.”
 
He opined that the government could have made more soothing noises consistently and often about how geography, history and the future binds India economically to the Indo-Pacific. The government should also have sought concessions towards integrating India more consistently and widely as an intermediary in value chains.
 
Discussing the way forward, Dr Bhagwati said, “The second half of the 21st century is likely to see Asia emerge as the dominant part of the global economy. India cannot afford to be left out of Asia centric trading arrangements.”
 
Offering a solution, he said India should air its concerns privately with other RCEP countries and suggest a specific time-frame for it to be a part of RCEP, provided there is easier access for India’s exports of pharmaceutical products, IT and financial services. To safeguard its domestic market, India can put a condition that it would cut-down on specific imports particularly from China if such imports rise very sharply.
 
C Uday Bhaskar, Director, Society for Policy Studies who chaired the session opined that all the facts on the ground suggested that India was preparing to  get on board the RCEP and it was only in the last stages  that the plot changed dramatically which may point to the influence of certain 'strong voices' opposed to such a move. He also added that reaching the $ 5 trillion GDP mark would be even more elsuive if India stayed outside the RCEP.