Economic Self-Harm

Business Standard     17th November 2020     Save    

Context:   India’s act of pulling out from the Regional Comprehensive Economic Partnership (RCEP) trade agreement cannot be considered as a superior act of self-reliance.

 

An overview of  India’s reluctance in joining trade deals:

  • Pulling out from RCEP Because India is insecure  about domestic competitiveness as a manufacturing economy and in parts of the agricultural sector.
  • Failed to bag an India-European Union (EU) free-trade agreements (FTA): due to the Protectionist industry lobbies.

 

Advantages of joining the RCEP:

  • Economic impact: Over two-thirds of the goods currently being traded in the RCEP countries will eventually be without tariffs and quotas.
  • Simplification of rules: Rules about the place of origin and other such regulations will be simplified, allowing for more effective and robust supply chains within the RCEP countries.
  • Trading integration: Though geopolitical atmosphere between India and China has been altered, the economic argument for trading integration has not been altered.

 

Adverse consequences of not joining RCEP: An Economic Self-Harm

  • Exclusion of India from the trading blocs: India will be unable to reap the benefits of the rise in the free trade while its partners like Japan will enrich China impacting strategic calculus for India.
    • A trade agreement with the inward-looking US looks even further away.
  • Promotion of protectionism: The government’s policies have turned protectionist, with a series of import tariffs, restrictions, and production-linked incentives now ring-fencing a number of sectors.

 

Conclusion: Self-reliance is not a superior alternative to open trade and points the economy as well as policy in the wrong direction.