No rethink of RCEP as Indian misgivings harden, says official

India's decision to exit RCEP negotiations was a political call taken at the highest level. PHOTO: REUTERS

NEW DELHI - India continues to have misgivings over the Regional Comprehensive Economic Partnership (RCEP) and these have only hardened due to the Covid-19 crisis, said a senior official from the Ministry of External Affairs.

India announced its decision to opt out of the multi-country trade agreement at the RCEP summit in November last year.

The thinking in New Delhi over the pact has not changed, even as RCEP countries, in a ministerial declaration on India's participation last Wednesday, said the agreement is open for India to join and restart negotiations.

This was reiterated by 15 RCEP leaders on Sunday (Nov 15) in their joint statement: "We would highly value India's role in RCEP and reiterate that the RCEP remains open to India. As one of the 16 original participating countries, India's accession to the RCEP agreement would be welcome in view of its participation in RCEP negotiations since 2012 and its strategic importance as a regional partner in creating deeper and expanded regional value chains."

Mr Ashok Malik, policy adviser in India's Ministry of External Affairs, said: "India's engagement with Asean countries... will continue, we saw it with the India-Asean summit (last Thursday). But in the case of RCEP, in its given form, it was felt that it was not beneficial to the Indian economy."

He told The Straits Times: "Misgivings, especially about overdependence on certain countries' supplies and imports, and about very liberal country-of-origin rules, would make this a very difficult agreement. Some of those misgivings have hardened after the pandemic-caused disruption."

The engagement between India and Asean has been growing in importance in recent times. Most Asean countries have been keen to cultivate closer ties with India, pushing for greater economic integration and, in some cases, security cooperation as well.

India's decision to exit RCEP negotiations was a political call taken at the highest level, amid domestic opposition from trading groups.

Trade deficits that India faces with 12 of the 15 RCEP partners, a refusal to consider the service sector - which includes movement of workers and professionals - in the pact, and concerns over rules of origin were all factors in the exit, federal minister Piyush Goyal told Parliament last December.

India has been wary of opening its markets to China. India's trade deficit with China was US$48.66 billion (S$65.6 billion) in 2019-2020. And there were border skirmishes this year, leading to a backlash against Chinese products in India.

The approach, Mr Malik said, was to look at other ways for Indian companies to join the global chain. The Cabinet has approved production-linked incentives of 1.45 trillion rupees (S$26.2 billion) for manufacturers in 10 sectors, including cars, pharmaceuticals and food products. Prime Minister Narendra Modi has urged self-reliance.

Said Mr Malik: "I think that route is being preferred and seen in the immediate future as viable to build India's strengths, pending a renewed thrust and entry into wider trade treaties in the medium to long term. But the immediate focus is on building the national economy, as indeed the Asian Tigers did in an earlier era. All this makes RCEP difficult in the near future."

Analysts believe India would need to take a more liberal view of multilateral trade agreements if it does not want to be left behind.

"We would have to balance with the larger issues there before us in terms of supply chain constraints. Almost 38 per cent of our imports are actually crucial inputs for our exports. So we would have to continue to explore these global linkages," said Dr Sachin Chaturvedi of New Delhi-based think-tank Research and Information System for Developing Countries.

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