Farmers, Merchants Force Modi’s Hand on Trade Pact

In an indication of how Narendra Modi and the Bharatiya Janata government are hostage to its dairy farmers and small merchants, India has stormed out of the world’s largest trade agreement, the 16-country Regional Comprehensive Economic Partnership.

India’s exit, which deprives other member states of access to a market of 1.3 billion consumers, isn’t as problematical as it appears at first glance. New Delhi was never a prospective signatory to the Trans-Pacific Partnership, which the RCEP, as it is known, is designed to replace.

The member countries are the 10 members of the Association of Southeast Asian Nations – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – plus Japan, China, South Korea, Australia and New Zealand. The United States, with the world's biggest consumer economy, has never been a part of the discussions after President Donald Trump opted out of the TPP.

In addition, India’s last-minute demands to alter the details of the pact during marathon Bangkok meetings that ended November 4 earned deep annoyance from the other signatories, who had regarded it as basically settled in major details and had looked forward to its completion. It is expected to be signed by the member countries in 2020.

The pact, under negotiation at the 35th ASEAN summit in Thailand, aims to remove trade bottlenecks including tariffs and duties among its members for a seamless flow of goods and services. Its overarching architecture aims to carve free trade and zero-customs duty zones that contribute 34 percent of global GDP, 40 percent of world trade and host almost half of the world’s seven billion population.

However, New Delhi cited economic concerns while rejecting the pact. “The present form of the RCEP Agreement does not fully reflect (its) basic spirit and the agreed guiding principles,” Prime Minister Modi told leaders of the other 15 nations at the summit. “It also does not address satisfactorily India’s outstanding issues and concerns. In such a situation, it is not possible for India to join RCEP agreement.”

But in fact, Modi faces stiff resistance from within his conservative Hindu base of small traders, as well as the main opposition party, the Congress. Both feel that RCEP would potentially throw open India’s giant market to substandard and expensive imports with ramifications for the country’s manufacturing and production sectors.

The All India Kisan Sangharsh Coordination Committee, which represents about 10 million farmers, called for an all-India protest on November 4 against India joining the pact. The Confederation of All India Traders, a seven million-strong traders’ body, made several representations to the Commerce Ministry to keep steel and allied services, and dairy out of the purview of the RCEP agreement.

Some experts believe that at a time when India is already facing a challenging economic climate at home, the signing of the China-led pact could further strain an already beleaguered economy.

The country’s current economic situation is already giving the ruling BJP-led NDA government sleepless nights. GDP growth has plunged to a six-year low while exports have tumbled due to the trade war between the United States and China, alongside protectionist measures taken by other countries.

With its second-biggest trading partner China, India already runs a US$57 billion trade deficit which has been a major cause of concern for policymakers. India also has a trade deficit with most RCEP countries including several ASEAN nations like South Korea, China and Australia in excess of US$100 billion.

“RCEP is nothing but a bilateral trade pact with China. Once the pact is enforced, India will be pressured to give more market access to China and our trade deficit will skyrocket further,” said economist Dr. Prateek Parekh, an associate professor at Delhi University. “Beijing has already manipulated laws as well as its currency to give itself an unfair advantage in global trade and subsidies to its domestic manufacturers, despite being a member of the World Trade Organization."

India is thus stuck between a rock and a hard place. While not signing RCEP could result in geo-economic isolation, the pact’s acceptance could result in a blitzkrieg of goods into its markets that would severely damage small traders not used to competition.

Supporters of RCEP, however, are of the view that the free trade agreement could have been the next big leap after the 1991 liberalization policy facilitating India’s achievement of its much-touted target of becoming a US$5 trillion economy.

“If India is keen to achieve its ambitious GDP target by 2022, it also needs to double its trade volume with its big trading partners. This can only happen with global and bilateral trade agreements,” Parekh said.

“The long-term interest of industry in India is to get well integrated in global value chains and beneficial trade agreements could play important roles in realizing this interest,” said Vikram Kirloskar, president of the Confederation of Indian Industry, an industry lobby, in a statement.

The pact, which is likely to be signed in February 2020, will now have the 15 nations minus India. Despite India’s last-minute refusal though the door for it to rejoin it later remains open, RCEP members said.

First launched at the 2012 ASEAN Summit in Cambodia, negotiations among RCEP’s members had sputtered along over the past seven years as India appeared reluctant to sign it.

India’s withdrawal at the last minute has also raised the question -- Why walk out after seven years of bipartisan talks? Some feel the BJP government’s real reason for pulling the plug on RCEP is political and not economic or diplomatic.

Said political analyst Prakash Parihar: “The global geo-economic situation has changed completely with the advent of Donald Trump and Brexit. Across nations, the appetite for free trade and globalization has plummeted sharply. In such a protectionist environment, how beneficial can such trade pacts be?”

Parihar argued that with political incentive for pursuing globalization and free trade dipping significantly across the globe, and the West itself moving away from it, there’s little motivation for India to throw in its lot with RCEP.

Neeta Lal is a Delhi-based editor & journalist and a longtime contributor to Asia Sentinel.