THE TRADE DEBATE

• India’s decision in November 2019 to stay out of the Regional Comprehensive Economic Partnership (RCEP) sparked debates about the long-term implications of remaining outside such a significant trade bloc. With the RCEP accounting for 30% of global GDP and a quarter of global exports, critics argued that this move might hinder India's ambition of becoming a global manufacturing hub and integrating into global value chains.

Missed Opportunities and Present Realities

1. Limited Gains from US-China Trade Rerouting:

• The China plus one strategy, driven by US-China trade tensions, has seen several Asian economies benefit significantly:
• Vietnam, Indonesia, and Malaysia have captured a larger share of trade rerouted away from China.
• In contrast, India’s gains have been limited, both in trade and in attracting Foreign Direct Investment (FDI), even as global FDI flows to China have declined.

2. Shifts in Global Trade Dynamics:

• The global landscape has undergone transformative changes since 2019:
• Pandemic-Induced Disruptions: COVID-19 highlighted vulnerabilities in global supply chains.
• Geopolitical Tensions: The Russia-Ukraine war and Middle Eastern conflicts have compounded uncertainties.
• Protectionism: Countries, including the US, have adopted increasingly protectionist trade policies.
• The recent victory of Donald Trump in the US presidential elections adds another layer of uncertainty. His proposals, such as tariffs on Chinese imports (60%) and others (10-20%), could significantly reshape global trade flows.

Subrahmanyam’s Call for Rethink:

• The remarks by Niti Aayog CEO BVR Subrahmanyam advocating for India’s participation in agreements like the RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) signal a potential policy shift.

Why Now?:

• Smaller economies like Sri Lanka and Bangladesh are showing interest in joining RCEP, demonstrating its attractiveness even for less diversified economies.
• India's absence limits its ability to shape trade rules and tap into value chains in one of the world’s most dynamic economic regions.

Counterarguments:

• Concerns about trade deficits in existing agreements, such as those with ASEAN, persist.
• A significant rethink is needed to balance domestic economic priorities with the benefits of multilateral trade frameworks.

India’s Current Trade Policy Stance

1. Recent Trade Agreements:

• India has signed deals with countries like the UAE and Australia, which have shown promise in boosting bilateral trade.
• Delayed Progress: Agreements with the EU and UK remain stalled, reflecting challenges in negotiating mutually beneficial terms.

2. Geopolitical Calculations:

• India’s trade policy is increasingly influenced by geopolitics:
• Strategic Autonomy: India aims to reduce overdependence on any one trading partner while maintaining robust ties with multiple blocs.
• Economic Self-Reliance: Domestic policies like Aatmanirbhar Bharat prioritize local industries, often clashing with free trade principles.

Charting a Way Forward

1. Reassessing RCEP:

• Rejoining discussions on the RCEP or similar trade pacts could offer India opportunities to:
• Access regional supply chains.
• Strengthen its export competitiveness in sectors like electronics, textiles, and pharmaceuticals.

2. Accelerating Bilateral Deals:

• India must fast-track negotiations with the EU and UK, focusing on:
• Market access for Indian goods and services.
• Mitigating barriers to Indian talent and investments.

3. Domestic Reforms for Competitiveness:

• To leverage trade agreements effectively, India needs:
• Tariff rationalization to reduce input costs.
• Addressing non-tariff barriers to improve ease of doing business.
• Strengthening infrastructure and logistics to integrate seamlessly into global value chains.