Indian politicians have a history of disregarding foreign advice, particularly that of multilateral organizations like the World Bank. It is therefore likely that recommendations from the latter’s most recent India Development Update will be disregarded.
That would be incorrect. The report’s main suggestion—that India change its negative view of multilateral trade agreements—deserves a receptive audience.
It is simple to comprehend the Bank’s concerns. Even though India’s growth over the last few decades has been remarkable, commerce has only slightly and steadily accelerated that growth.
India’s level of involvement in international value chains has also been underwhelming. As a result of their involvement in significant trade blocs, other emerging nations, especially those in Southeast Asia, have experienced an increase in jobs and income. These nations have reduced trade restrictions.
The Bank’s recommendation that India would benefit more from joining the Regional Comprehensive Economic Partnership—a massive trade pact that includes the ten members of the Association of Southeast Asian Nations as well as their allies in East Asia and Oceania—will particularly prickle nerves in New Delhi.
After years of participation in the RCEP negotiations, India abruptly withdrew at the last minute. Particularly the Japanese are still unhappy since they thought India’s participation in the RCEP would counterbalance China’s influence.
Policymakers at the time believed it was a mistake to ratify a trade agreement that favored the People’s Republic. Not all of India’s concerns about its manufacturing being comparatively less competitive than that of the mainland stemmed from this.
There was some hubris in late 2019 regarding India’s potential to displace China in global value chains. Furthermore, officials did not want to convey to Washington that they would have preferred closer ties with Beijing.
Those presumptions are no longer valid now. It appears improbable that the US will spearhead a move toward greater economic unity. That argument has been emphasized by the Indo-Pacific Economic Framework, which is President Joe Biden’s modest objective.
India has also developed much more reasoned opinions regarding changing supply networks. It would be ridiculous to continue with policies that virtually disregard the gravitational pull of the mainland, given the enormous magnitude of Chinese manufacturing.
You have to be involved in global value chains if you want to provide China with a rival. The businesses, financiers, and traders of the previous industrial center have always cooperated with the emergence of a new trading power. The US was industrialized in the 19th century by British investment. Japan’s businesses played a key role in China’s growth.
Additionally, Indian producers cannot be immobilized by their fear of competition from China. One point to consider is that India already enjoys a free trade deal with the ASEAN nations, which are closely linked to China.
In today’s value chains, it might be challenging to identify the point at which value is added. In slow-moving bureaucracies like India’s, the difficulty is doubled. To put it another way, local producers already face significant competition from China as a result of trade with Southeast Asia, but they do not gain from joining the RCEP in terms of additional investment or access to export markets.
India’s mistrust of China in politics has increased significantly during the past five years. However, it has also started to reevaluate how it handles mainland and Hong Kong investments. A few limitations have already been removed. Senior authorities have acknowledged that it may not be feasible to establish manufacturing ecosystems without the assistance of capital and expertise from the Chinese private sector.
The government has not yet discussed RCEP’s revisitation. That is, however, the right course of action given the grudging acceptance of corporate China’s inevitable involvement in India’s development.
If private sector investment and employment development in India were at a rate that could keep up with the country’s huge domestic demand, things could be different. Or if it had demonstrated a stronger desire to integrate with Western allies, especially the European Union.
However, neither is true. India will require commerce in order to continue growing. Additionally, it will have to integrate into value chains that will primarily consist of Chinese people for the foreseeable future. Given that there is no getting around this reality, isn’t it better for India to be a part of the RCEP than not to?
India needs more trade, and being inside RCEP is better than staying out | Economy & Policy News
