During a recent Times Now debate, Gurcharan Das highlighted how those against the Regional Comprehensive Economic Partnership (RCEP) may condemn another generation of the country to poverty.

The RCEP is a proposed free trade bloc consisting of south Asian, south-east Asian, and Oceanic states.

His statement was strong and caught me off-guard despite my strong support for trade.

However, the recent opposition to RCEP warranted a strong statement as entering into such trading agreements are absolutely critical for the Indian economy.

The HLAG report echoes a similar sentiment as it highlights how no country managed to sustain a growth rate of 7-8 per cent without robust exports.

Therefore, it is important to recognise the opportunity India has to be integrated into the global value chain which is critical for manufacturing sector to take off in India.

In an earlier article with Sanya Sharma we had shown how trade agreements have played a role in deepening our trade ties. In some cases, it has even deteriorated our current account positions due to badly negotiated deals.

However, the role of domestic policies has been greater in our deteriorating trade positions while the inability of our negotiators to get adequate market access in other countries has only compounded our problems further.

An interesting analogy in the High Level Advisory Group (HLAG) report is to do with the likelihood of accidents and though, accidents may happen but that still doesn’t stop us from constructing roads. Similar analogy is applicable for RCEP.

While we’re talking about trade agreements, we must also move away from our policy of increasing import tariffs over the last couple of years.

Access to inputs at a stable price is critical for any value addition in the domestic economy to take place. This is the essence of why trade agreements can be instrumental in accelerating growth.

The HLAG report presents a simulation to suggest how increasing tariffs during the ongoing trade-war is likely to hurt us as against reducing our tariffs.

Further, the trade war is an opportunity to pursue a China+1 opportunity thereby making it a China + India opportunity for leading supply chains looking for an alternative destination for manufacturing activity.

The recent corporate tax rate cuts are indeed one policy instrument which has given further momentum in that direction and our improvements in Ease of Doing Business are only going to strengthen our position.

All of this makes Make in India 2.0 possible and helps usher a manufacturing revolution in India. RCEP will therefore be a critical piece of the policy conundrum that’s required to achieve the same.

Such trading blocks allow a predictable low-tariff trading regime in the region which will help India integrate with the global value chain. It will ensure low-cost inputs are readily available for value addition in India which can then either be consumed or exported.

Therefore, a critical piece of the puzzle is to be competitive in value addition to leverage on such trading agreements.

The question is do we have areas where we’ve a competitive advantage over other countries?

The answer is yes, and pharmaceutical industry is indeed one such industry amongst many.

There are many reasons why we failed to make optimal use of India’s prior trade agreements.

For starters, there’s lack of awareness of most of the provisions of trade agreements. Moreover, despite these agreements, Indian businesses continued to suffer with a high cost of capital, high cost of taxation and extreme regulatory control.

The historic tax cuts combined with improvements in ease of doing business ensure that major drags on our competitiveness are being addressed. Further, massive investments in development of infrastructure, adequate availability of electricity and a reduced turn-around time in ports are critical factors that make India a much better destination for business than it was six years ago.

In all probability, we will see further reduction in RBI’s policy rates and as the NPA situation gets addressed, we’ll be looking at greater transmission of the rate cuts. Therefore, one expects cost of capital to reduce over the next couple of years.

All of this point at the fact that India can be competitive and that it will be competitive in a lot of sectors and therefore, being a part of such trading agreements will benefit the Indian economy and help further integration in the global value chain.

Consequently, our exports will increase, and we will sustain a high-growth rate which will uplift millions out of poverty and ensure a sustained increase in the purchasing power of India’s middle class.

The only concern with respect to RCEP is whether countries would follow the rules. This is relevant due to the ongoing trade war which has been motivated by two important factors.

First is the opaque non-tariff barriers by China – or the fact that it hasn’t played by the rules.

Second is the dominant view in some OECD countries that globalisation has done little for the middle-class population in these countries.

The fact that China has been known to bend the rules in its favour and frequently manipulate its currency is a cause of concern and therefore, Indian government has legitimate reservations regarding the same.

However, there are ways to address these concerns through dialogue before finalising the RCEP. As a matter of fact, India should bet on addressing these concerns through tactful diplomacy and negotiations rather than hoping for a way to avoid becoming a part of the RCEP.

There is definitely a win-win deal that can be achieved, and it would be interesting to see how the deal shapes up now that Prime Minister Modi is in Thailand. But one thing is certain, India has a lot to gain from becoming a part of the RCEP and a lot to lose out if it were to avoid becoming a part of the same.

Narendra Modi in Thailand

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