Rethinking RCEP: India’s absence from such a market would disadvantage both its consumers and firms

Amit Kapoor

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The World Bank’s India Development Update, released in September, recommended that the country revisit its commitments to plurilateral trade deals, especially the Regional Comprehensive Economic Partnership (RCEP). The RCEP, the negotiations of which saw India play a pivotal role right from the commencement of talks in 2013, is a free-trade agreement (FTA) between the 10 ASEAN (Association of South East Asian Nations) countries and the advanced economies of South Korea, Japan, China, Australia, and New Zealand. The reasons cited by Indian stakeholders for not joining the partnership were trade imbalances, especially with China, and concerns about safeguarding domestic industries.

It has been empirically established that open trade flows contribute to the competitiveness of any economy with freer economies tending to be richer. Despite sustained economic growth surpassing global headwinds, the share of trade in goods and services in India’s GDP has been falling over the years. Moreover, the exports are dominated by the services sector and high-skilled manufacturing. Such sectors, though significant in absolute numbers, do not employ a large section of the population. This has become more prominent as the direct employment from exports fell from a peak of 9.5% of total domestic employment in 2012 to 6.5% in 2020. Despite accounting for 40% of formal manufacturing jobs, India’s labour-intensive industries such as textile and apparel accounted for roughly 20% of manufacturing gross value added (GVA) compared to the 70% share of the capital-intensive sector. Even in the traditional stronghold of service sector exports, India serves only 4.3% of the global demand. These numbers highlight the huge potential for the country to diversify and upgrade its export capabilities. With the unpredictable trade atmosphere and rise of protectionism in the Western world, the RCEP would have provided a fertile ground for diversification away from the traditional markets and opportunities for productivity growth and innovation.