It was meant to be the biggest free trade agreement with 40 per cent of global commerce and 35 per cent GDP involving 16 countries, home to 3.6 billion people or half the population of the world. Now, more than a third of that population group will not be a part of the Regional Comprehensive Economic Partnership or RCEP.
"Neither the Talisman of Gandhiji nor my own conscience permits me to join RCEP," said Prime Minister Narendra Modi in Bangkok on Monday as India stormed out of the free trade agreement negotiations that began seven years ago.
The rest 15 countries decided to move ahead, at the insistence of China, in a bid to "isolate" India. The 16 members of RCEP negotiations were 10 ASEAN members plus Australia, China, India, Japan, New Zealand and South Korea. However, without India, RCEP does not look as attractive trade pact as it promised to be during the negotiation stage.
Refusing to join the RCEP, PM Modi said the pact does not address satisfactorily India's outstanding issues and concerns. RCEP backers complained that India pitched in its demands at the "last minute". However, India had raised the issues during the negotiation stage as industry and farmers had expressed their serious concerns over RCEP.
India's economy is passing through a difficult time. The rate of GDP growth has been slowing down for five consecutive quarters, that is, since January-March 2018. The GDP growth figures have been a topsy-turvy curve since the rollout of goods and services tax.
Combined with demonetisation move in November 2016, the GST rollout proved to be a double-disrupter of the economy, which is yet to fully come to terms with these two key decisions.
As the industry is reeling under pressure and the government is grappling to deal with the domestic economic situation, a massive free trade pact like RCEP would have exposed the Indian businesses and agriculture to unequal competition from countries which are lurking like giant sharks in the export arena.
India, as a whole, is a 'bad' business entity. It has massive trade deficits with almost all economic powerhouses of the world. Of the 15 RCEP countries, India has serious trade deficits with at least 11.
India's trade deficit with these countries has almost doubled in the last five-six years - from $54 billion in 2013-14 to $105 billion in 2018-19. Given the export-import equation with the bloc, a free trade agreement with the grouping would have increased it further.
At present, India ships 20 per cent of all its exports to the RCEP countries and receives 35 per cent of all imports from them. China is the ringmaster of this export-import circuit. It is the largest exporter to almost all countries of the group, including India. Of India's $105 billion trade deficit with RCEP countries, China accounts for $53 billion.
Widening trade deficit would empty foreign exchange reserve of India at a faster rate. And, a depleting foreign reserve is never good for any economy and is least desirable for the one trying to recover.
INDUSTRIES AND FARMERS
RCEP was one of those pacts that were opposed by both the industry and farmers alike. The manufacturing sector in India is in crisis. The sector has seen a contraction in recent months. Manufacturing output grew at its slowest pace in two years in October, according to Nikkei Manufacturing Purchasing Managers' Index INPMI=ECI, compiled by IHS Markit.
The services sector is also not doing well, of late. It has seen, in the NPMI=ECI survey, first back-to-back monthly slowdown since July-September 2017 in October. China and ASEAN countries have robust service sector, and free entry to these players may damage the lone saviour of the Indian economy in these times of crisis.
In agriculture, domestic players dealing in dairy products, spices -- chiefly pepper and cardamom, rubber, and coconut would face dumping from the South Asian spice majors. Sri Lanka is already giving a tough time to Indian spice growers.
Vietnam and Indonesia have very cheap rubber to export. Australia and New Zealand are waiting for free access to India for their dairy products. Indian businesses would be hit hard as RCEP does not offer enough protection to them.
The Niti Aayog, in 2017, had published a report that pointed out that free trade agreements have not worked well for India. It analysed multiple free trade agreements that India signed in the past decade. Among those were FTA with Sri Lanka, Malaysia, Singapore, and South Korea.
The Niti Aayog analysis showed that import from FTA countries increased while export to these destinations did not match up. Even India's export to FTA countries did not outperform its overall export growth. The Niti Aayog found that FTA utilisation by India has been abysmally low between 5 and 25 per cent.
Finally, RCEP has come up as a Chinese gameplan to save its manufacturing industries from crumbling under their own weight. Several industrial players in India red-flagged the Chinese agenda of flooding the Indian market using the RCEP countries as a connecting network.
China has already covered most markets united under the RCEP umbrella. The same Niti Aayog report pointed out that China has changed the trade equation with the ASEAN countries after inking ACFTA - standing for ASEAN-China free trade agreement - in 2010.
ASEAN-6 (Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam) had a trade surplus of $53 billion in 2010 which turned into a trade deficit of $54 billion in 2016.
India, with its 1.3 billion population, offers the biggest free access market to the Chinese companies that are feeling the pinch of US-China trade war with Donald Trump administration taking on the manufacturing giant in the past one-and-a-half years.
China needs greater access to the Indian market to sustain its manufacturing industries. A failure to find a market will have a cascading effect on the Chinese economy and President Xi Jinping's global ambitions. In Bangkok, PM Modi just refused to be a willing dumping ground of China's trade imperialism.
India wanted a key clause to be included in the RCEP pact for the auto-trigger mechanism as a shield against sudden and significant import surge from countries (read China). The RCEP covers trade in goods and services, and also investments, economic-technical cooperation, competition and intellectual property rights.