Metals industry relieved as India leaves RCEP

Metals sector heaved a sigh of relief after Prime Minister Modi decided against joining the Regional Comprehensive Economic Partnership, a Chinese-backed free trade agreement (FTA) among 15 nations that would have made the largest trade bloc in the world.

The RCEP, if one were to include India, would include countries accounting for a third of global economic output and half of the world’s population. RCEP negotiating partners include 10 South-East Asian economies and six others—China, Australia, Japan, South Korea, New Zealand and India.

The domestic steel sector, which has long opposed the one-sided nature of India’s existing free trade agreements, was opposed to the RCEP from the start.

India has raised concerns about the unsustainable trade deficit that it has with countries such as China and wanted RCEP member countries to open up their labour market for Indian workers and reciprocate its opening up of the market so that Indian businesses could benefit in other areas. India had a trade deficit of $53 billion with China in FY19.

The RCEP will still go through without India’s participation. While the final details of the RCEP framework are not known, India has voiced its concerns about getting swamped by imports under the agreement. India runs a large trade deficit with RCEP countries and was looking for protection for its domestic industry and farmers, especially against an influx of Chinese imports. India has also been worried about possible circumvention of rules of origin of imports, restrictions on movement of labour between member-nations and no credible assurances on non-tariff barriers.

Market traders feel the resolution to opt out of the RCEP agreement is a rational step to maintain a level playing field for the Indian industry. 

For the metal sector, which is already under stress caused by global trade wars and protectionist measures, signing up for RCEP would have resulted in further deepening of India’s trade deficit with China and other nations.

Refusal to join RCEP however cannot be taken as the only means to boost domestic productivity at present. This has to be complemented with reforms to lower input costs like finance, power, logistics; and removal of bureaucratic hindrances.

Further to protecting vulnerable industries, commitments from the trade partners in order to lower trade barriers to trade in services, and allowing easier and more work visas for India’s pool of skilled labour would have made the RCEP deal work for India. 

Enhancing manufacturing in India will require several structural reforms that requires immense political courage. Only then could we overcome our limitations, confidently.

Also India should also explore FTAs with its key markets—the EU, US and UAE— for chugging the economy forward.