India’s decision to remain outside the Regional Comprehensive Economic Partnership (RCEP) has received fresh validation from a comprehensive study by the Global Trade Research Initiative (GTRI).
The analysis suggests that joining the trade bloc could potentially worsen India’s existing trade imbalances and threaten the survival of domestic industries, particularly in the MSME sector.
The RCEP, which encompasses the 10 ASEAN nations along with China, Japan, South Korea, Australia, and New Zealand, represents a significant economic force, accounting for 30 per cent of global GDP and approximately half of the world’s population.
India’s withdrawal from the agreement in 2019 was driven by concerns over trade inequities and the protection of local industries.
According to the report, authored by trade experts Ajay Srivastava and Abhijit Das, India’s existing free trade agreements have already led to substantial trade deficit increases.
The study reveals striking statistics: trade deficits with ASEAN grew by 302.9 per cent, South Korea by 164.1 per cent, and Japan by 138.2 per cent between 2007-09 and 2020-22.
The situation with China is particularly concerning, with India facing an USD 85 billion trade deficit in FY24.
The GTRI analysis challenges the conventional wisdom regarding global value chain integration through RCEP membership.
Despite maintaining free trade agreements with 13 of the 15 RCEP nations, India has struggled to establish itself as a significant player in global value chains, primarily due to infrastructural and regulatory challenges.
This finding comes amid suggestions from senior officials, including Niti Aayog CEO BVR Subrahmanyam, to reconsider RCEP membership.
The study also questions the potential benefits of RCEP membership for foreign direct investment, noting that the relationship between FTAs and increased FDI remains inconclusive.
Moreover, the report emphasises that Indian exports to China have remained stagnant over the past five years, suggesting that RCEP membership would offer minimal export opportunities while potentially flooding domestic markets with Chinese goods through member countries.