Without RCEP, India’s Indo-Pacific and North-East vision unattainable

Japan and Australia, with the latter locked in a sharp trade row with China, are not only part of the RCEP, but have pushed India to join the trading block.

The oft-cited trade deficit with China ($55-60 billion) is not really a threat and is rather a structural issue with Indian industry. Trade deficits are only a problem if a nation runs trade deficits with all countries and doesn’t have the foreign exchange reserves to buy imports. Today, India has more than $500 billion in forex reserves. We also have a trade surplus with the US, the United Kingdom and the Netherlands. But neither doesn’t it mean their economies are worse off, nor that the Indian economy is stronger.

Indian telecom companies also cite 15-20 percent costlier European telecom equipment and components compared to China’s, if Huawei and ZTE are banned from the Indian telecom sector. Moreover, responding to a border standoff with China by banning imports or raising trade tariffs (as was the popular demand after the Galwan Valley attack) would harm India’s credibility before foreign investors.

The poor state of India’s manufacturing sector for producing capital goods has been largely responsible for the deficit since 8.5 percent (or $44 billion) of our imports consist of these ‘capital equipment’. India’s global share of capital goods exports stands at a mere 0.6 percent while China has become the largest exporter of mechanised equipment. Capital goods manufacturing is a testament of an advanced industrialised economy, with a direct bearing on defence manufacturing capability itself.

Not participating in the RCEP is inconsistent with the Act East Policy, where the absence from regional supply chains through geo-economic integration robs a greater say in regional politics. Both External Affairs Minister S Jaishankar and Modi have called for regional connectivity and integration with a view to boost the region’s fortunes at multilateral forums.

Also, India’s Act East policy has an overlap with the domestic concerns of developing the North-East Region (NER), whose fortunes will be transformed given its geographical and cultural ties to South East Asia. On July 23, 2020 Modi said the “North-East has the potential to become India’s growth engine” while laying the foundation stone for the Manipur Water Supply project. A June 17 Observer Research Foundation (ORF) research paper exhaustively explores the untapped export capacity of the NE states with the ASEAN region.

Thus two QUAD member countries, Japan and Australia, who have joined forces against China, are also ironically pushing India for a regional FTA which has China as a major player in it. If ‘Vasudhaiva Kutumbakam’ for a “prosperous Indo-Pacific” was Modi’s call in the March 12 QUAD Leaders’ Summit, while separately promising to unleash the development potential of India’s North-East Region, the current protectionism excludes it from the very colossal economic transformation that the RCEP’s geo-economic integration would effect. If QUAD is about the Indo-Pacific, then without India in the RCEP there is no Indo-Pacific, for the game in East Asia is about economics.