Nov 17, 2020-Tuesday
The prime directive in India’s trade policy today is simple — sign nothing that opens the door to Chinese products. That is why New Delhi turned its back on the Regional Comprehensive Economic Partnership (RCEP) trade agreement, which was signed this weekend. India will pay a price in terms of global credibility. It is rare for a country to walk out of a free trade agreement (FTA) which it engaged with from the moment of inception. Yet, it is a powerful signal that India henceforth will adhere to a strategic trade policy that breaks with its past ad hoc mix of generous market access and arbitrary protectionism. And all of this comes with minimal economic costs as India has FTAs with all but three RCEP members.
Any new trade policy, admittedly, remains a road under construction. Over the next few years, the Narendra Modi government must show it has an alternative trade strategy and the capacity to implement it. Some elements of a new policy are evident. One, the spadework for new bilateral trade deals with the United States, the United Kingdom and others that emphasise forward-looking areas such as digital sectors and immigration has begun. Two, India has joined nascent bodies such as the Supply Chain Resilience Initiative and begun holding talks for technology-investment coalitions in 5G telecom and pharmaceuticals. All these have the same principle in common — they exclude China.
India’s new external economic policy is far from perfect. Its new bilateral investment draft treaty has no serious takers. On the other hand, many of its new domestic economic reforms mesh squarely with a 21st-century trade strategy. But the shadow of RCEP will only go away when India’s new trade posture results in something tangible.