Joining RCEP to hit India as investment destination, overwhelm MSMEs, capital flight: GTRI

New Delhi: India would fail to become the preferred investment destination of investors seeking to pursue a China+1 strategy if it joins the Regional Comprehensive Economic Partnership (RCEP) agreement, think tank Global Trade Research Initiative (GTRI) said Sunday.

It also cautioned that the move would result in flight of domestic capital in the manufacturing sector out of India and that introducing tariff-free Chinese goods into India could “overwhelm” MSMEs, as their smaller-scale operations are unlikely to withstand competition from China’s mass manufacturing.

Earlier this month, Niti Aayog CEO BVR Subrahmanyam said that India should be a part of the RCEP and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

India had exited the RCEP in 2019 after its concerns related to high trade deficit with China remained unmet despite entering negotiations in 2013.

“The challenges RCEP poses for India’s domestic industries, particularly MSMEs and agriculture, suggest a cautious approach,” GTRI said, adding that the benefits from joining it are “minimal and incremental” especially considering China’s opaque trade practices and India’s widening trade deficits with member countries.

In September, the World Bank suggested India to reconsider joining the RCEP bloc which comprises 10 Asean group members—Brunei, Cambodia, Indonesia, Malaysia, Myanmar, Singapore, Thailand, the Philippines, Laos and Vietnam. It also includes their five free trade agreement (FTA) partners—China, Japan, South Korea, Australia and New Zealand.“Without internal reforms to streamline trade processes, boost operational efficiency and reduce infrastructure-related costs, India’s ability to reap benefits from RCEP remains uncertain,” GTRI founder Ajay Srivastava and trade expert Abhijit Das said
in the report.

Moreover, India already has several functional FTAs with 13 out of 15 RCEP members, except New Zealand and China and joining the bloc would likely add little new export opportunity for India as its exports to Beijing are not growing since the last five years, according to the report.

Quashing the argument that RCEP membership would help India integrate into regional value chains (GVCs), GTRI said that despite zero-tariff trade of most industrial goods with ASEAN, Japan, and South Korea for over a decade, India has not become a significant GVC player.

As per the report, a targeted focus on improving competitiveness, rather than joining expansive trade agreements, may better serve India’s long-term economic interests.