Insights into Editorial: The economics of RCEP and potential outcomes for India
Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between ASEAN and Six countries.
The countries of Association of South East Asian Nations (ASEAN) namely Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam
The six states with which ASEAN has free trade agreements (Australia, China, India, Japan, South Korea and New Zealand).
It is a proposed free trade agreement (FTA) between ASEAN and six Asia-Pacific states. RCEP is the world’s largest economic bloc, covering nearly half of the global economy.
RCEP is considered as an alternative to the other important multilateral treaties.
The Regional Comprehensive Economic Partnership (RCEP) agreement is under negotiation and has remained a much-contested subject in recent times.
It is imperative to view this agreement and its potential outcomes from an objective and balanced perspective.
India is holding comprehensive stakeholder consultations with industry as well as different ministries and departments on the pact as the grouping includes China, with which India has a huge trade deficit.
Importance of RECP Countries:
RCEP will provide a framework aimed at lowering trade barriers and securing improved market access for goods and services for businesses in the region
In 2017, prospective RCEP member states accounted for a population of 3.4 billion people with a total Gross Domestic Product (GDP, PPP) of $49.5 trillion
It is approximately 38-39 percent of the world’s GDP with the combined GDPs of China and Japan making up more than half that amount.
RCEP’s share of the global economy could account for half of the estimated $0.5 quadrillion global GDP (PPP) by 2050.
The grouping envisages regional economic integration, leading to the creation of the largest regional trading bloc in the world.
RCEP recognises the importance of being inclusive, especially to enable SMEs leverage on the agreement and cope with challenges arising from globalisation and trade liberalisation.
Importance of Signing and Ratifying of RCEP Agreement:
- RCEP needs to be understood as a “comprehensive” agreement, which helps tap the economic complementarities that get generated due to the interlinkages among various segments of trade.
- These inter-linkages are particularly important when India endeavours to integrate with a region, which has been the most successful region of the world in terms of thriving regional value chains (RVCs).
- These RVCs necessitate freer movement of professionals across countries in the region.
- This is especially crucial in a scenario when the vector of India’s demographic dividend is concomitant to the vector of the “aging” population in most RCEP countries.
- This skill-matching needs to be focused in the realm of RCEP negotiations by signing an RCEP Agreement on Movement of Natural Persons Harnessing Regional Skill-Complementarities.
All these may or may not add up to trade deficit. It is worth highlighting that trade deficit needs to be viewed in the context of its affordability.
For Instance, just as an individual loan and usage of credit cards are deficits at the micro level, but can be very helpful if it can be afforded by the individual, the trade deficit needs to be approached at the macro level.
Finally, analysts suggests that there are enormous export gains that could accrue to India from RCEP under varying scenarios.
This assumes even greater importance since our focus has been on products with favourable terms of trade for India.
This implying that per-unit foreign exchange realization from these products will be greater than per-unit foreign exchange expenditure on imports of similar products within intra-industry trade pattern.
If India is out of the RCEP, it would make its exports price uncompetitive with other RCEP members’ exports in each RCEP market, and the ensuing export-losses contributing to foreign exchange shortages and the subsequent extent of depreciation of the rupee can only be left to imagination.
Some of the sectors that have been identified as potential sources of India’s export growth impulses under RCEP to the tune of approximately $200 billion,
Exports include processed food, gems and jewellery, metal manufactures, refined petroleum, chemicals and pharmaceuticals, leather goods; textiles and clothing, automobiles and parts, electrical machinery, and parts of aircraft and spacecraft, etc.
There are more compelling trade and economic reasons for RCEP to become India-led in future, than otherwise.
India would get greater market access in other countries not only in terms of goods, but in services and investments also.
India must play its due role to get its due place in the regional economic configurations.