India breaks from Regional Comprehensive Economic Partnership
INDIAN Prime Minister Narendra Modi has pulled India out of the 16-member trade deal known as the Regional Comprehensive Economic Partnership (RCEP) while the nation suffers from a prolonged economic slowdown and unemployment hits its highest level in four decades
INDIAN Prime Minister Narendra Modi has pulled India out of the 16-member trade deal known as the Regional Comprehensive Economic Partnership (RCEP) while the nation suffers from a prolonged economic slowdown and unemployment hits its highest level in four decades.
Like US President Donald Trump, who said he withdrew from the Trans Pacific Partnership trade deal to protect American workers, Mr Modi and his ministers are now selling his refusal to join RCEP as a victory for India's poor, reported Bloomberg.
However, the move doesn't necessarily mean Mr Modi is giving up on big economic reforms. His past record with disruptive policies like demonetisation, a strengthened hand in India's upper house of parliament and four years left in his second term might mean he could still surprise investors with structural reforms such as a long-awaited loosening of restrictive land and labour rules.
'If you look at the macro situation, he has to create a better climate for investment,' said senior fellow Niranjan Sahoo at the Observer Research Foundation in New Delhi. 'And that will not happen unless you liberalise land and labour and other areas that have been untouched for several decades.'
For Mr Modi, the current domestic situation could not have been less conducive to signing an international trade pact designed to more closely integrate India's economy with the countries of RCEP, which include China, Japan, Australia, South Korea, New Zealand and the 10 members of the Association of Southeast Asian Nations.
India's economic slowdown has worsened dramatically since Mr Modi won re-election. And although Indian politicians are averse to freer trade at the best of times, it would've been extremely risky to open India's markets to cheap goods from China, as well as agricultural imports from Southeast Asia, at a time of rising discontent.
The angst started to show up at the polls, with Mr Modi's ruling Bharatiya Janata Party only narrowly winning elections in the states of Haryana and Maharashtra. Both states have substantial farmer populations that could have been hit by more competitive rice imports from Southeast Asia and concerns were mounting about India's manufacturing sector, which has seen auto-makers suffer a major decline in sales.
'The decision by Prime Minister Modi to pull India out of the RCEP negotiations reflects considerable concerns domestically about the potential impact of RCEP on Indian industry,' said IHS Markit Asia Pacific chief economist Rajiv Biswas. 'The Indian economy is experiencing a significant slowdown in growth momentum currently, with sectors like autos and capital goods experiencing a severe slump.'
India already has free trade agreements with some parties to RCEP, including Asean, South Korea, Malaysia and Japan. One Indian official, who asked not to be named, criticized these deals for dramatically increasing India's trade deficit and hurting domestic industry, and said the government couldn't go ahead with RCEP before renegotiating parts of these deals.