Sanjaya Baru | India and East Asia: It’s a return to geo-economics

Addressing a business chamber in New Delhi last week, Mr B.V.R. Subramanyam, Niti Aayog CEO, said that India “should” join the RCEP, adding “that will be best for India’s micro, small and medium enterprises”. He went on to also suggest that India sign up for membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). While China is a member of RCEP, it is at present an applicant for the membership of CPTPP. Japan has been keen that India join both.

“I don’t think we have captured the ‘China-plus-one’ opportunity as much as we could have”, said Mr Subramanyam, echoing the views of his colleague V. Ananta-Nageswaran, the chief economic adviser and principal author of the Economic Survey. The Survey had advocated easing up on investments from China as a means to reduce the large and growing trade deficit that India faces in its bilateral trade with that country.

Responding to the Survey’s advocacy, several retired diplomats and the usual suspects in New Delhi’s foreign policy think tanks demanded a rap on the knuckles of the presumptuous economic policymakers. How dare economists tread on national security territory, they protested. The initial ruckus was quickly followed by complete silence. The ones who look to the government for relevant policy signals seem to have understood that there was some new thinking within the highest levels of the government. The Niti Ayog CEO’s remarks suggest that there is indeed some new thinking on the subject. At any rate, economic calculations have once again entered geopolitical considerations.

One must add that neither the ministry of commerce and industry nor the Niti Ayog have as yet put out any policy white paper for experts outside to read and comment. It may well be that both Mr Ananta-Nageswaran and Mr Subramanyam are flying policy kites to see if their ideas would fly. So far, the Swadeshi Jagran Manch has remained quiet and analysts at think tanks who are constantly second guessing the government and writing to secure its approval have remained quiet.

India was a founding member of RCEP when trade policy negotiations began in 2012. For seven full years, Indian trade negotiators actively participated in the discussions that led to the launch of RCEP in 2020. However, at the very eleventh hour, in November 2019, Prime Minister Narendra Modi trashed the speech that had been prepared for him that would confirm India’s membership of RCEP at a summit meeting in Bangkok. To the surprise of everyone around, the Prime Minister announced that India would not join the RCEP.

The government’s spin doctors immediately sprang into action and a loyal media went along putting out the thesis that the membership of RCEP would amount to opening the doors wide to Chinese imports and would have disastrous consequences for the economy. When I expressed my disapproval of the decision in my columns, a senior member of the Narendra Modi government asked me: “Do you want the de-industrialisation of India?”

To view external trade as an instrument of de-industrialisation is an idea that has roots in the history of colonialism. In India the post-Independence policy of import substitution and high tariffs was based on such an understanding. With time India discovered the benefits of trade and rediscovered its own pre-colonial history of trade across Eurasia. William Dalrymple’s new book, The Golden Road: How Ancient India Transformed the World, testifies to this long history of external economic engagement.

India’s share of world merchandise exports went down from two per cent in 1950 to 0.5 per cent in 1990, but rose handsomely in the 1991-2011 period thanks to the trade and industrial policy reforms initiated in 1991. India notched up impressive performance in service exports, with India’s share of world merchandise and services exports taken together crossing 6.0 per cent by 2010. During the decade 2004-2014, the share of foreign trade in national income rose to a high of 56 per cent. Since 2014, that share has remained well below 50 per cent. The record of the Narendra Modi government in the realm of foreign trade -- both policy and performance -- has been disappointing, particularly since 2019.

While the threat of Chinese imports was cited as a reason for staying out of the RCEP, the fact is that since 2019 these imports have only increased and the trade deficit has consistently risen against India. The dynamics of India-China trade proved the RCEP exit decision of 2019 to be poor judgement, at best, and politically motivated, at worst. Some analysts have said that the real issue was the lobbying done by Gujarat’s dairy industry against RCEP, fearing a flood of Australian and New Zealand dairy products.

More than the economics of RCEP, there is also the geopolitics of India’s economic integration into Asia towards its east. Mr Modi’s 2019 decision was met with sad disapproval of his own friends like Japan’s Prime Minister Shinzo Abe and Singapore’s Tharman Shanmugaratnam. It is, therefore, interesting that the Niti CEO’s remarks were made at the time when external affairs minister Subrahmanyam Jaishankar was back in Southeast Asia re-affirming India’s commitment to closer ties with the region.

India’s Look East and Act East policy would have little meaning for the region if the trade and investment doors remain shut or are difficult to easily open. There is no point harking back to some golden past if there is no currency in the level of contemporary engagement. While India must pursue preferential and free trade agreements with the European Union and the United States, it can ill afford to neglect the opportunities in East and Southeast Asia. Both the RCEP and CPTPP are pathways to the region, especially if India seeks integration into global supply chains.