India risks losing its exports to a China-backed trade bloc

As the trade pact kicks in, the tariff will be eliminated on at least 92% of traded goods among participating countries

India may lose its key manufacturing export’s market share to a China-backed Asian trade bloc. Last year Prime Minister Narendra Modi walked away from this safeguard the interests of the local farmers and industry.

As the trade pact rises in, a tariff of at least 92% of the traded goods among the participating countries would be eliminated. Considering India’s already existing Free Trade Agreements (FTA) with Japan, South Korea and ASEAN, this seems much broader.

“In sectors where India is somewhat contributing to the global supply chain, RCEP would prove to be disadvantageous,” says Amitendu Palit, a Senior Research Fellow at the National University of Singapore. “Under RCEP, cost of trade will come down which is a big advantage” he added.

According to economists, some of India’s top 10 exports like – engineering goods, chemicals, pharmaceuticals, and electronics face erosion in their market share. This is because of the lower tariff that is leveraged for trading among the members of the 15-nation Regional Comprehensive Economic Partnership (RCEP).

“The common rules of origin make the bloc an attractive destination for supply chains by making it easier for RCEP members to source inputs from within the bloc,” says Priyanka Kishore, Head of Economics for South Asia and South-East Asia at Oxford Economics.

Prime Minister Narendra Modi was pulled out of the world’s largest FTA to relieve farmers and in return exit as a victory for India’s poor. However, the economic condition has degraded owing to the COVID-19 outbreak, as the gross domestic products showed a major decline among the major economies. Therefore, RCEP is now seen preparing for lowering the trade barriers for member nations at a critical phase when the pandemic poses a threat to the global market.

According to a paper by Peterson Institute for International Economics, the withdrawal of the agreement would mean a loss of 1.2% of India’s projected GDP in the year 2030.

This has raised concern for the exporters about the plans that may take a hit due to the lack of competitive access to a huge market. “Many sectors would want to shift to nations in the bloc to get access to the market and a common rule of origin is a big advantage,” says Sharad Kumar Saraf, President of the Federation of Indian Export Organisation.

Since China takes up a greater role in Asian trade, the only consolation for the Indian exporters in a post RCEP world would be the proposed free trade deals with India’s top export destinations – the EU, the U.K. and the U.S.

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