SBI report warns RCEP may hit domestic producers if India fails to build capabilities

India will be reaping benefits of the proposed mega trade deal, the Regional Comprehensive Economic Partnership (RCEP) only if it builds capabilities. Otherwise it runs the danger of seeing adverse impact on domestic producers, cautions a research report from the State Bank of India (SBI).

The SBI Ecowrap report has come days before the crucial meeting of the negotiating partners of RCEP in Bangkok, Thailand. The leaders of 16 RCEP negotiating nations are slated to meet on November 4 to announce the result of their seven-year long negotiations.

"India ran a merchandise trade deficit with 11 out of the 15 other RCEP members in 2018-19 totalling $107.28 billion. India's overall merchandise trade deficit was $184 billion in 2018-19", the report said. It added that in 2018-19, 34 per cent of India's imports were from this region, while only 21 per cent of exports went to this region. "Considering segment-wise imports and exports, India runs trade surplus in agri and allied products, textiles, gems and jewellery. However, this is minuscule compared to our deficit in other commodities. There is also a lingering concern that even the small surplus in these segments might turn into a deficit once India becomes a part of RCEP", says Soumya Kanti Ghosh, group chief economic adviser, SBI.

The report points out that India's milk and dairy product imports could increase if New Zealand and Australia succeed in negotiating reduced duty on dairy products. Also, there is fear that imports of crcheaper electronic and engineering goods from China could increase further post RCEP impacting manufacturing sector.

"Multiplicity of Trade agreements is leading to complexity in the trade framework. Also, according to a study, the utilization rate of India's FTAs is very low. Most estimates put it at less than 25 per cent. Lack of information on FTAs, low margins of preference, delays and administrative costs associated with rules of origin, non-tariff measures, are major reasons for underutilization", it says.

Just entering into agreements and focusing on tariff reduction won't help unless India takes up the task of building high value goods at competitive prices. All these factors have to be kept in mind before entering into RCEP, the report cautions.

However, keeping out of RCEP will also have its own worries, the report says. "If other countries go ahead and sign the RCEP without India, then it can be detrimental to India's export ambitions as it could miss becoming part of global supply chains for high-end goods such as electronics and engineering", Ghosh states.

The RCEP negotiations were launched by leaders from 10 ASEAN members and 6 ASEAN FTA partners (Australia, People's Republic of China, India, Japan, Republic of Korea and New Zealand) on the sidelines of the East Asia Summit in Phnom Penh, Cambodia on 20 November 2012. The negotiations went through several rounds and it is expected that the deal will be signed by the members by this year. All in all, there are 25 chapters to be negotiated, majority of which have been agreed upon.

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