How will RCEP help economic reforms in India; know here

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Published: July 28, 2017 4:01:12 AM

For ASEAN, India offers a huge domestic market with a growing aspirational middle class.

RCEP, economic reforms, economic reforms in india, India-ASEAN partnership, sectoral partnership with ASEAN, Free Trade Agreement, Make in India, ASEAN members, digital production linkages, India Green FundBeing a part of the RCEP will facilitate further economic reforms in India. (Image: PTI)

The year 2017 occupies a special place in India-ASEAN partnership. Exactly 25 years ago in 1992, India inked a sectoral partnership with ASEAN. In hindsight, one could argue that the raison d’etre of India’s ‘Look East Policy’ found its relevance in the partnership that India took forward in establishing an FTA with the ASEAN, but it was a vision that resulted in forging a significant strategic, trade and economic partnership. Since 1992 many bilateral meetings, summits and minitrial meetings have taken place on a wide range of sectors, so much so that prime minister and president of India have visited majority of ASEAN countries. India’s kickstart in implementing the Free Trade Agreement (FTA) between ASEAN and India in 2010, has resulted in further tariff liberalisation and trade expansion. In addition, the services, trade and investment agreement signed in 2015, also represents major achievements in ASEAN–India integration.

India completed its tariff liberalisation obligations in December 2016. Investment flows have started coming into the country in a miniscule form, however they tend to contribute to the activity ‘Make in India’ programme. India is also a partner of the Regional Comprehensive Economic Partnership (RCEP), which is a comprehensive free trade agreement being negotiated between the 10 ASEAN members and ASEAN’s six FTA partners.

By becoming a partner of the RCEP, India would be in a position to deepen integration among the member countries, while promoting goods and services trade, investment, the IT sector, competition and dispute settlement. Given that the possibility of India joining the TPP is still a long way off, being a member of the RCEP will help India prepare itself to better engage with mega FTAs in the future. The RCEP itself will also benefit India. RCEP is an ambitious mega FTA that covers 16 countries, a third of the world’s economy and 45% of the global population. Last couple of years, however, have witnessed dismal growth as far as trade relationships go between India and ASEAN. However, 2016-17 is showing some signs of improvements. Countries like Malaysia, Indonesia and Singapore are emerging as India’s top-three trade partners in ASEAN. Total trade increased to $70.68 billion in 2016–17, from US$65.12 billion in 2015–16. During this period, India’s exports to ASEAN increased to $30 billion from $25 billion. While traditional import sources are yet to stabilise, India is gaining industrial, technological and digital production linkages with Malaysia, Thailand and Singapore.

To take this trade and economic activity forward, India needs to sharply focus on the issue of connectivity. Connectivity is just not about a strategic priority for both India and the ASEAN countries, rather it can evolve great source of trading activities which can connect India to a great extent with Australia, New Zealand and South Africa, which are the main emerging and powerful trading destinations. Improved connectivity can also help in facilitating cross-regional production networks. India has announced a line of credit worth $1 billion to promote projects that support physical and digital connectivity with ASEAN, and a Project Development Fund with a corpus of $77 million to develop manufacturing hubs in Cambodia, Laos, Myanmar and Vietnam. India contributes to three major cooperation funds with ASEAN, namely the ASEAN–India Fund, the ASEAN–India Science and Technology Development Fund and the ASEAN–India Green Fund.

Further advantage for India-ASEAN partnership will provide India to connect itself with global value chains. ASEAN has been a great region in establishing international production network (IPN). India can gain from such experience and help micro and small-and medium-sized enterprises (MSMEs) into regional value chains. The ministry of external affairs has taken initiative to provide project development fund to encourage integration of Indian producers into ASEAN’s regional value chains. This initiative plans to help create manufacturing hubs in Cambodia, Laos, Myanmar and Vietnam leading to the establishment of a new regional economic order within ASEAN. Given that India is a world leader in the IT sector and an attractive destination for foreign direct investment, there are huge opportunities for ASEAN to forge a deep relationship with India.

Focusing on trade in services with ASEAN will give India an opportunity to use its competitive strength to become a services export hub for the ASEAN region. Being a part of the RCEP and having strong relations with ASEAN through its existing FTA will facilitate further economic reforms in India. And, more significantly, it will allow India to establish itself as a growing economic power in Asia.

Professor, Lal Bahadur Shastri Institute of Management (LBSIM), New Delhi. Views are personal.

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