Sunday, August 1, 2021

India’s Regional Economic Engagement Strategy: 2020 And Beyond

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The initial contours of a clearly defined and well-crafted regional economic engagement strategy appear to be discernible in the diplomatic corridors of Indian establishment, as we turn the calendar to begin 2020, on a fresh note. Till recently, Free Trade Agreements (FTA’s), even if slightly unfair, were viewed as an important means to be regionally relevant. They were perceived to be a Hobson’s choice which India had to live with to ensure that its voice is heard in the global comity of nations. This thinking changed dramatically when India pulled out of the Regional Comprehensive Economic Partnership (RCEP). It marked a strategic shift in our foreign economic policy and decoupled the thinking that pursuance of regionally relevant strategies might necessitate a certain degree of tolerance for lopsided trade agreements.

The decision to withdraw from RCEP was taken in the Bangkok summit meeting by none other than Prime Minister Narendra Modi. The message which India sent was loud and clear. If core demands which impinged on interests of Indian farmers and Micro, Small & Medium Enterprises (MSMEs) are not protected, then India shall not bat an eyelid in withdrawing from such groupings. Our engagements shall factor in the balance of interests between economic diplomacy and vital national interests. As one of the fastest growing economies, India is well on its path to be a 5 trillion-dollar economy in the next few years and clearly this growth is not intended to be achieved by riding on strategies which impinge interests of vital sectors of our domestic economy.

Most of India’s trade deals are with its East Asian neighbours’ – a logical outcome of our Look East and thereafter Act East policies. These deals have been marred by huge trade deficits, restricted market access for Indian products and concomitantly very low FTA utilization rates. Often caught between the contradictory demands of foreign strategic and economic policies and protecting vital domestic interests and sectors- diplomats were definitely seeking crisp and clear policy directions and negotiating mandate. The Government has clearly outlined the way ahead. India shall not be defensive in negotiating its trade deals or apologetic in protecting its vital domestic interests. Negotiations shall be on an equal footing aimed to strike mutually beneficial deals.

Allaying fears of a turn towards protectionist policies, India has signaled its intention to revisit and renegotiate the existing agreements and focus on new bilateral trade deals to ensure equity and fairness. Existing FTAs with South Korea, Japan and ASEAN have review clauses, which India intends to use, to open up issues like Rules of Origin and non-tariff barriers. India has flagged the matter with the European Union (EU) to restart stalled negotiations on a Broad-based Trade and Investment Agreement (BITA). Both sides appear to be positively disposed to look afresh, tricky issues involving agricultural market access, tariffs structures and intellectual property rights. India has also actively engaged the US for a bilateral trade agreement. An independent trade deal with the U.K, post- Brexit, is also being contemplated. There have been demands for engaging Israel, Australia, New Zealand and Eurasian Economic Union, where India foresees substantial gains.

India has signaled its intention to be an integral part of the global and regional value chains by promoting free and fair trade and investments. The establishment has indicated that sufficient homework and transparent stakeholder consultations shall precede FTA negotiations. These deals shall not be hurried into, and the trade and industry given sufficient lead time to prepare for changes in tariffs and regulatory regimes arising out of new FTAs. FTAs of the future shall factor in interests not only in the goods sector but also in other areas like the services sector in which India has strong offensive interests. Thus, 2020 shall definitely usher in a new and bright chapter, insofar as India’s regional economic engagements are concerned.

 

Script: Satyajit Mohanty, IRS, Senior Economic Analyst

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