Zhang Jiadong Director of South Asian Studies Center, Fudan University
After 7 years of negotiations, India was finally absent from the RCEP signing ceremony. If you are not interested in RCEP, India has participated in more than 7 years of arduous negotiations. This in itself reflects India's strong willingness to carry out economic reform and opening up. But if it is sincere, India has retreated at the most critical time. This has disappointed many countries, especially Japan and Southeast Asian countries. India made this choice mainly for the following reasons:
First, the colonialist experience has made India vigilant about international economic and trade agreements. Historically, the process of Indian colonization began with some economic and trade treaties. The various "funding treaties" signed between Britain and some feudal princes were a means of indirect rule over some parts of India. After independence, India has been very vigilant about joining international economic organizations and related treaties, and has adopted a negative attitude towards international mechanisms that it cannot dominate.
The second is the bad record of joining the international economic and trade mechanism. India’s economic and trade cooperation with many countries has failed to achieve the goal of developing manufacturing and improving the balance of payments. At present, India's comparative advantages in foreign economic exchanges are mainly labor, language and competitive mechanism advantages, which have little to do with the manufacturing industry that it most wants to develop. India has the world’s youngest, best English, and largest labor pool, and labor export is the main source of India’s foreign exchange. From a commodity trade perspective, India’s most competitive is generic drugs. This relies on Indians’ working experience in Western pharmaceutical companies and India’s unique position in the international intellectual property system, not because of India’s advanced pharmaceutical manufacturing technology. So in theory, joining RCEP will benefit a large economy like India. But objectively, Indian manufacturing is not only difficult to compete with China, even Southeast Asian countries cannot compete. Therefore, India is very worried that after joining RCEP, not only will it not be able to obtain the expected benefits, but it will have a greater impact on the current manufacturing industry.
The third is the resistance of domestic interest groups. India is a country that emphasizes business and ignores the market. Many sectors of the national economy are controlled by a few large family businesses, and the level of market competition is insufficient. Although these enterprises are private enterprises, they have become de facto privileged capital due to their monopoly status and long-term interest and cooperation relationship with the government. Once India joins the RCEP, in order to fulfill its international commitments, it will inevitably carry out reforms at home, which will hurt the monopoly interests of these industrial and commercial giants. At the same time, the vast number of small and medium-sized industrial and commercial workers in India are unwilling to see foreign capital enter their fields on a large scale, impacting their own economic interests and survival methods. As a result, the supply side of the Indian economy lacks competition and efficiency is not high; the consumption side of the economy lacks scale and efficiency is insufficient. This economic structure not only troubles the Indian economy, but also makes it difficult for India to carry out in-depth reforms and opening up.
The fourth is the political characteristics of India. Joining RCEP is not only an international commitment, but also a commitment to reform the domestic economic structure. The former is relatively easy, while the latter is more difficult. Reform is not only painful, but also full of political risks. But without domestic reforms, India will not be able to gain approval from international competition. Although the current Indian government is the strongest government in decades and Prime Minister Modi is the most powerful prime minister of India in decades, there is still not enough confidence in this point.
Fifth, India’s negotiation methods have not taken effect. In order to gain a favorable bargaining position, India has not taken the initiative to lower tariffs in the past few years to benchmark and adapt to RCEP rules in advance, but instead finds excuses to continuously increase tariffs. India is trying to take advantage of its huge potential market size to obtain special treatment and status from RCEP. India has repeatedly emphasized that the base year of Indian tariffs will be postponed from 2014 to 2019 because the tariff rate of Indian tariffs in 2019 is higher. Obviously, this kind of negotiation method cannot be recognized by other members of RCEP.
Sixth, political security is in charge. India is trying to selectively open its market to certain countries and is unwilling to provide opportunities to countries such as China. In fact, after entering 2020, India has not only made no progress in international economic and trade relations, but has regressed substantially. India used the border dispute as an excuse to suppress Chinese companies and caused tens of billions of yuan in losses to Chinese companies. India is playing its own domestic market as a card for strategic games with China and even the United States. Once joining RCEP, India will be subject to more international constraints, and these cards will not be easy to play.
In recent years, India has been in a position of wooing by all parties, making it a diplomatic habit to wander between parties. In the RCEP negotiations, India originally wanted to repeat the tricks and exploit the "contradictions" between China and Japan. But it is clear that the vast majority of RCEP members have not entered the "routine" envisaged by India. Whether to continue to pursue a self-reliant but low-speed and low-quality development path, or to implement vigorous reforms at home for faster and healthier development, and to adjust its perspective and way of looking at the outside world is a severe test for India.
