India’s Withdrawal from RCEP

One major driver behind India’s decision to embrace the “eastern” regional trade agreements during 2010–11 and graduate from the “Look East Policy” (1991) to the “Act East Policy” (2014) has been the urge to integrate the domestic manufacturing sector with “Factory Asia.” The article analyses India’s trade pattern through an endogenous structural break analysis with monthly data for 10 major sectors, involving the Association of Southeast Asian Nations, China, Japan, and South Korea separately. The analysis concludes that the recent stream of events in the aftermath of the COVID-19 pandemic offers India an opportunity to consolidate the domestic manufacturing sector.

In “India’s Withdrawal from the Regional Comprehensive Economic Partnership,” Biswajit Dhar (EPW, 16 November 2019) has argued that joining the Regional Comprehensive Economic Partnership (RCEP) would have resulted in major conﬂicts with the “Make in India” policy launched by the Government of India (GoI) in 2014. Through the analysis of India’s trade patterns with regional trade agreement (RTA) partners (the Association of Southeast Asian Nations [ASEAN], Republic of Korea [RoK] and Japan) and the largest trade partner (China) over 2010–17, the analysis observed that India has largely remained unsuccessful to significantly exploit market-access opportunities in these export destinations. Apart from worsening the overall trade balance, growing imports in major subcategories like capital goods and intermediate products in general and even consumer goods for some partners in particular (for example, RoK) underlined the intensified competition faced by domestic manufacturing sector from the “east.”

The current analysis supplements the core arguments of Dhar (2019) through the following exercises. The monthly trade data up to 2019 has recently been available in the key databases. First, through an endogenous structural break analysis with monthly trade data for 10 major sectors, the influence of India’s participation in the “east” has been identified, by considering ASEAN, China, Japan and South Korea separately. The sectors considered here include: mineral fuels (HS 27), organic chemicals (HS 29), pharmaceuticals (HS 30), knitted or crocheted garments (HS 61), garments not knitted or crocheted (HS 62), gems and jewellery (HS 71), iron and steel (HS 72), machineries (HS 84), electrical machineries and equipment (HS 85), and vehicles and auto-components (HS 87), all of which are major contributors to production, employment, and exports in India. Second, the penetration of the RCEP countries in the domestic value added (DVA) content of India’s export has been commented upon. Third, the aggregate trade balances of RCEP players are analysed over 2001–19. And finally, based on the observations, policy conclusions are drawn.