A week after India opted-out from the Regional Comprehensive Economic Partnership (RCEP) negotiations, former NITI Aayog vice chairman Arvind Panagariya said it is in India’s interest to join the proposed body. He spoke with Harikishan Sharma about RCEP and other issues. Edited excerpts:
What is the reason behind India’s decision to opt out from the RCEP deal?
Prime Minister (Narendra Modi) outlined many of these reasons as they were looking for a better bargain. Some of the concessions they were seeking were not offered. So, they chose to stay outside. My own reading is that this is not the final word, more negotiations will happen.
So you are still hopeful that India will join RCEP?
I think it is in India’s interest and would imagine the PM recognises that. But, some of the concessions that India was asking for had not yet come through. It is a very large market; you have 3 billion people; 20 per cent of the global GDP is covered in that. So you can’t be outside of it. That would mean that anything we export to those markets will be subject to very high tariffs whereas other 15 countries, who are members already, they will be exporting their products freely to each other’s market. That leaves our exporters at a very big disadvantage.
Do you think India’s domestic industry is ready for RCEP?
My view is that the political leadership has to be more courageous and take necessary action. You see, this is an argument that played out in 1991 also. At that time also, a lot of people in the industry were saying, let’s open the competition domestically. Remember, at that time we used to have investment licences. So they were saying, remove investment licensing but let’s not remove the tariffs and the import licensing because we will not able to compete against the outsiders. But I think, at that time, the political leadership took the right decision. They showed the courage and they opened both — they ended licensing and they allowed imports. At the end of the day, our industry did adjust. We did do it gradually … I think we can do the same thing today.
There is a fear that cheaper imports will flood the Indian markets?
When you do a free trade agreement like RCEP, there will be a period of 15 to 20 years to implement it and lots of this implementation, countries backload. So you don’t immediately knock down tariffs. You very gradually do it and a large part of the tariffs knock down towards the end of transition period. So, this whole thing about — we sign the deal today and the avalanche of imports of new products from China will begin is all wrong.
Is India’s trade administration efficient to handle the deals like RCEP?
We should have a separate body like the office of the United States Trade Representative (USTR) for trade negotiations, which is actually under the President’s office. Similarly we should think of a negotiating office, which is actually part of the Prime Minister’s Office or maybe the External Affairs Ministry. It can be headed by a political person in the rank of a Cabinet minister and manned by professionals such as lawyers and economists with some training in negotiating. Our Commerce Ministry, historically, has been very protectionist. So it is very difficult that any liberalising reform will end up originating in the Commerce Ministry.
Coming back to RCEP, what gives you confidence that India will eventually sign the deal?
I believe in the PM. He wants to take the country forward. He is a risk-taking person. We have seen him in a number of areas. Ultimately, Indian industry has to compete in the global market. Otherwise, we are left isolated and Asia is a very large growing market to which gradually the central gravity of even global economy is moving. So we can not afford. I hope the PM sees that.
Do you think that by not joining RCEP, India is moving more towards the West?
We should try to have an agreement with the European Union also and down the road with the US. The US is a little harder because agriculture is a sensitive issue for us. With the US, it will be very hard to have an agreement if agriculture is not opened up. The US has very serious export interests in agriculture. It wants to open agriculture but for us its hard. But the EU has less problems because they are not an exporter in agriculture. So we certainly do those also. This is a great time for India to bring in large multinationals as investors into the country and if they have duty free access to the large Asian markets, it will be an added kind of incentive for them to locate themselves in India. If RCEP is signed by other 15 countries and we are sitting outside, no multinational will want to come here.
… despite the reduction in the rate of corporate tax for new companies?
If they are coming only for the domestic market then the tax cut is the only thing that matters but generally, multinationals sell their products around the world so then they are going to see that by locating in India, they will be facing custom duties in those markets whereas if they locate themselves in one of the RCEP countries- Indonesia, Thailand or Vietnam- then they can tap that market duty free. On that account, it put us on disadvantage.