Here's why India decided to stay out of RCEP— a free trade agreement

• The Regional Comprehensive Economic Partnership (RCEP) is a trade pact between 16 countries.
• Negotiations that lasted for seven years have concluded and India has decided to opt out of the pact.
• Indian industry fears that it will be outrun by foreign competition because of RCEP.

India has decided not to sign the Regional Comprehensive Economic Partnership (RCEP) after negotiations that lasted for seven years.

The free-trade agreement was being negotiated between Australia, China, India, Japan, New Zealand and Korea on one side and the 10 South East Asian countries⁠— Indonesia, Thailand, Singapore, Malaysia, the Philippines, Vietnam, Myanmar, Brunei, Cambodia, Laos⁠— on the other.

The idea behind RCEP is to make trade easier and tariffs lower for exporters from these countries. However, Indian companies are afraid that this agreement will give foreign players a free ride in the Indian market and put homegrown companies at a disadvantage.

But that is all free trade is all about⁠—- increased competition, better deal for consumers, and weeding out the inefficient. But policies can’t entirely stand on ideology. It has to account for ground realities.

The five sectors in India that would have taken most of the hit from increased competition due to RCEP are textiles, dairy, steel, automobiles, and agricultural products.

Out of these five textiles and steel have already lost a lot of export competitiveness in recent years. Car makers have been crushed under collapsing demand at home⁠— sales have been declining for months together. The entry of foreign companies would have further squeezed the space.

Dairy has been a big point of contention. India is the world’s biggest consumer of milk and milk products and many Indian political outfits⁠— even those close to the government⁠— have sought to keep dairy out of the RCEP.


All these are sectors that employ a lot of people and if Indian companies fail to match foreign competition it may lead to large scale unemployment, which is already very high.

“Indian industry will have more to lose than gain if it agrees to a liberal tariff elimination schedule especially with respect to China.A separate tariff schedule for different partner countries has already been rejected by member countries," an earlier Niti Aayog report said.


"At a time of growing protectionism and US’s stance towards China opening our market to China can be prove to be disastrous given proper standards and processes are not in place in India. Trade agreements are a means to promote bilateral trade, with both parties benefiting as a result of trade complementarities. With China, India’s trade seem to be very skewed and China’s capacity overhang in most sectors may lead to a surge of imports into India with very limited access for Indian exports into the chinese market,” the report added.

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