However, given the level of rural distress and the Opposition’s evident readiness to make RCEP a rallying point for mobilising disgruntled rural voters against the government, Narendra Modi has chosen the better part of valour, after the setback the BJP received in Maharashtra and Haryana. Hopefully, this is a tactical retreat and India would negotiate a better deal for itself and join the trading bloc later.
The irony is that Indian business is finally under some pressure to focus on efficiency as the primary route to profits. The age-old practice has been for much of Indian industry to make a killing from the very act of setting up a business: secure bank finance for inflated project costs and take the cost padding out to private accounts during the implementation of the project, while paying off neta-babu-banker for connivance and cooperation. The crisis of non-performing assets on banks’ books has stopped this merry-go-round. The Insolvency and Bankruptcy Code has threatened to prise companies that have been run into the ground out of the grubby clutches of their promoters, who know how to milk even loss-making enterprises, so long as they remain under their control.
Once the bond market develops as well, and becomes the primary means of supplying long-term finance for longer gestation projects, such as in infrastructure, it would become more difficult to pretend that power plants cost Rs 6 crore per Megawatt, when the actual cost is Rs 4 crore per Megawatt. Then would Indian big business make money from doing diligent business, as small and medium enterprises mostly do, aided, in the past, by a little tax evasion to compensate for the high cost of the credit they draw from informal sources.
When the government shelters steel, aluminium, refining and petrochemicals from external competition, metal-working industry and manufacturers of plastic products and synthetic garments find their input costs higher than that of their counterparts in countries that have stripped their industry of such layers of protection. This is why we often find newspaper advertisements in which aluminium bucket manufacturers denounce high import duties on aluminium, even as big domestic producers of aluminium wax grateful on the government’s courage in standing up against global pressure to turn India into a dumping ground for excess capacity abroad.
Cheaper aluminium would, of course, translate into cheaper aluminium vessels for domestic consumers and greater export competitiveness for makers of aluminium products, whether cable and screws or pots and pans. But cheaper aluminium would erode the margins of large aluminium makers, as well. The government has to choose where it stands on this trade-off.
China is not a fair trader. Its domestic prices are distorted by assorted subsidies, of credit, land and logistics. This is why India, along with most developed countries, has refused to recognise China as a market economy. India would be justified in resisting pressure to treat Chinese imports on par with imports from other countries in the RCEP grouping. Similarly, imports from Asean economies that add minimal value to Chinese-made inputs would not qualify for tariff-free trade in a hurry. India’s competitive advantage in services must find space for deployment in the deal that is negotiated. Such considerations and India’s mostly unorganised farmers’ interests would need to be kept in mind while negotiating the terms of the trade deal.
The point is to negotiate efficiently, and gain more than we lose in the give and take that are inevitable in a large, multilateral bargain. Splendid isolation is not a viable option in a world of globalised growth. India must prepare its case better and negotiate entry, shoring up Indian industry’s real competitiveness and improving domestic farm prices and productivity in the meantime.