RCEP Signed One Year After India's Withdrawal
15 Asian nations signed the trade deal on Sunday, forming the world's largest trading bloc
Hi there, I’m Aman Thakker. Welcome to Indialogue, a newsletter analyzing the biggest policy developments in India. The aim of this newsletter is to provide you with quality analysis every week on what’s going on in India.
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India Remains Out of RCEP as Trade Deal Signed
Leaders from 15 countries - the ten members of the Association of South East Asian Nations (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam), as well as Australia, China, Japan, New Zealand and South Korea - announced they had formally signed the Regional Comprehensive Economic Partnership (RCEP), creating a trade agreement that included 2.2 billion people and $26.2 trillion (or roughly 30%) of global GDP.
However, the trade deal was originally supposed to have a 16th member: India. India had participated in 28 of 31 rounds of talks over the six year period during which the agreement was negotiated, but withdrew almost exactly a year ago on November 4, 2019. In announcing India’s withdrawal agreement, Amb. Vijay Thakur Singh, the then-Secretary (East) in the Ministry of External Affairs said that “India had significant issues of core interest that remained unresolved…. India has participated in good faith in the RCEP discussions and has negotiated hard with a clear-eyed view of our interests. In the given circumstances we believe that not joining the agreement is the right decision for India.”
Back in November 2019, I wrote about India’s decision for The Hindu, arguing that:
Given India’s own ambitions to generate growth and jobs through spurring manufacturing within India, and becoming a key player and rule-maker on the world stage, India’s decision to withdraw from the RCEP is not ideal. India now faces a choice: does it translate this withdrawal from the RCEP into a commitment for domestic reforms to prepare itself for the next opportunity to integrate itself into the global value chains and unleash Indian manufacturing? Or does it revise its ambitions and, as the Prime Minister said, remain “isolated and sitting alone in a corner?” Hopefully, India chooses the former path.
Looking back on these arguments, and the events in the year since, there is certainly much to reflect on India’s decision to pull out from this regional pact. Firstly, and perhaps most obviously, is that India’s relations with China have taken a significant nosedive, further cementing Indian distrust of Chinese intentions among decision-makers and decision-shapers, as well as the general public. India’s response to the China’s salami slicing in the Himalayas has been to respond with economic tools - banning Chinese apps, blocking Chinese investment, and preventing Chinese vendors from participating in government tenders, among other steps.
Moreover, supporters of the decision to withdraw have been quick to point out that India already does have free trade agreements (FTA) with a majority of the members of RCEP. India signed an FTA with all ten members of ASEAN in 2010, and also has FTAs with Japan and South Korea. Hence, India would only be expanding its FTAs to Australia, New Zealand, and China. They argued, therefore, that given the threat of Chinese imports driving Indian businesses out of the market, India’s rising trade deficits with the RCEP member states, and the relatively meager gains on services, where India has a comparative advantage, it was not in India’s interest to join RCEP.
I can certainly understand the logic behind these arguments. At the same time, however, India’s decision to withdraw from RCEP lays bare the fact that India now lacks a strong economic component in its strategy to engage its most important partners in the Indo-Pacific. While it has been advancing the values of freedom, openness, and inclusivity in the region, it economic and trade policies only suggest restrictions, closeness, and protectionism. Not only has India withdrawn from RCEP, but it is the midst of reviewing its existing FTAs with ASEAN, Japan, and South Korea, underscoring a desire to step back, rather than deepen, its economic and trade ties with Indo-Pacific partners. However, the impact is not simply on these values, but on India’s own interests as well. India now finds itself outside of the two largest FTA - RCEP and the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). With global supply chains likely to coalesce around these mega-regional trade agreements, how will India reach its own goals to become, as articulated by Prime Minister Modi, a “Global Manufacturing Hub.”
One year on after India’s withdrawal, the members of RCEP have left the door open for India to rejoin the agreement, saying the pact remains “open for accession” to India. For now, India has passed, with Secretary (East) Riva Ganguly Das saying “As far as India is concerned, we did not join R.C.E.P. as it does not address the outstanding issues and concerns of India.” And I’m certainly willing to entertain arguments that an RCEP with China in current conditions may not be a possibility. However, that only begs the question: What, then, is India’s economic and trade strategy to engage the Indo-Pacific? And on that important question, answers remain scant, vague, or absent.
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A New Biden Administration, and What It Means for India
All states have now been called in the 2020 U.S. Presidential election, with former Vice President Joe Biden declared as the new President-elect by all major news sources. The focus has now, understandably, shifted to how the incoming administration will make and execute policy, and what those continuities and changes will mean for India. To get a sense of the lay of the land, I’d recommend checking out:
Raj Chengappa’s cover story for the India Today Magazine, which cites:
Dr. Ashley Tellis, Tata Chair in Strategic Affairs at the Carnegie Endowment for International Peace
Dr. Tanvi Madan, Senior Fellow at the Brookings Institution
Dr. Aparna Pande, Research Fellow at the Hudson Institute
Michael Krepon, Co-Founder and Distinguished Fellow at the Henry L. Stimson Center
Amb. Navtej Sarna, former Indian Ambassador to the United States
Amb. Shivshankar Menon, former National Security Advisor of India
Suhasini Haider’s “Biden, India and comfort in the old normal” for The Hindu
Akriti Vasudeva’s “A Biden-Harris Administration Spells Steady Continuity in US-India Relations” for The Diplomat
Salvatore Babones’ “Biden and Harris Could Be Bad News for India’s Modi” for Foreign Policy
The Latest on India-China Tensions
It’s now officially over six months since the tensions between India and China began in Eastern Ladakh (if you count May 5, which is the earliest date in public sources, as the start of the tensions).
India and China held their 8th round of Corps Commander-level meetings on November 8th, 2020.
In a statement released by the Ministry of Defense, there was little to report, with both countries stating what they’ve been saying for months - that both sides agreed maintain dialogue and communication, implement the consensus reached by leadership on both sides, and meet again soon.
However, reports emerged after the meeting that there might be a breakthrough.
Nitin Gokhale, a defense analyst and founder of StratNewsGlobal, reported that:
“In the eighth round of talks between Corps Commanders on November 6, the Chinese side has apparently agreed to go back to Finger 8 and remove all temporary structures and deployments the PLA had put up between Finger 4 and Finger 8 since May. Once that is done, both sides are likely to agree to keep the area between Finger 4 and 8 as a ‘no-patrolling’ zone for the foreseeable future. In effect, it would mean neither PLA troops can come up to Finger 4 nor would Indian soldiers go patrolling to Finger 8 as was the practice before May 2020.
If those steps are undertaken, Gokhale says both sides may follow up by withdrawing heavy armor and artillery platforms from the region.
However, separate reporting by Ajai Shukla, a former Colonel in the Indian Army and defense writer for Business Standard, said that the proposals, while “publicly called a ‘mutual troop withdrawal’” would actually “require Indian soldiers to withdraw first from their tactically advantageous positions south of Pangong Tso lake.”
He compared the situation to Doklam, where “the government of India accepted a similar “mutual troop withdrawal”, which actually required Indian troops to withdraw first.”
He said such a situation allowed for the Chinese to “not keep its end of the bargain. Chinese troops withdrew only partially from Doklam and then re-entered the disputed area in greater numbers once public attention had turned away from that face-off.”
It’s also important to remember that much of this reporting is based on off-the-record conversations with sources in government. While both analysts are incredibly well-respected and their sourcing top-notch, it’s still an imperfect picture.
In closing, there’s a lot we don’t know, and lots that could still happen.
For a Deeper Dive
Dr. Arzan Tarapore, research scholar at the Shorenstein Asia-Pacific Research Center at Stanford University, recently held an in-depth conversation with Dr. Ashley Tellis, Tata Chair for Strategic Affairs at the Carnegie Endowment for International Peace. The discussion was focused on the provocative but important (and arguably necessary) question: “Is India Losing?” with regard to its efforts to deter China, not only in Eastern Ladakh, but across India’s national security interests. I highly recommend their discussion if you’d like a deeper dive on the issues at stake in the India-China relationship:
News Roundup
Prime Minister Modi addressed the 17th India-ASEAN Summit, where he announced a $1 million contribution from India to the ASEAN COVID-19 Response Fund, offered $1 billion in a line of credit to support connectivity projects in ASEAN countries, and welcomed the adoption of the new ASEAN-India Plan of Action for 2021-2025. The full text of his speech is available here.
The Cabinet approved the Production-Linked Incentive (PLI) Scheme, which is aimed at enhancing India’s manufacturing capabilities in ten key industries. Full details of the scheme, the approved sectors, and the specific product lines within each sector are available here.
The Cabinet Secretariat announced new rules, amending the Government of India (Allocation of Business) Rules, 1961, that would place oversight of digital and online media, including streaming services such as Netflix, Amazon Prime Video, Disney Plus, Hostar, as well as online news websites and current affairs websites, under the purview of the Ministry of Information and Broadcasting.
The Bharatiya Janata Party and its allies won a majority of seats in the recently concluded legislative assembly elections in the state of Bihar, with the BJP and its allies winning in 125 out of 243 total seats. The opposition alliance, which included the Rashtriya Janata Dal, the Indian National Congress, and several Communist parties, won in 110 seats.
External Affairs Minister Dr. S. Jaishankar addressed the 15th East Asia Summit, where he emphasized the centrality of ASEAN in India’s Indo-Pacific vision and expressed concerns over China’s actions in the South China Sea.
The Ministry of New and Renewable Energy released a concept note regarding the “Development of Wind Park/Wind-Solar Hybrid Park Regulations,” outlining that “the capacity of each park should generally be 500 MW and more,” and that the role of the state government is to assist with land acquisition for the park site and facilitate park developers in obtaining all the necessary clearances. The concept note is open to comments until November 28th.
The National Payments Corporation of India granted permission to Whatsapp, the Facebook-owned messaging service, to roll out its payments system in a “graded” manner, beginning with 20 million users in India. It also announced that third-party payment services, such as PhonePe, GooglePay, and the new Whatsapp Pay, would have to operate within a cap of handling no more than 30% of the total payment transactions over India’s Unified Payment Interface.
The Ministry of Labour and Employment notified the draft rules under the Code on Social Security, 2020. The rules will impact the Employees’ Provident Fund, Employees’ State Insurance Corporation, Maternity benefits, Social Security benefits and more. The full draft rules are available here.
Five to Read
From cogent analysis to potentially big news that you should keep an eye on, here are a few commentaries and other pieces of writing that I found particularly enlightening:
Jeff Smith, research fellow at the Heritage Foundation, argues: “From Washington, it can appear at times as if India is dragging its feet. Next to America’s decades-old treaty alliances with Japan or Australia, Indian-U.S. ties are sometimes portrayed as underachieving or failing to meet expectations. That assessment is understandable but fails to appreciate the historical context, the distance the two sides have already traveled, and how the partnership is viewed from the other side. From India’s vantage point, the strategic partnership with the United States is already an anomaly, a new gold standard pushing the boundaries of alignment. It is already the most expansive strategic partnership India has forged since independence, in all but arms sales surpassing the heights of its relationship with the Soviet Union. For all practical purposes India is already aligned — it has made its choice. It’s just that, as with everything else, New Delhi is pursuing alignment on its own terms.”
Khushi Singh Rathore, Doctoral Candidate in International Politics at the Centre for International Politics, Organization and Disarmament (CIPOD), School of International Studies at Jawaharlal Nehru University, argues: “Today, the strength of the IFS cadre is 815, with 176 women officers, 19 of them serving as heads of Indian missions to various countries. Hence, it raises the question of why women diplomats occupy a disproportionately small number of the highest offices. Some might advance arguments of meritocracy or the rules of service as explanations.However, it is difficult to not ask how, in the seventy-five years since Indian independence, the foreign service has not found enough meritorious women diplomats to be promoted to the top posts. A look into the government archives tells a different story. There have been several women officers of great merit, but they are seldom celebrated.”
Abhijnan Rej, Security & Defense Editor at The Diplomat, interviews Colonel David O. Smith (retired), a distinguished fellow with the South Asia program of the Stimson Center and former senior U.S. Defense Intelligence Agency officer, about his new book, The Wellington Experience: A Study of Attitudes and Values Within the Indian Army: “All three groups of Indian officers at the DSSC (in all three services) continue to mistrust the United States, which they consider to be neither an ally, a true friend of India, nor a trustworthy security partner. This finding would not have been surprising anytime in the first few decades of the study, but in light of the hyperbolic official rhetoric both sides have used in the past decade to describe the bilateral relationship, it is disappointing to say the least. Possibly the most insightful characterization of the current state of the relationship came from one of the most recent DSSC graduates I interviewed,, who characterized the Indian military’s perception of the United States as a friend from whom one can get many things, but to whom nothing needs to be given in return.”
Dr. Ila Patnaik and Dr. Radhika Pandey, both at the National Institute of Public Finance and Policy, write: “India has seen a sharp increase in capital flows over the last three months. From March to May 2020, there was a coronavirus-related selloff, which resulted in an outflow of foreign capital from India. This reversed since June: net portfolio investments increased to US$ 6.7 billion in August from US$ 3.4 billion in June. After recording a modest outflow in September, net portfolio flows have rebounded in October. A key reason for the flooding of capital into India is the quantitative easing measures adopted by the central banks in advanced economies to address the economic fallout of the Covid-19 pandemic. Another reason, particularly for the surge in inflows in August was the raising of capital through Quantitative Institutional Placement (QIPs) by large commercial banks such as ICICI bank and HDFC bank that resulted in large inflows.”
Ruhee Neog, Director of the Institute of Peace and Conflict Studies, writes: “While India has made room for greater rhetorical emphasis on democracy as the ideal system of government, these enunciations were, and continue to be, generalist. The prominence of “democracy” in statements and speeches over time has often been precipitated by opportunities to mitigate India’s security vulnerabilities and for status enhancement. These opportunities have emerged from both a changing global geopolitical environment and changes in the liberal international order’s view of India’s democratic credentials... As a subject of inquiry, therefore, an examination of New Delhi’s approach to externalizing democracy provides broader insights into Indian foreign policy thinking and practice.”
Thanks for reading this latest edition of Indialogue. Please let me know if you have any thoughts or feedback by emailing me at aman@amanthakker.com.