There is a Hindi proverb to describe those who invite trouble: "Aa bail, mujhe maar" (Come bull, gore me). We might as well invent a new-age idiom if we were to invite trouble in a manner that China would trouble India's economy: "Come dragon, gore me". As it happens, China is an ostensible trading partner for India, but from security issues to manufacturing competitiveness, things are on such a fragile ground between the two Asian giants that it makes sense to hasten slowly on everything in which the elephant might want to embrace the dragon.
To this, we might add the idea that Australia and New Zealand, ever the friendly economies for India, can be seen in a different light when they are viewed as agricultural superpowers.
In such a context, Prime Minister Narendra Modi has done the wise thing in keeping India out of the ambitious Regional Comprehensive Economic Partnership (RCEP), the planned ASEAN-plus free trade area with ten members of the Association of South East Nations (ASEAN) joining Japan, Oceania, South Korea and China. His own self-image as a decisive leader has been asserted in the process, but more importantly, it shows that joining the RCEP as a founding member would be a risk India can ill-afford in a new world economic order.
While RCEP, now reduced to 15 members after India's decision, may be painted as a single economic grouping that offers low tariff barriers and market access to member economies, the simple fact is that the dice are loaded against India in what would be a certain gamble in uncertain times for India's struggling economy. India has enough wounds to heal in its economy before it can afford to play footsie with Asia-Pacific wannabes offering a charming embrace.
India's economy and polity both have a strong agricultural grounding, and its demographics are such that more than a billion people depend on their livelihoods in a stable farming environment. Farmers, on the other hand, are not a happy lot. From unremunerative agricultural prices to restrictions on crop residue burning, they walk the wedge as much as India's manufacturers have to look over their shoulders to see if Chinese counterparts are selling or dumping goods in a manner that threatens their future.
Consider the fact that both the white and green revolutions that India can be proud of are at potential risk. Australia and New Zealand, who we have just started outshining in our favourite sport, may well turn the economic game into something that is simply not cricket. Farm wages are rising in India, while the demographics are such that food security is a double-headed problem. Imports may threaten farm sector competitiveness while rising farm prices threaten consumer price stability for the industry and service sectors.
Modi has, therefore, rightly invoked a Gandhian allusion to considering the plight of the poor and the farmers in rejecting the RCEP.
At one level, the staying out does question India's credentials in the march to globalisation, but this is not 1991, when the domestic economy was in a balance of payments crisis and opportunities and threats were both conducive to a step towards globalisation. A few years later, when the Bharatiya Janata Party (BJP) came to power, it invented a term called "calibrated globalisation" in its bid to defend the domestic industry from being quickly cast to the uncertain whirlwinds of global capital. The situation has not changed much since then as far as India's manufacturing and agricultural sectors are concerned.
India's core strength is human capital, and anti-immigration and protectionist narratives in the West are gently but firmly laying down limits to leveraging India's inherent potential. On the other hand, 63 years of active industrialisation since the start of the second Five Year Plan in 1956 has given India a strong manufacturing base. It is not good enough to uniformly or easily compete against the Chinese or the West, but strong enough to serve a local economy.
It is noteworthy that India has trade deficits with as many as 11 of the RCEP's 15 partner economies.
The ink has barely dried on Modi's slogan linked to the nationwide Goods and Services Tax (GST): "One nation, one market." From the judiciousness of the rates involved to actual GST collections and sharing the revenues from it between states, India has to manage its own house first. Add to this the persisting crisis in the banking and financial service industry amid an industrial slowdown, and an income support scheme for farmers that has barely got off the ground amid a fiscal crunch. You get the picture: RCEP is a recipe for a risk that adds more uncertainties to an already uncertain ground.
Though one does not know what goes on inside the prime minister's mind, it can be said safely in the backdrop of the challenging measure to introduce a GST and a thoroughly controversial demonetisation of high-value currency notes, he must have felt it wise to be in agreement with the Congress party's opposition to the RCEP.
Economists like Arvind Panagariya argue that India can be base for exports to other RCEP economies if multinationals (read: Western giants) invest here to tap the new regional market in the Asia-Pacific. But we need to ask: What are the opportunity costs of this risk? We might add that there are unresolved issues linked to infrastructure. Investing in large manufacturing bases are not as easy as it might seem.
Does that mean India stays a lonesome wanderer in the global economy? Obviously not. India's subcontinental dimensions offer internal opportunities for growth. There is plenty of plumbing to do in everything from banking to macroeconomic stability, but the doors are already open for foreign investors across the board. Engaging meaningfully with Europe and the US can still do wonders for India.
As for RCEP, India must keep its doors open for possible future engagements. For this, RCEP should be viewed as a "mini-WTO" where India can negotiate the details of its entry (think visas, regional security and farm sector safeguards and exceptional import duty protection). The bargaining should be such that it gives India a fair chance of stable growth and managing a transition to better opportunities.
It is true that the RCEP is part of a desirable "Look East" approach in India's diplomacy. But looking before you leap is a key part of the game. It also pays to remember that the RCEP is essentially a move to counter the US, which has a special relationship with India on everything from technology-based industries to security aspects. There is no need to be a groupie in a hurry.
Japan, an RCEP member, can be for India a special partner, given its rich resources that complement that of India rather than compete with it. South Korean manufacturing chaebols already have a huge presence in India. Nothing stops them from helping India boost its competitiveness as an exporter if India has to find a place as an equal partner in the RCEP.
We can continue to play cricket with the Aussies and buy Ganesha idols from the Chinese. Sparring with a kangaroo and dating a dragon is fine. Deeper engagements can wait.
(The writer is a senior journalist and commentator. He tweets as @madversity)
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Updated Date: Nov 05, 2019 14:12:46 IST