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India dithers on RCEP, still weighing its pros and cons

India has some reservations about joining the Regional Comprehensive Economic Partnership (RCEP). The main objection is it would bring India into a free trade relationship with China and worsen the already large trade deficit India has with China. India also wants a slower and graduated elimination of tariffs in order to safeguard the interests of Indian domestic industry.

RCEP is a trans-Asia mega trade agreement which comprises the 10 Asean countries and their six summit partners India, China, Japan, South Korea, Australia and New Zealand. Other developing countries in the RCEP, with economies much smaller than India’s, are willing to risk competition with China but India is not. One reason is that the Indian economy is not as competitive as they are. Lack of competitiveness is due to several factors but transaction costs of exports are as much as ten per cent of export value.

The average cost per container for Indian exports is more than double the rate in China. It takes 17 days on an average to deliver exports from India. For China it is five days. Exports will become even less competitive if India stays out of RCEP since members will enjoy preferential access. The question now is: Weather India is ready to take the plunge and commit itself to regional economic integration or if the risks to India’s economy are significant enough to warrant it to opt out.