India’s decision to exit RCEP will protect the economy from cheap imports, particularly from China, thereby saving jobs even as the country misses out on the opportunity to become a part of the global supply chain, which would have benefited industry in the long-run.

Indian trade and industry said the move would protect manufacturing and services from unfair competition and dumping of goods, resulting in the closure of units and increased unemployment.

“India’s several concerns remain unaddressed and various issues are unresolved so far in the proposed deal under negotiation. In recent months serious apprehensions and reservations on RCEP have been expressed by a large number of sectors including steel, plastics, copper, aluminium, machine tools, paper, automobiles, chemicals and petro-chemicals,” Ficci president Sandip Somany said:

He said there were not enough positive developments in the area of trade in services including easier mobility for professionals and service-providers.

After years of negotiations, India on Monday pulled out of China-backed mega Regional Comprehensive Economic Partnership (RCEP) over unresolved “core concerns”, with Prime Minister Narendra Modi saying the proposed deal would have adverse impact on the lives and livelihoods of all Indians.

The Confederation of India Industry (CII), which was supportive of the RCEP agreement, said it would continue to engage with the government so that the economy gets integrated into the global value chain.

CII president Vikram Kirloskar said: “CII welcomes the RCEP leaders’ joint statement acknowledging India’s very legitimate concerns and we urge all countries to work with India to resolve them.”

He said the CII would continue to work for mutually beneficial trade agreements. “The long-term interest of industry in India is to get well integrated in global value chains and beneficial trade agreements could play important roles in realising this interest.”

Biswajit Dhar, a professor at the Jawaharlal Nehru University, said there were legitimate concerns of Indian industry with regard to the agreement.

“The grouping should have taken into account concerns of all the 16 countries before finalising the agreement. Now, we have to prepare ourselves for the future,” he said.

Rakesh Mohan Joshi, professor at the Indian Institute of Foreign Trade, said the move was a clear reflection that India was carefully considering its interest to protect industry and farmers against unfair competition. He said it would give huge relief to the dairy sector.

S.C. Ralhan, president of the Federation of Indian Export Organisation, said the RCEP would not have given any advantage to exporters to explore the Chinese market.

Analsysts said the government would have to work with the industry to be more efficient and competitive as it cannot continue to protect with high tariff regime.

The Regional Comprehensive Economic Partnership (RCEP) is a mega free-trade pact being negotiated among 16 countries. The members were 10-nation bloc ASEAN, India, China, Japan, South Korea, Australia and New Zealand.

Praveen Khandelwal, secretary general, CAIT said “industry and Service sector shall be highly compromised and the entire business environment of the country will be vitiated in the event of India being a part of a draconian treaty such as RCEP.”

China is the world’s biggest manufacturing hub and they would have got the best opportunity to explode and dump the Indian Market with Made In China products at very low prices & substandard quality thereby creating a disequilibrium in the Indian markets.

Even the Indian exporters would not be able to get the right value or buyers for their products as most Indian manufacturers would have been ignored citing low quality or high price by the RCEP nations.

Overall the entire vision of Prime Minister’s Make In India would have been rendered futile and ineffective had India signed the RCEP in its present form and letter, he said.

Presence of China in the grouping has raised concerns as Indian industry was of the view that it would flood domestic market with Chinese goods. Several sectors like IT and pharma have time and again flagged issues with regard to trade barriers in entering the market of the neighbouring country.

India has pitched for auto-trigger mechanism in the RCEP agreement as a remedy against sudden and significant import surge from countries such as China to protect domestic players.

Biswajit Dhar, a professor at the Jawaharlal Nehru University, said there were legitimate concerns of Indian industry with regard to this agreement. “The grouping should have taken into account concerns of all the 16 countries before finalising the agreement. Now, we have to prepare ourselves for the future,” he said.

Rakesh Mohan Joshi, professor at the Indian Institute of Foreign Trade, said the move was a clear reflection that India was carefully considering its interest to protect industry and farmers against unfair competition. He said it would give huge relief to the dairy sector.

S.C. Ralhan, president of the Federation of Indian Export Organisation, said RCEP would not have given any advantage to exporters to explore Chinese market.

Engineering exporter and former FIEO (Federation of Indian Export Organisation) president S C Ralhan said that it was a welcome decision by India. “Steel and certain engineering players have raised serious objections over this pact. RCEP would not have given any advantage to exporters to explore Chinese market,” Ralhan said.

Trade experts, however, said the government would have to work with the industry to be more efficient and competitive as it cannot continue to protect with high tariff regime.

“The government was caught in a catch 22 situation – if it had joined the pact, it would have resulted in reduction in tariffs and opening of the market, especially from China. This would have impacted domestic industry, which has survived with high tariff barriers. The surge in imports would have resulted in several industries closing down, which would have resulted in increased unemployment and social unrest,” they said.

They pointed out that most of the Asean countries have low level of tariffs already and deal would have not resulted in increased tariff cuts. However, for India it would have resulted in steep cut, which would impact the industry.

Trade deficit had widened considerably post such treaties. “India’s past experience with FTAs warrants caution. The country’s trade deficit with ASEAN has tripled since FTA with some of them,” an analysis by Emkay Global Financial Services has said.

Data showed that the country’s trade deficit with ASEAN from less than $8 billion in 2009-10 jumped to about $22 billion in 2018-19.

Micro Small and Medium Enterprises (MSMEs), which have been majorly impacted after demonetisation, need to be strengthened to face competition from other players. India’s agri sector might also be impacted with FTAs.

“It is tough to say whether Indian services will benefit, as China and Thailand are emerging as new services hubs for attracting FDIs (foreign direct investments),” the Emkay report said.