NVDB005_-_CH_3.012._India’s_Economic_Influence_in_the_Indo-Pacific_-_Mihir_S_Sharma-2

61 — DP Vol. 05

Regional Security Dilemma: Trends, Directions, and Illusion

Mihir Swarup Sharma is the Director Centre for Economy and Growth Programme at the Observer Research Foundation. He was trained as an economist and political scientist in Delhi and in Boston. His book, Restart: The Last Chance for the Indian Economy, was published in 2015; it won the Tata LitLive best Business Book of the Year and was longlisted for the Financial Times–McKinsey Business Book of the Year.

In 2019 Mihir co-edited What the Economy Needs Now with Abhijit Banerjee, Gita Gopinath and Raghuram Rajan. He is also the India columnist for Bloomberg Opinion, on the Editorial Board of the Business Standard newspaper in New Delhi, and an Aspen Fellow.

Economics or Geopolitics?

India was widely expected to be one of the founding members of the Regional Comprehensive Economic Partnership, known as RCEP. In dramatic fashion, India’s Prime Minister Narendra Modi chose at the last minute to withdraw India’s candidacy for the trade agreement during the closing summit of November 2019 in Bangkok, saying that his “conscience” would not allow him to permit India to join fifteen other countries in the world’s largest free trade agreement.

Given that this came at the end of more than eight years of discussion, of which India was an integral part, it was naturally seen as a great disappointment – particularly by India’s close economic and geopo- litical partner, Japan. Although India and Japan already have a relatively deep and robust FTA, Tokyo may have hoped that New Delhi’s presence in RCEP would help to dilute the notion that the bloc was essentially creating a Beijing-led structure for trade in the Indo-Pacific.

It should thus be clear that the reasons both for India’s possible presence in RCEP and its decision to not enter are closely related to geo-political and geo-economic questions about the future of the Indo-Pacific and India’s role in the region – and not just the costs and benefits for Indian companies and consumers. While the Indian government has consistently expressed scepticism about possible benefits from tariff reduc- tions, and showed concern in particular about its dairy and other sensitive agricultural sectors during RCEP negotiations, a major reason for its eventual refusal to join is unquestionably the general belief of the Indian political class that the agreement is centred around the export powerhouse that is the People’s Republic of China.

Trade Hesitation vs Geopolitical Hesitation

Policymakers in New Delhi have expressed concern in the past about a “unipolar Asian economic order”, especially in the context of large economic programmes such as the Belt and Road Initiative (BRI). This reflects India’s traditional prioritization of its “strategic autonomy” in both political and economic alignments. Hesitation over RCEP should be seen as another example of this concern, not a broader refusal to engage further with trade agreements. This is in spite of the possibility that Indian partners, including Japan, would have preferred an India inside RCEP that would have helped balance China’s power in the grouping.

In the period since India refused to join RCEP, further developments have underlined this. In 2020, a clash at the disputed Sino-Indian border resulted in the deaths of twenty soldiers from the Indian Army and an unknown number from the Chinese People’s Liberation Army (PLA). Bilateral economic relations suffered greatly as a result. In particular, the Indian government put constraints on investment from China and restricted trade in Chinese goods. This would naturally have been far more difficult had India entered into the RCEP process. After the 2020 crisis, the military and political relationships between India and China are unavoidably linked to the bilateral economic relationship. RCEP, by placing FTA-related constraints on the bilateral economic relationship, would have been seen as reducing strategic autonomy to an unacceptable extent by Indian policymakers.

India’s willingness to enter into other FTAs in the past year, including with the RCEP member Australia, is another indication that it may not just be trade skepticism but broader geopolitical concerns that are responsible.