by Indrani Bagchi

NEW DELHI: While India's decision on Monday to stay out of Regional Comprehensive Economic Partnership (RCEP) may have had some economic rationale, India's geopolitical ambitions have taken a hit. For the moment, China appears to be the big winner here, and with its trade and supply chain networks that links to Asean, is looking to becoming the unchecked dominant power of Asia.

Evan Feigenbaum of Carnegie Endowment for International Peace (CEIP) tweeted soon after India's decision became public, "India seems to be dropping out of RCEP, meaning we are likely to have two large trade and investment "blocs"-TPP and RCEP-setting rules and standards for the economic area in this region but with NEITHER the US nor India included. US and India with a new thing in common-not necessarily a good one: now firmly united in being outside both TPP and RCEP. So, we get pan-Asian rules/standards without the "Indo" and without the giant economy across the "Pacific." Can you have "Indo-Pacific" when you have neither?"
India's decision was a tough call and deliberated at the highest level in the government for the past few months. India's decision to pull away at the 11th hour is unlikely to send a positive signal in the region. There have been concerns that India's Indo-Pacific policy would be adversely affected because it is no longer at the trade table. This perception could be gaining ground in some of these countries which means Indian outreach will have to be more substantive in the coming days.

India will now aim for bilateral trade deals with key countries in the Asian region. The first is likely to be a trade agreement with Australia, though perhaps not New Zealand. Sources said, India has identified Indonesia, Vietnam, Australia, Japan and Singapore as its key economic partners in this region. India's Asean FTA will continue, though even that is being re-negotiated, as are the ones with Thailand and even South Korea. But top sources indicated that in Asia, India would prefer to pursue bilateral arrangements for some time, much like Trump in the US.

India's presence within RCEP was something desired by almost all its Asean partners and Japan. Japanese prime minister Shinzo Abe personally intervened with Modi to persuade him to join RCEP. Other ASEAN countries have repeatedly weighed in with India to be part of the deal, to balance China.

India has been negotiating RCEP for the past seven years, out of which over five years has been in the Modi-led government. The Indian government has been conflicted about the RCEP for years, making the negotiations a less than optimum exercise. Meanwhile, the global economy has changed colour, the Indian economy is struggling, which affects the way Indian governments see trade and investment as well.

But as the negotiations proceeded, it became clear to Indian negotiators and their political leaders, many of whom spoke to the TOI, that this was an unequal FTA between India and China, where China has refused to concede on any of the big issues that India had. It wasn't also helped by the fact that Indian officials negotiated very poorly, making concessions that were indefensible, said officials.
The stumbling blocks included, according to official sources, inadequate protection against import surges, insufficient differential with China, possible circumvention of rules of origin and keeping the base year as 2014, nor was there any credible assurances on market access and non-tariff barriers. As recently as the Mahabalipuram informal summit between Xi Jinping and Modi, Indian officials briefing the media quoted the Chinese president agreeing to address India's RCEP concerns. That too fell by the wayside. 

"We made a mistake, we should have walked out well before the 29th round," said a top government source. India, he said, was in many ways, the odd one out there - all the Asean countries are part of the global supply chains, with more sophisticated systems than India. None of these countries have a problem with China's bottom-lines the way India does, because at the end of the day, India is basically, just a large market. India could have taken steps to improve its systems, regulatory mechanisms and infrastructure behind its borders to make itself more trade-friendly, but it didn't. 

Top level sources however said that signing the RCEP at this point would have forever kept India as a strategic subsidiary to China. "We cannot be showing strategic clarity on China in the security sphere but make ourselves a junior player in economy and trade," sources said. "Today is India's growing-up moment."

How India moves forward from here will determine its foreign policy in the world's most dynamic region.