Note4Students
From UPSC perspective, the following things are important :
Mains level: Regional Groupings; Trade Relations; Significance and issues related to RCEP;
Why in the News?
According to NITI Aayog CEO, India should join the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
What are the implications of India joining RCEP and CPTPP?
- Enhanced Trade Opportunities: Joining RCEP and CPTPP could significantly boost India’s trade by providing access to larger markets, particularly in Asia-Pacific regions.
- These agreements encompass a wide range of goods and services, potentially increasing India’s exports, especially from its Micro, Small & Medium Enterprises (MSMEs), which account for 40% of exports.
- Integration into Global Supply Chains: Participation in these trade blocs would facilitate India’s integration into global supply chains, allowing it to benefit from the ‘China plus one’ strategy that many countries are adopting to diversify their supply sources away from China.
- This could enhance India’s manufacturing sector and attract foreign investment.
- Regulatory Alignment: Being part of these agreements would necessitate aligning India’s regulatory frameworks with international standards, which could improve the business environment and attract more foreign direct investment (FDI).
How does India’s current tariff structure affect its competitiveness in global trade?India’s current tariff structure is characterized by relatively high average tariffs compared to other major economies. For instance:
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What are the risks associated with joining RCEP, particularly concerning competition with China?
- Increased Competition with China: One of the primary risks of joining RCEP is the potential for increased competition with Chinese firms, which may have cost advantages due to economies of scale and established supply chains.
- Pressure on Domestic Industries: Opening up to international competition might pressure local industries, particularly in sectors where they are less competitive compared to their counterparts in member countries.
- This could lead to job losses and require significant adjustments within certain sectors.
- Easy geopolitical Impact on the economy: Increased reliance on trade agreements may expose India to external economic fluctuations, particularly if global demand shifts or if geopolitical tensions impact trade dynamics within these blocs.
Way forward:
- Selective Tariff Reductions and Safeguards for Sensitive Sectors: India should negotiate phased tariff reductions and secure safeguards for vulnerable sectors like agriculture and small manufacturing.
- This approach would protect local industries while allowing gradual integration into RCEP and CPTPP markets.
- Strengthening Domestic Industries and MSMEs: India can boost competitiveness by enhancing MSME support through targeted subsidies, infrastructure improvements, and technology upgrades. Strengthening these sectors will help India leverage new market access and build resilience against foreign competition.
Mains PYQ:
Q Evaluate the economic and strategic dimensions of India’s Look East Policy in the context of the post-Cold War international scenario. (UPSC IAS/2016)
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