Playing catch-up: Looming trade questions for India and South Asia

The study has been authored by Sanjay Kathuria, TG Srinivasan, and Prachi Agarwal

Historically, South Asian countries, including India, have been rather timid in their overall approach to international trade. The latest example of this is the decision by India to opt out of the Regional Comprehensive Economic Partnership (RCEP), with stated concerns including a possible surge of manufactured imports from China and dairy imports from New Zealand. India’s neighbours have been even more hesitant to embrace trade as a vital cog in development, erecting barriers to regional and global trade, arising from fears about Chinese and Indian imports. All of this has made South Asia the most protected as well as the least integrated region in the world.

India, have been timid in their overall approach to international trade.

Even as South Asia hesitates, its highly competitive East Asian neighbours are striding ahead, raising the bar for South Asia to attract foreign direct investment (FDI) and access global markets. Vietnam, in particular, shows strong recent evidence of deepening its already firm commitment to international trade, concluding free trade agreements with the European Union (EVFTA), the United Kingdom and with the ASEAN plus five countries (RCEP). Earlier, Vietnam signed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which came into force for Vietnam in 2019. Further from home, the renegotiated US-Mexico-Canada Trade Agreement (USMCA) has rewritten some rules of trade between the three countries, potentially affecting South Asian countries. Moreover, the US-China trade war, along with President Joe Biden’s recent presidential order to maximise government procurement of “Made in America” goods and services, provides a mixture of some new opportunities and some potential new hurdles for South Asian countries.

In addition to preference erosion, the next decade will likely witness major global shifts in trade flows arising from efforts to secure robust supply chains in critical products such as semi-conductors and pharmaceutical products for Western countries, commitments to net-zero carbon emissions by 2030, and from developments in areas such as artificial intelligence, 5G telecom, biotechnology and renewable energy.

The question now is, how can India address the likely significant erosion in market access and changing incentives for investment? In addition, instead of being reactive to the changing environment, could India take a more pro-active approach to building economic alliances—addressing both market access as well as technology access—that take into account the rapid developments in advanced technologies? This note poses a number of questions and initial hypotheses in this regard, based on preliminary data analysis, setting the agenda for future exploration. It will be followed up by a series of policy papers that will analyse many of the questions that it poses. The note will also attempt to draw implications for some other South Asian countries, to the extent that they are affected by the changing global alliances as well as India’s approach to these alliances.

The study can be accessed here

(The study has been authored by Sanjay Kathuria, TG Srinivasan, and Prachi Agarwal)