Trade aversion

Source: The post is based on an article “Trade aversion” published in The Business Standard on 13^th September 2022.

Syllabus: GS 2 – Important international groupings

News: India has recently decided to stay away from the trade aspect of Indo-Pacific Economic Framework (IPEF).

The government has argued that there are not clear guidelines and commitments in the areas of labour, environment, and public procurement are still emerging.

This decision of India might affect its long-term economic goals.

Although India has joined the three pillars of IPEF (supply chains, tax and anti-corruption, and clean energy) but the decision to stay from the trade pillar will weaken its position.

Why are the issues involved with the decision of India to stay away from the trade part of IPEF?

India’s decision to stay away from the trade pillar of IPEF could has geopolitical and geoeconomic implications.

First, India is not a member of any mega trade agreement yet. IPEF provided an opportunity for India to build trade partnerships with countries in the region along with the US.

Second, it is possible that India will not be benefitted from supply chain pillar of the IPEF as well. Because trade and supply chains are interconnected and interdependent.

Third, it will also send a message that India has joined QUAD with a narrow focus on geopolitical security and it is not open for broader economic partnership in the region.

Fourth, India might also get isolated in trade and other economic aspect of the forum if India is not active in the IPEF forum. Therefore, it will be difficult for India to stand as an alternative to China in the Indo-Pacific region.

Fifth, the trade conditions of these agreements are making India, uncomfortable. However, these conditions might become a part of bilateral trade negotiations with advanced economies.

What should be course of actions for India?

If India has to become part of the global value chain it should be ready to negotiate and accept the terms of those trading groups.

India’s decision to walk out of the Regional Comprehensive Economic Partnership (RCEP)and now from the IPEF trade component affects its position in bilateral trade talks as well.

Therefore, India’s trade policy needs to be fundamentally corrected and appropriate reforms should be carried out.