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If the other signatories will be benefiting from the bigger, more open, more unified and combined RCEP market, it also means India's manufacturers and service providers as outsiders will not be in the position in the near future to enjoy the same privileges once the mega-deal is signed minus India. |
India said it will wait to see what are the finalized terms before deciding. But it has already decided to walk away, and after adding more and more demands in the last minutes of the group meeting. For that, it will not be able to get a word in when everyone else has settled on the legal wordings since it will be remembered only as the sole upsetter. How could Modi or his advisers not have seen what they have done to themselves?
But then again, one suspects the same Indian caucus had also missed the earlier Modi policy which became a national error. It was his introduction of the GST and the sudden demonetisation of the Indian market, both presumably to enlarge tax collections. However, bad as the GST already was to India's consumers and thus its producers, the additional demonetisation process removed some 86% of India's cash from its market.
The sudden loss of liquidity without any speedy substitute then proceeded to hit all of India's SMEs including its family-owned mom-and-pop micro-enterprises, most of which transact on cash basis using daily-waged casual labor to run businesses invested with unmortgaged loans, and thus perceived as a black economy.
As a result of trying to move the market from cash to digital wallets and internet banking, 40% of them closed down in a sector which had accounted for 45% of India's manufacturing output and 40% of its exports.
Undoubtedly the health of this group was what Modi was thinking of when he decided to listen to his party hacks not to accept the RCEP. Presumably he didn't want to compound further the error he had made in 2016. But clearer thinking would have told him, should ego not get in the way again, that India has three problems - and the RCEP would have been its solution.
From the angle of trying to protect its local manufacturers, India's major and persistent problems are probably:
(a) lack of follow-through on policies; in fact, if you ask what are the key policy benchmarks for each of India's political parties, you can't get any coherent statements; they have been acting like cats on hot tin roofs trying to catch their own tails while below them, the pillars of the house are tottering because local bureaucrats resist administrative reforms in order to protect their third-world turfs;
(b) the dire need for infrastructure modernization, unfulfilled even to this late a day; for example, the demonetization process impacted India's SMEs because many were in places without proper internet connections to receive delivery orders, send bills receive payments and invest more transparently; the other issues remain roads, bridges, rails, ports, warehousing, electricity, property planning and development, and yes, water and sanitation;
And for all its education system, minds still remain set to resist improvements from embracing a digital economy. Maybe New Delhi should ask why is it that neighbor socialist-capitalist China has quickly succeeded with e-finance but democratic and USA-handholding India can't seem to get its act together for once?
(c) the mistake of using past experiences of increased trade deficits with other bilateral FTAs as reason not to sign the RCEP; the blind spot here is to ignore the fundamental reasons why [(a) and (b) above, namely domestic causes] in order to put the blame on others but the bigger mistake is also not to see that with the RCEP, Indian manufacturers if failing to export more to one country under a bilateral FTA will have immediate access to other RCEP markets if India had agreed to join the RCEP.
For exports as a viable business, one must foremost have more choices, channels and outlets because having more opportunities reduces risks and increases viability today, sustainability tomorrow, thus survival over a longer term. Then and only then can India's black economy producers and SMEs come out of their shadows and be part of the digital economy, first within the RCEP, next through the RCEP with the rest of the smaller world.
By the same token of reasoning, India's rejection of the BRI just because Pakistan is participating is somewhat limited in foresight, reflecting a trust deficit (which must have been rubbed onto Modi from all that hand-holding with Trump in Texas).
After all, if one joins (the BRI) as well, how can then what is being joined to (the BRI) become any threat? Any indian medical practitioner will say a body doesn't threaten its own organs.
Furthermore, China in helping reconnect the old silk route through the BRI must mean China has vast infrastructure building experience which can be used to help India modernize its infrastructure if India's policy-makers will only (i) stop their bromance about finding strength by getting some psychological quick-fix protection and recognition from a cousin of its past white master (which had according to history denuded its treasury by inventing a foreign proxy financial instrument for its trade), (ii) realize it has great strength in its own unique Asianness, and (iii) understand it can also play an important cooperative role in an Asia which is the new center of gravity of the world. Yet, all that guru-ism and still no long-term wisdom.
Beyond opening more markets for its manufacturers big and small, and also creating opportunities in Asia beyond a visa-restricting west for its service providers (its coders are not all so great experts, after all) why is the RCEP critically important to India?
The answer is simple but possibly beyond Modi's grasp. It is because his demonetization policy has created a digital disparity between one group of technocrats in India's cities and the many millions of small enterprises in the rest of the country. This gap will grow because the bigger Indian companies which have succeeded in embracing digitalization (and mobility) will build their own supply chain independent of India's SMEs.
Now, take that scenario and ask what will happen next when the 5G-enabled IoT economy arrives on the wings of the RCEP that India is not a part of? Even India's big companies will be left ashore. Hence its entire economy.
And here it is still worrying about sudden upsurges in imports if it gets onto the RCEP when its current account surplus remains healthy and its services are a positive export item. Seen in a new light, it needs those imports to support its cities to grow in order to provide tax funds to support the continued financing and modernization of its SMEs besides paying the bill to upgrade its infrastructure.
On the IoT economy, let us remind ourselves the old, present-day, economy makes a thing to do something. It is product-oriented to meet a need. Transcending both reality and virtuality, the new IoT economy will invert that objective and uses technology to reinvent the need itself.
This is going to be a fundamental landscape change to the entire business of industrialization and commerce. Some have even postulated the IoT will initially comprise three wings: the internet-of-things (devices connected to the internet), the intelligence-of-things (software applications hosted inside things), and innovation-of-things (devices that offer experiences).
In the limits of one's limited imagination, the IoT will connect every human user brain to everything that is IoT-enabled. Wait until an advance is made with zero-heat bi-coupled magnetic nano-crystals as field-runned chips. ()