The Deal India Walked Away From: RCEP, Five Years On

In November 2019, at the final leaders' summit before the Regional Comprehensive Economic Partnership was signed, India announced it would not join the fifteen-nation trade bloc, the largest in the world by combined population and gross domestic product, comprising the ten ASEAN members alongside China, Japan, South Korea, Australia and New Zealand. The decision reversed years of Indian participation in the negotiations and drew a mixed domestic reaction, praised by farmer groups, sections of Indian manufacturing worried about Chinese import competition, and dairy cooperatives fearing an influx of cheap dairy products from Australia and New Zealand, while criticised by exporters, some economists, and several ASEAN partners who saw India's exit as a retreat from the very regional economic integration India had spent two decades cultivating through its Look East and Act East policies.

The government's stated reasoning at the time centred on two specific concerns that deserve to be taken seriously rather than dismissed as protectionist reflex. First, India already ran a substantial and growing trade deficit with China, and RCEP's tariff liberalisation schedule, even with the longer phase-in periods and safeguard mechanisms India had negotiated, risked deepening that imbalance by locking in reduced tariffs on Chinese manufactured goods, from electronics to chemicals to steel products, in sectors where Indian domestic industry had repeatedly demonstrated an inability to compete on cost even behind existing tariff walls. Second, India's dairy sector, dominated by tens of millions of smallholder farmers organised through cooperative structures such as Amul rather than large commercial operations, faced a genuine competitiveness gap against heavily mechanised, larger-scale dairy industries in Australia and New Zealand, and Indian negotiators judged, rightly or wrongly, that no realistic safeguard clause could fully protect this politically and socially significant sector from disruption.

What five years of being outside actually show

The most direct empirical test of the decision is what happened to India's trade balance with China and other RCEP members after India opted out, since preventing deterioration of that balance was the central justification offered. The results complicate the case for the decision rather than vindicating it cleanly. India's trade deficit with China has not shrunk since 2019; by most measures it has grown further, reaching record levels in several subsequent years, driven by continued and in some sectors deepening Indian dependence on Chinese inputs for electronics assembly, active pharmaceutical ingredients, solar panel components and telecommunications equipment, none of which required RCEP membership to occur since this trade has continued to flow under existing tariff and non-tariff arrangements entirely independent of the bloc India chose not to join. This suggests the RCEP tariff schedule was, at most, one contributing factor among several structural drivers of India's China trade deficit, rather than the decisive variable its rejection was expected to control.

At the same time, it would be equally simplistic to conclude the decision achieved nothing, since it is genuinely difficult to construct a reliable counterfactual for how much additional tariff liberalisation under RCEP specifically would have added to an already growing deficit driven mostly by non-tariff structural factors including domestic manufacturing competitiveness gaps that predate and are largely independent of RCEP's existence. Indian industry bodies including the Confederation of Indian Industry, some of whom had lobbied against RCEP membership at the time, have offered more measured retrospective assessments acknowledging that staying out addressed a narrower risk, further tariff-driven import surges in specific sensitive sectors such as steel, textiles and dairy, without claiming it solved the broader competitiveness challenge underlying the deficit.

The diplomatic cost with ASEAN

Less quantifiable but strategically significant has been the cost to India's standing within ASEAN, a grouping India has courted assiduously since the 1990s as a pillar of its Act East policy and as a partial counterweight to Chinese regional economic dominance. Several ASEAN diplomats and trade officials expressed disappointment, some publicly, that India's exit came after years of negotiation investment and left the bloc, from ASEAN's perspective, more dependent on Chinese economic weight within RCEP than it might otherwise have been had India's larger market provided an internal counterbalance. India has since worked to repair this relationship through the India-ASEAN Free Trade Area review process and expanded bilateral engagement, but the RCEP exit remains a reference point that periodically resurfaces in discussions of India's reliability as a regional economic partner willing to see multilateral commitments through to conclusion.

A more selective trade strategy since

India's trade policy in the years since RCEP has moved toward a more selective, bilaterally negotiated model rather than either wholesale multilateral integration or continued protection. The India-Australia Economic Cooperation and Trade Agreement, concluded in 2022, and the India-UAE Comprehensive Economic Partnership Agreement, concluded the same year, both delivered tariff liberalisation on a narrower, more controllable set of terms than a fifteen-nation bloc would have allowed, including specific carve-outs protecting sensitive sectors that Indian negotiators judged politically essential. Negotiations toward a free trade agreement with the European Union, ongoing for well over a decade with recurring stops and starts, and a more recently concluded agreement with the European Free Trade Association bloc encompassing Switzerland, Norway, Iceland and Liechtenstein, suggest India continues to see selective bilateral and plurilateral trade liberalisation as compatible with its interests even while remaining wary of larger multilateral frameworks that include China as a direct beneficiary.

The unresolved underlying question

The deeper issue RCEP's rejection never actually resolved, because it was never really a trade agreement question at all, is whether India's manufacturing sector can become globally competitive enough to benefit from deeper trade integration rather than being protected indefinitely from it. Production-linked incentive schemes launched from 2020 onward across electronics, pharmaceuticals, textiles and other sectors represent one government answer to this question, attempting to build domestic manufacturing scale and competitiveness through targeted subsidy rather than trade liberalisation, with genuinely encouraging early results in electronics assembly and mobile phone manufacturing, alongside more mixed results in sectors such as textiles where India continues to lose global market share to Bangladesh and Vietnam. Until Indian manufacturing achieves broader competitiveness across a wider range of sectors, the RCEP question will remain in some sense moot, since the decision to stay out or eventually rejoin matters far less than whether Indian industry could actually compete on the terms such membership would require, a challenge that predates and will outlast the 2019 decision either way.