India is on the Outside of the TPP Looking In

The Trans-Pacific Partnership (TPP) agreed to on Five October 2015 covers almost a third of world trade as well as 40 percent of global GDP. Through not being part of the TPP, India dangers losing out. According to a Focus on Global Trade and Investment study, India’s nominal GDP is likely to trim by a lot more than 1 percent because of trade and investment diversion caused by the actual TPP. The ensuing negative effects upon India’s economy by way of income and job losses will be large.

India’s integration into the global economy is under China’s, also excluded from the TPP. India has a share of only 2.1 percent in worldwide trade (five times less than China’utes) and cannot do with further industry diversion. One reason for China’utes current clout is it’s active integration into the global economy over recent decades. Today it leads exports as well as foreign direct investment (FDI) inflows. If India wants to grow in order to such economic and geopolitical levels, it must practice better plug-in.

Global supply chains make up 80 percent of international trade these days. The TPP will further heighten this trend, as it may link production facilities across edges. Joining the TPP could help Indian integrate its small and medium-sized businesses into these production networks. Indian exports are most likely to take a hit because the TPP provides special concessions to some of its key partners to purchase from other TPP member countries. The United States, for instance, consumes thirty percent of Indian native textiles exports, and will come under stress, as competitors such as Vietnam will be in a position to usurp India’s market share on the back of benefits given under the TPP.

FDI inflows into India began to pick up from the mid-2000s. Today India is one of the largest recipients of FDI in the developing world and the biggest in South Asia. The TPP will incentivise foreign investment among member states, decreasing the relative attractiveness of India as a location among TPP members. Given it’s potential to create jobs and help build infrastructure, India is not in a position to forego potential FDI inflows.

The TPP also involves regulatory harmonisation, meaning that multi-national companies under the aegis of the TPP do not have to encounter regulatory hostilities in host countries or grapple with different laws. India’s legislations do not line up with global standards and companies have previously encountered retrospective tax regulations. In this context, a TPP that excludes India is not good news for the country.

However, despite it’s benefits, India cannot easily agree to several measures under the TPP. India, along with other developing nations, will find it difficult to give within on environmental standards due to its lower stage of economic development. Likewise, India will have a hard time conceding to the kind of intellectual property legal rights protection regime that the United States wants, as it relies on a huge generic drug manufacturing business. In addition, India cannot afford to sign up in sweeping tariff cuts expected under the TPP. It will also be near on impossible to meet the labour requirements of the developed West.

However, India should aim to negotiate upon these issues. Staying out of the TPP doesn’t help in either economic terms or foreign policy terms.

Even more significant are the geopolitical implications from the trade deal. The TPP is really a well-crafted geo-economic exercise as much as it is a industry and investment pact. It has been successful in excluding China as well as thereby potentially stunting its fast rise. While studies show the United States would gain marginally in economic terms using the implementation of the TPP, Washington offers clearly gained a geopolitical victory. Its motivations are understandable, as it may want to regain it’s leadership over global financial governance mechanisms after this lost some credibility following the 2008 financial crisis and the emergence of powerful new groups like the BRICS (Brazil, Russia, Indian, China, and South Africa).

India needs to deftly navigate the TPP waters by making sure it does not isolate itself by staying out of the picture for too long. At the same time, actively investing in the TPP will be hard. Indian should pursue an incremental process, where it initially joins the discussions after which determines how well it is to go in as a member. India might bring much needed flexibility to the TPP and use it to boost its own ties with United States.

However, there is no clear consensus in the Indian federal government on whether enhanced market access through the TPP will be well worth the gains. The TPP would involve huge costs to a few protected Indian industries. Undoubtedly, Indian would need to prepare itself for higher standards than it offers ever committed to in the past. Nevertheless, the gains for India if it joins the TPP cannot be ignored.

Ultimately, major structural changes in the actual Indian economy — from infrastructural overhauls as well as legislative fixes to institutional changes and human resource development — will determine whether India manages to succeed in an enormous amount of complex supply chain-led international industry and investment. Mega-FTAs are only enablers. India should partake in them according to its needs at the time.

India’utes TPP dilemma is republished with permission from East Asia Forum