India’s Trade Strategy: A Shift Towards Plurilateral Agreements?

In a recent address at a forum organised by an industry body in New Delhi, BVR Subrahmanyam, the CEO of NITI Aayog, emphasised the need for India to reassess its stance on joining plurilateral trade agreements, particularly the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This discussion gains added weight considering Subrahmanyam’s previous role as commerce secretary, suggesting a potential shift in New Delhi’s approach to international trade.

Subrahmanyam articulated that participation in such expansive trade blocs is crucial for India’s micro, small, and medium enterprises (MSMEs), which account for 40% of the country’s exports. He highlighted that larger Indian corporations have been underperforming in export markets. Historically, smaller firms thrive when exposed to broader markets, as they are more agile and capable of adapting to diverse consumer demands. This exposure is vital for their growth and for challenging established corporate structures dominated by larger domestic players. The current focus on protecting the domestic market may serve individual interests but does little to enhance overall economic welfare or stimulate domestic value addition.

Joining these trade agreements is essential for integrating into global value chains, significantly expanding opportunities for Indian businesses. However, two primary obstacles that hinder India’s entry into RCEP and CPTPP is concerns over competition with China and the need for domestic reforms. The RCEP encompasses several countries with which India already has free trade agreements, including China, which raises fears among policymakers about being overwhelmed by Chinese imports. Nonetheless, Subrahmanyam argues that this apprehension should not dominate policy decisions. He notes that significant Chinese value addition is likely present in all imports from RCEP nations regardless of India’s participation. Furthermore, member countries can take action against each other within the trade pact framework, as evidenced by China’s recent actions against Australia.

The CPTPP presents a more complex challenge due to its “gold standard” status, which emphasises regulatory harmonisation beyond mere tariff reductions. While India has previously raised concerns about non-tariff barriers impeding its exports even to FTA partners, aligning with CPTPP standards could effectively mitigate these barriers. Given the evolving trade landscape and shifting dynamics in India-China relations, Subrahmanyam’s insights are timely and warrant high-level government consideration.

As India contemplates its future in global trade, embracing these plurilateral agreements could unlock significant potential for its textile industry and beyond, fostering growth and competitiveness on an international scale.

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