Asian Drama and RCEP

Supply chain disruption and the race for attracting and retaining businesses.

The world is experiencing a different and challenging situation. The condition is worse for the health facility, essential services and disruptions. Economic activities and businesses are second to none in terms of pandemic impact. Multiple order lockdown and restrictions turn the situation worse. Due to travel restriction, local shutdown disrupted the supply chain. Lack of essential imports and raw materials created the havoc and at the same time brought the demand for diversifying the supply chain.

Attracting Businesses.

MNCs, big business houses and countries want to create a space in their supply chain. Overdependence on one particular country makes them susceptible to future shocks. To prevent this there is a hue and cry of supply dependence on one country. In order of the same, there is hope and sign too of moving of manufacturing bases from China to other destination. Several countries ( as the case of Japan) attracting their homegrown firms to move their manufacturing bases back in the country. For this, they are offering lucrative offers.
This movement created a hustle for the developing countries in the same demography to attract these firms. To attract many are lowering their regulation standards, providing flexibility in labour laws, low credit, bearing setting cost, relaxing FDI norms and providing ease of setup, operation with least legal formalities.
Countries across Asia are trying to attract those firms which look other destination. This race is seen in many developing countries like Vietnam, Singapore, Bangladesh, India and so. Many states like UP, MP lowered their regulatory laws, flexibility in labour laws to attract manufacturing in states. The expected exodus from china is not visible yet. It is important to note that shifting involves a huge cost for companies. Companies invested huge amounts in setting their plants in china. Building the bases and capital expenditure is very high. They have to incur a setup cost, logistic cost. While shifting firms look for all possible factors like labour availability and cost, availability of raw material, market reach cost and logistic.
In times of low demand and lowering profitability, it is very hard to see the firms incurring the capital expenditure. Survival is at stake, expansion can happen later on.
Attracting foreign funds in manufacturing will improve employment and boost the economy. Economic growth without taking consideration of human life, the environment is not sustainable in long run. Lowering labour laws and environmental compliance allows the harassment on labour and misuse of scare resources

Expand the Market.

The basic mantra in economics is the demand. Reach also define the demand, reach and presence in the big market increases the demand. As the world in one of the biggest unease in economic growth. Most of the GDP forecasts pose negative growth for the world economy as well as major economies. Many world leaders are questioning the functioning of the WTO and globalised world. Bilateral relations, FTAs and regional economic grouping are on fore.

Asian- Pacific Partnership.

Recently 15 member grouping signed the final draft of the biggest free trade agreement, RCEP. The regional comprehensive economic partnership is led by 10 ASEAN countries with their FTA partner including China, Japan, Australia, South Korea and New Zealand. India decided last November to be not part of the grouping. RCEP was the seven-year-old concept when ASEAN countries decided to make a free market with all its FTA partners. RCEP is the largest economic grouping comprising 30 per cent of the world GDP and nearly 30 per cent of the population. Under the Terms of RCEP member countries would be given free access to the market with lower tariffs and subsequently bring it to the zero. Name in its form suggests a free regional market with limited or no restrictions for the goods.

The decision of not joining the grouping by India taken last year after several rounds of negotiations. These negotiations did not address the issue raised by India. The concerns for India was the flooding of Chinese goods, low price dairy products from Australia and New Zealand. Services not on the list is also a concern because India exports significant services. All these decisions were taken on the name of protecting the domestic industry and business.

Not joining the RCEP will result in positive or negative comes in the picture. The point put forward in defence is the protection of domestic industry. Another point is FTAs with major countries in the grouping ( ASEAN, Japan, South Korea). These FTAs are in not in favour of India as India has US$ 24 billion trade deficit with ASEAN.

While signing the draft, they kept the option open for India to join the grouping once it show the intent of joining in writing. Many members want India to join the grouping and offered the Observer status too. This highlight the consumption lead economy and big market lucrative demand from the country. As RCEP is important for India to success so as India to RCEP.

In the age of Globalisation and liberalisation where the sky is limit protectionism is not sustainable. Given that India has a very positive result of liberalisation. After 1991 reforms Indian economy moved leap and bounds. ” Sour Grapes” is the concept of the past when you blame grapes instead of matching the level.
India must understand to be the 5 trillion dollar economy it needs to overhaul its economic outlook. It should enhance its manufacturing capacity by overhauling to global goods. Global goods mean competitive in the world market, reliable, hi-tech product, cheap sustained with modern technology. The growth should happen from manufacturing-oriented, export-led, technology sustainable and beat the competitive global products. Efficient and world leaders in selected products like Bangladesh is for textiles, china is for electronic items.
Over-reliance on the services sector and protecting the infant domestic industry will not give the desired result. Diversifying export basket with multiple products and specialised products across high-income countries will bear the fruit. To take benefit of demographic dividend, it should be made competitive by educating, research and providing global standard to compete and grow.

Divyanshu Singh

Views expressed are personal