India’s Decision to Leave RCEP Is a ‘Historical Mistake’, Chinese Experts State

A delegation of a Chinese think tank visiting India said the decision may have been driven by domestic realpolitik, not economic factors.

New Delhi: India’s withdrawal from Asia’s mega free trade pact is a “historical mistake” and re-joining RCEP would require “strong leadership” and more domestic reforms, Chinese experts said on Friday.

Earlier this month at Bangkok, Prime Minister Narendra Modi informed his counterparts from 15 participating countries that India will not join the agreement. Indian officials had stated that “significant issues of core interest” remained unresolved.

While Modi had not named any country, Indian official sources had made it clear that one of the sticking points had been “inadequate protection against import surge from countries like China”.

Two weeks later, a Chinese think-tank delegation visiting India felt that India should reconsider its decision on withdrawal from the RCEP.

“We all think that India has made historical mistake. India should join RCEP,” said director of China Institute at Fudan University, professor Zhang Weiwei.

He asserted that even in the manufacturing sector, India can be competitive. “China is moving up the higher value chain and shifting a lot of labour-intensive industries to other countries. There is opportunity for India as well,” Zhang in an interaction, facilitated by the Chinese embassy, with a group of Indian journalists on Friday evening.

Another delegation member, professor Zhu Caihua also felt that India’s decision was not driven by economic factors, but rather domestic realpolitik. “I think whether or not to join RCEP for India is not a matter of economic calculation or calibration, but a matter of politics at your home,” said Zhu, deputy director at Institute of Foreign Trade, Chinese Academy of International Trade and Economic Cooperation, affiliated to the Chinese commerce ministry.

Also Read: India Was Right to Walk Away from RCEP, But What Comes Next?

She asserted that India required a bolder stance to “leverage” RCEP. “For India, if you really want to leverage RCEP or make full use of RCEP, it calls for strong leadership, good governance and further reforms at home. Only this way can India realise its goal of industrialisation and go further rejuvenation as a civilised nation”.

The RCEP summit joint statement had said that India’s “final decision” will depend on the “satisfactory resolution” of the unresolved issues. Meanwhile, the leaders of the 15 countries announced that they had completed the text-based negotiations and instructed legal scrubbing of the agreement in preparation for the signing next year.

Three major benefits

According to Zhu, there were three major benefits for India from joining RCEP.

“First, joining RCEP will allow India to have more competitive local and enterprises. I understand that joint RCEP will put much pressure on the import competitive sectors, but economic theories and even common sense tells us that protection will never create great enterprises,” she said.

When pointed out that China had adopted a protectionist policy too, Zhu asserted that China’s experience in the past four decades had been to open doors, so that Chinese companies can be competitive and grow faster.

The second benefit for India to join RCEP, as per Zhu, would be its impact on the industrialisation process.

Also Read: Why India Shouldn’t View its Refusal to Join RCEP as a Victory

“RCEP being the largest FTA in the world will provide a huge market, investment and frontier technology, like 5G from China’s Huawei.  All these factors are quite necessary for India to speed up its industrialisation process. RCEP is the whole package for India to be integrated into the regional network”.

Plugging into RCEP, she added, also meant part of larger strategic Asian sphere. “The third benefit is for India to achieve the goal of the Asian century with East Asia. I understand that India put forward the Look East policy because East Asia is the most promising region in the world in the century. East Asia cannot alone make the Asian century, neither can India alone,” she said.

‘Not stepping back’

Earlier on Thursday, India’s external affairs minister S. Jaishankar had asserted that India’s RCEP decision was “not stepping back from the Act East policy, which in any case is deeply rooted in distant and contemporary history”.

“Our cooperation spans so many domains that this one decision does not really undermine the basics. Even in trade, India already has FTAs with 12 out of the 15 RCEP partners. Nor is there really a connection with our Indo-Pacific approach, as that goes well beyond the RCEP membership,” he added.

Delivering the fourth Ramnath Goenka memorial lecture, he asserted that debate on joining RCEP or FTA “should not be confused for grand strategy”.

“The recent debate about the RCEP offers lessons in foreign policy as much as in the trade domain. On the one hand, we should not go back to the old dogmas of economic autarky and import substitution. But at the same time, embracing the new dogma of globalisation without a cost-benefit analysis is equally dangerous,” he said.

Latin America More Vital for Indian Exports Than Many Traditional Trading Partners

Even with longer shipping times and more expensive freight costs, Indian exports to Latin America outstrip what we ship to South East Asia and the Central Asian Republics.

As India expands its Act East policy and looks to take advantage of the US-China trade war, it’s easy to forget how important Latin America is as a trading zone for New Delhi.

For instance, in 2018-19, India exported more to distant Guatemala ($305 million, 15,000 km away) than to neighbouring Cambodia ($196 million, 3,400 km away).

India’s exports worth $181 million to the remote and small Uruguay (15,000 km away; population 3.4 million) is more than to Kazakhstan ($143 million) which is 1,600 km away from Delhi and has more than five times population at 18 million.

India exported more ($216 million) to Dominican Republic (DR) than to Uzbekistan ($201 million), even though the latter has double the population of the former. 

In fact, even on a region-to-region comparison, India’s exports to Central America ($968 million) are more than what we ship to the Central Asian republics ($442 million), although the latter is far closer and has a bigger population. 

India’s exports to Mexico ($3.84 billion) are more than our exports to Myanmar ($1.2 billion),  Russia ($2.4 billion), Canada ($2.9 billion), Egypt ($2.9 billion) or Nigeria ($3 billion).

In fact, Mexico is the second largest destination for India’s vehicle exports, clocking in at $1.61 billion. This is more than our exports to neighbouring Bangladesh ($1146 million), Nepal ($738 million), and Sri Lanka ($473 million). 

The above statistics should open the eyes of those who might think that Latin America is less important for India’s exports on the ground that the region is too far and less familiar.

Also read: From Coolies to Patrons and Partners: The Chinese Paradigm Shift in Latin America

Also, 2018-19 isn’t the first year that Latin American countries have overtaken India’s neighbours and our more traditional trading partners who are often seen as more important for India’s exports. 

This trend has slowly been building up from 2010, when Indian exporters started exploring the Latin American market more seriously. Even with longer shipping times and more expensive freight costs, Indian goods have become competitive in Latin America. 

Some brands such as Bajaj, Hero, Mahindra and Tata have become popular in the region. Indian motorcycles have become industry leaders, grabbing the largest market share in a few countries. 

Colombian President Juan Manuel Santos, with Hero Motorcorp's Pawan Munjal at the company's facility in Villa Rica. Credit: Hero MotorCorp

Colombian President Juan Manuel Santos, with Hero Motorcorp’s Pawan Munjal at the company’s facility in Villa Rica. Credit: Hero MotorCorp

The growing importance of Latin America to Indian companies is best illustrated by the success story of UPL. This Indian agrochemical firm has more business in Brazil ($1.2 billion) than in India. 

Brazil accounts for 25% of UPL’s global business while Latin America as a whole accounts for 30% of the company’s total global revenue. The region’s share is more than that of Europe, the US or Asia.

Trade ties

According to the figures recently released by the ministry of commerce, India’s exports to Latin America increased by 9.6% in 2018-19 (April to March) reaching $13.16 billion from $12 billion in 2017-18.

Imports from the region went up by 5.3% to $25.73 billion from $24.44 billion in 2017-18. Total trade with the region has gone up by 6.7% to $38.89 billion from $36.45 billion last year.

In 2018-19, Mexico overtook Brazil as the top trading partner of India in Latin America for the first time. 

Latin American Trade with India (Figures in millions of dollars)

Country Exports Imports Total trade
Mexico 3841 5577 9418
Brazil 3800 4406 8206
Argentina 563 1955 2518
Colombia 1117 1055 2172
Chile 990 1238 2228
Peru 721 2405 3126
Venezuela 165 7259 7424
Ecuador 298 219 517
Bolivia 105 852 957
Uruguay 181 43 224
Paraguay 161 21 182
Guatemala 305 16 321
Panama 227 39 266
Honduras 167 18 185
Costa Rica 136 51 187
El Salvador 79 4 83
Nicaragua 54 4 58
Dominican Republic 216 567 783
Cuba 35 4 39
Total 13161 25733 38894

Strategic or not?

Latin America contributes to India’s strategic energy and food security by supplying 12% of India’s global imports of $117 billion dollars of crude and 22% of India’s vegetable oil.

The competition of Latin American crude and edible oil have put pressure on the monopoly suppliers of these items from the Middle East and South East Asia (Indonesia and Malaysia supply palm oil) to offer to India lower prices and better terms.

The suppliers of crude were: Venezuela ($7.25 billion), Mexico ($4.27 billion), Brazil ($1.6 billion), Colombia ($571 million), Ecuador ($128 million) and Argentina ($47 million).

The region has abundant reserves and the potential to meet India’s needs of lithium (for electric vehicles) and pulses in the long term.

India has started importing raw gold from Latin America in the last five years. Peru is the top supplier at $2.2 billion, followed by Bolivia at $849 million, Brazil at $541 million, Dominican Republic at $537 million and Colombia at $380 million. Direct imports from the region have helped India to cut costs by saving from the margins paid to gold sellers in Switzerland and UAE.

Venezuela continued as the main source of imports in the region with its crude oil supply. But this will go down drastically this year since India has been forced to stop import of Venezuelan oil by the US sanctions. But India can source more crude from other Latin American suppliers.

Figures in million US Dollars

Petroleum crude 14080
Gold 4556
Vegetable oil 2194
Copper 1364
Equipment and machinery 1054
Wood and pulp 454
Raw sugar 437
Chemicals 290
Iron and steel products 281
Fruits and vegetables 154
Plastic products 145

Future of the market

Latin America is a large market of 600 million people, with a combined GDP of $6 trillion.The region’s imports are around a trillion dollars.

The economies of the region are doing relatively well. The GDP of the region is projected to grow by a modest 1.3% in 2019 and continue its growth trajectory in the medium and long term. The average inflation and external indebtedness are in manageable figures. Democracy has become stronger in the region with more political stability.

The only exceptions, however, are Venezuela and Argentina.

Venezuela’s GDP is forecast to shrink by 10%. The country suffers from hyperinflation of several hundred thousand percent, devaluation of the currency by 99%, shortages of essential consumer items and energy shortage. The economic misery is compounded by the political crisis, break down of institutions and social instability. US sanctions have made the economic situation worse. 

Also read: Why It’s Important for India to Trade With Latin America

Argentina’s GDP is expected to contract by 1.2% in 2019. Inflation is over 40% and the country has contracted a debt of $57 billion from IMF. The country is preparing for elections in October. It is hoped that 2020 will see recovery of the economy.

Brazil and Mexico, the two largest markets are set to grow in the coming years with the new Presidential terms starting from the beginning of 2019. 

Moving forward

India’s exports can be increased to %25 billion dollars in the next five years if  exporters, the export promotion councils, the government and the embassies coordinate with a plan of action seriously and systematically. India should take a leaf out of Beijing’s book, which has set a target of $500 billion in trade with Latin America by 2025, taking it up from their 2018 figures of $148 billion in exports and $157 billion in imports. 

The commerce ministry should revive its ‘Focus LAC’ programme, which helped in the past in encouraging and supporting Indian exporters to explore the business opportunities in Latin America.

The Indian government should consider extending large Lines of Credit to support Indian exports. While China has given $150 billion dollars of credit to the region, India has given less than $300 million. 

The Narendra Modi government should also open embassies in countries such as Ecuador, Bolivia, Paraguay and Dominican Republic.

This is a good time to accelerate the economic push into Latin America which has started attaching importance to India, the third largest export destination for the region’s exports after US and China.

Disenchanted with the protectionist US and Europe, and determined to reduce its over dependence on China, Latin Americans see India as a large and growing market as well as a benign economic partner for win-win in the long term.

R. Viswanathan is a Latin America expert and former ambassador to Latin American countries.

Why Does India’s ‘Act East’ Policy Not Extend to China?

Does the wide linguistic gulf between India and China indicate that the two countries are doomed to live in a state of eternal contention?

Does the wide linguistic gulf between India and China indicate that the two countries are doomed to live in a state of eternal contention?

The Indian and Chinese national flags. Credit: Reuters

The wide linguistic gulf between India and China is one factor that aggravates the general sense of incomprehension that the people of the two countries already have about the other. For the last ten centuries, India and China have been neighbours – yet strangers – to each other, though the thousand years before that saw a vibrant cultural interflow between them. However, travellers of that era, like Xuan Zang, Fa Xian, Kumarajiva and Bodhidharma, overcame the formidable obstacle of language, to achieve a high level of understanding of the life and culture of the other nation. But today’s science offers us a counter-intuitive insight – that the wide linguistic difference between the two nations can be an opportunity to create a partnership of creativity and innovation between them.

Whilst there is a range of languages in each country, the Chinese character script has been common across China for three millennia, mediating communication between, say, Mandarin and Cantonese speakers. This script has played a powerful unifying role in China throughout the ages. India has numerically greater diversity in its languages, but a broad linguistic and cultural base of Sanskrit underlies most of these languages. Accordingly, it would be a reasonable first approximation to consider Mandarin and Sanskrit as the root languages of at least 80% of the populations of China and India, respectively. At first sight, it is difficult to imagine two languages that are more dissimilar.

The ideographic and monosyllabic Chinese language has no singular or plural, no tenses, gender, moods, or cases. It is also tonal in nature. Yet, because of its ideographic nature, each character has great specificity of meaning, with the character being comprehended as an entire pattern in itself. The abundance of different words for the same concrete things can be quite striking: for example, different words describe the adjective ‘old’ depending on whether one refers to a person over 60 years of age, or over 70, etc. Indeed, Hajime Nakamura, the eminent Japanese Indologist and Sinologist, believed that the Chinese bias for understanding phenomena through direct perception is a consequence of the concrete and visual nature of the Chinese script. Even abstract and holistic concepts could be conveyed through subtle pictorial representations, such as the hexagrams of the Yi Jing, the Book of Changes.

On the other hand, Sanskrit as an alphabetic language could not be more different in its structure and complex grammar than ideographic Chinese. Nakamura shows how Sanskrit deals more efficiently than Chinese with concepts that involve change or transformation. Sanskrit lends itself to expressing ideas of great complexity through its simple principle of word agglomeration, for example from ‘nari’ to ‘ardhanari’ to ‘ardhanarisvara’ etc. Further, in Sanskrit, the addition of prefixes and suffixes can continue almost without end and the resulting mega-compound-word/sentence can be split up once again in multiple ways. These exercises introduce interesting intricacies and ambiguities in meaning, which can be generated by anyone with time on their hands and bestowed with a certain skilful playfulness in manipulating the language. Sanskrit grammarians and poets were adept at such feats: for example, poetry that reads front to back as well as vice versa. Similar capabilities have been identified as being instrumental in the work done by global software innovators today.


Also read: India and China Are Stuck in a Decades-Old Sibling Rivalry


Modern neurological research reveals that deciphering the ideographic Chinese script is akin to a pattern-recognition problem for the brain. The Chinese character patterns stimulate the right side of the brain, especially the parietal and occipital lobes where such processing takes place. Since speech functions are localised on the brain’s left, Chinese thus promotes more holistic utilisation of the brain. The great scientist and inventor of calculus, Gottfried Leibnitz, was so struck by the power and economy of Chinese that he remarked: “If God were to give man a language, that language would be Chinese!” But metaphysical speculation and elaborate deductive logic built on language were far more developed in India. Thus, Max Muller who was entranced by India – ‘a very paradise on earth’ – considered Panini as the greatest grammarian and logician ever born, and Sanskrit as a ‘bridge of thoughts and sighs’.

Indian linguistic abilities and ancient pedagogic practice gave rise to a strong oral tradition, with strengths in deductive logic and argumentation, capabilities for great abstraction, and the handling of uncertainty, complexity, and even chaos. Indian languages permit foreign imports, and change and transformation are expressed with ease. Mythology and legend remain important factors even in statecraft, since the boundaries between recorded history, collective belief and received knowledge can be flimsy. For China, written tradition and records were always key and so it is not surprising that the emphasis is on the concrete and the particular, with a continuous record of calligraphy, diaries and historical annals. Unity, harmony, practicality, and inductive logic emphasising the importance of human inter-relationships forms the basis of the strongly visual Chinese philosophic tradition. Ideographic Chinese deals clumsily with foreign words, and unlike Japanese, has not created a user-friendly alphabetic script to accommodate alien names, concepts, and expressions.

Current psycholinguistic thinking, drawing on the latest neuro-psychological research on how the brain processes thought and language, holds that the linguistic structure of different languages influences the ways one perceives and categorises the world. Though this is more a tendency and not a mechanistic rule, thought can be likened to water running down a hillside through channels carved out by language – the deepest and steepest channels will carry the most water, though others will have some flow as well, and water can even be pumped uphill through force. A more modern analogy would be to liken languages to computer operating systems – iOS, Microsoft and Android can each perform all the basic functions, but there are areas where each system has an edge, subtle as it might be. This differential capability is not surprising, since each language arises in a unique environment and is equipped to cope with its specific challenges. Therefore, if two languages are radically different, the more perceptibly different are the ways in which their speakers are likely to think.

So, if Sanskrit and Mandarin are so different, then the way Indians and Chinese think must differ in some significant ways, at least at the margin. Does this finding not add strength – and scientific validity – to the realist geopolitical theory that rising powers like India and China are doomed to live in a state of eternal contention with each other? Not so, for both science and modern enterprise offer striking proof that a confluence of diversity can be the source of great creativity.

The progress of science over the last 500 years has taken place in an atmosphere where – by and large – scepticism, rationality, contestation and argumentation were given full rein. This does not necessarily imply that all the political regimes in those times were anything like democratic let alone liberal; only that the space made available for academic discourse and scientific/commercial innovation was distinctly greater than the leeway permitted to those who – by thought, word or deed – defied the ruling dispensation, of whatever hue. It is difficult to estimate the negative impact of a repressive regime on the creative reservoir of a country. For example, we know that Galileo was forced to recant by the Church, but we do not have any idea of how many scientists and inventors before him had been discouraged or dissuaded by the prevailing religious orthodoxy. The Soviet Union was a great powerhouse of science and medicine. Yet, Trofim Lysenko, who came down heavily in favour of nurture in the nature vs. nurture debate – a politically savvy stand in those days – caused enormous damage to the development of modern genetics in that country. So overall, one could draw a common-sense conclusion that open political regimes are more likely to support innovation and creativity over the long term. The Communist Party in China is surely cognisant of this correlation and it will be interesting to see how they attempt to marry their instinct for political control with the need to provide the space for creative disputation. Illiberal regimes everywhere, and not only in China, will need to reflect on this matter, if at all they place their hopes on scientific innovation to solve the pressing problems of the times.


Also read: Psychology Could Be Key to Solving the India-China Conundrum


Following this logic, creative disputation is much more productive if the range of the contending ideas is as wide as possible. To quote Mao (who borrowed the phrase from an aphorism prevalent in China’s ‘Warring States’ era): “Let a hundred flowers bloom, let a hundred schools of thought contend”. Modern multinational corporations and global universities have found that the best way to get ‘a hundred schools of thought’ to contend, is to encourage wide diversity in their work force and student body. It is not a coincidence that Silicon Valley – a hotbed of new ideas and innovation in many fields – is an environment with people from all over the world, amongst whom Indians and Chinese form large segments. The irony is that Indians and Chinese work together – and highly productively – in teams around the world, but how many examples are there within India or China of direct collaboration in research between the two countries?

Since the reasoning earlier in this essay showed that Mandarin and Sanskrit speakers have the potential to develop certain distinctive and differentiated competences, what could be a set of Indian and Chinese attributes which are mutually complementary and stimulate creative development when brought together? Indeed, the imaginative combination of such complementary skills is much sought after by entrepreneurs, as the magic formula to create comparative advantage and rapid growth. The prime example is of course the Indian software-Chinese hardware story, though this is now wearing thin.

Perhaps there are other areas ripe for investigation. Psycholinguistic theory would predict that verbal/deductive/computational based knowledge would have an India bias, whilst visual/inductive/holistic pattern-based skills should find a higher prevalence in China. To see if this hypothesis works, we can test the following attribute-pairs (in the order of India and China): Design (India) and manufacturing scale (China); management/consulting and projects/infrastructure; marketing/management and technology/process; health care delivery and biomedical sciences; music and choreography (viz. A.R. Rahman in Warriors of Heaven and Earth); English competence and educational pedagogy; individual and team; chess & weiqi; improvisation and long-term planning… The list can go on. Which attributes are ‘better’ is not the question – what matters is the choice of problem and the skill-sets chosen to solve them.

If the two countries can reconnect in this spirit, whilst managing their differences at other levels, it could lead to a creative reconnection of the two large Asian economies with potentially massive benefits to the peoples of both nations, even the entire planet. We can envision, perhaps, grand joint projects which address the problem of conserving the Himalayan ecology whilst making water available to all, ending poverty and infectious disease, battling climate change, creating a zero-pollution car, a $20 computer, a $1000 dollar house….

Finally, what is even more relevant for India, is that this psycholinguistic hypothesis is not limited only to China. Its logical argument would include Korea and Japan as well, since their languages are structurally derived from ancient Chinese. So far, the Indian outreach for science and innovation has been largely confined to the West, with the occasional nod to Japan and Korea. Now, this hypothesis holds out the possibility – and indeed the probability – that innovative connections with the entire East might be even more productive. It will also restore a certain geographical wholeness to India’s ‘Act East’ policy, which so far has a somewhat contrived angularity through the conspicuous omission of China. It is wholly apposite if India achieves this realisation now, almost exactly a hundred years after Kakuzo Okakura declared that ‘Asia is one’, with Rabindranath Tagore and Sun Yatsen joining him in articulating their vision of a new, humanist, and resurgent Asia.

Ravi Bhoothalingam is an independent director on corporate boards and Honorary Fellow of the Institute of Chinese Studies, Delhi.