India has decided not to join the Regional Comprehensive Economic Partnership as of now. Its decision was announced at the Association of Southeast Asian Nations Summit held in Bangkok last month, after the conclusion of the final negotiations on the trade pact.

Given India's uncompetitive industrial structure and inefficient government, it viewed joining the trade pact as not being in its best interests at the present time, as it would not be able to drive reform through opening-up as China did.

Although one of the Asian economies with the highest number of Free Trade Agreements, India has seen its trade deficits grow significantly.

For example, since the signing of the Comprehensive Economic Partnership Agreement with the Republic of Korea in 2009, India's imports from the ROK have been growing at a faster rate than its imports from the rest of the world, while the export story has been the complete opposite. As a result, India's trade deficit with the ROK has more than doubled from $5 billion in 2009 to $12 billion in 2018.

Fundamentally therefore, India's decision to not join the RCEP was an outcome of the conundrum that the more FTAs India signs, the bigger its trade deficit seems to grow. FTAs with the ROK, Japan and the ASEAN have already jacked up India's trade deficit, and India's decision-makers were concerned about the potentially devastating impacts of the RCEP on the domestic economy as its members include Australia and New Zealand, both powerhouses in agriculture and animal husbandry, and China, a manufacturing juggernaut.

In the meantime, political dynamics at home also fueled Indian Prime Minister Narendra Modi's decision to withdraw.

Recently, the Modi-led Bharatiya Janata Party saw disappointing results in Legislative Assembly elections in the provinces of Maharashtra and Haryana, as rural and lower-caste voters supported the opposition party instead. In light of this, support for the BJP has increasingly been in urban areas. With the economy languishing, Modi will find it impossible to make all voters happy at the same time. It is reasonable, therefore, to anticipate Modi will shift the focus of his government to near-term economic stabilization and job creation, and away from leapfrog development, which is a more longterm goal.

With limited state capacity, India is unable to mobilize social resources and juggle competing interests to protect those who may get hurt by a trade deal.

With the prospect of the BJP losing support en masse should urban voters see their interests eroded by another trade deal, withdrawal from the RCEP ended up being the least risky policy alternative for Modi.

On the question of the RCEP, the pro-reform Modi government was caught in a double whammy by the right and the center-left and under unprecedented pressure from the public.

On the one hand, the right-wing Rashtriya Swayamsevak Sangh, the parent body of the BJP, and its affiliate, economic nationalist organization Swadeshi Jagran Manch each convened massive protests against the RCEP in October. To some extent, the two represent the conservative base of the BJP.

On the other hand, the center-left Indian National Congress and the Communist Party of India (Marxist) have recently been challenging Modi on a variety of issues ranging from a sluggish economy to rising unemployment.

Joining the RCEP under such circumstances would only add momentum to the opposition, whose support is already growing.

However, even with India out, the RCEP will still be the world's largest free trade bloc, and given the turn of events, the other countries can now negotiate on higher standards. For India, staying out of the bloc means losing an opportunity to participate in the great division of labor in Asia at a relatively low cost. Furthermore, India can expect to see its place in the regional value chain squeezed out even further by Southeast Asian countries eager to develop their own industries.

Notably, India is at a delicate moment in its trade relations with the United States, as each party has been hitting each other with escalating tariffs.

It is possible that India is using its withdrawal from the RCEP as a bargaining chip in its trade talks with the US, in an effort to curry favor from Washington by putting a potential trade agreement with the US above the RCEP.

But as the RCEP has become a highly politicized issue, few stakeholders in India seem to have given much thought to the economic and long-term benefits the agreement could bring. Even though the RCEP is multinational in nature, Modi's decision to withdraw under public pressure shows that domestic concerns took precedence.

The author is a research fellow at the Institute of India Studies affiliated with Yunnan Academy of Social Sciences.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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