India, China and Free Trade

T G Jacob

India's last minute withdrawal from the Regional Comprehensive Economic Partnership [RCEP], the largest free trade bloc of its kind comprising ASEAN countries with the addition of Japan, Australia and New Zealand was melodramatic. The discussions had been going on for years with no inkling of ditching by India. In fact, even a few days before dropping out a concerned union minister had unambiguously reiterated India's commitment to the free trade bloc. India's reasons for this somersault were couched in sentimental tones by the prime minister. Also there was no inkling of such a step when the Chinese president paid a visit to India and had discussions with the Indian prime minister. Suddenly he was seized by the negative possible impacting of free trade on the small industries and agriculturists of the country and in their interests the country is not joining RCEP. Certainly, it is a very commendable, altruistically idealistic sentiment in these days of hard, no-nonsense, cutthroat economic realities.

The question of joining RCEP had raised many reactions within the country. The legitimate fear was raised that the country would become a dumping ground of relatively foreign goods; and hence lead to setbacks in production, generation of employment, and investment. Opposition political parties raised this rear but no attempt was made to mobilise the people around this issue. In fact their opposition to joining RCEP belonged to the genre of tokenism. Of course, after the government walked out of the club some of them claimed 'victory' of their leadership. Such imbecility is also quite understandable.

The reaction of China, the main initiator; Japan and Australia, two other dominant economies in the bloc, showed calculated sobriety typical of Chinese diplomacy. They expressed disappointment while at the same time hoping that India will by and by turn around, understand the advantages of RCEP in a better light and join the bloc. Sans India they all decided to go ahead with RCEP. If there was any expectation from anyone that India's abrupt withdrawal will scuttle the organisation they were disappointed. The project went ahead as scheduled. This implies that India's sudden action lacked surprise value and was not entirely uxexpected. At the same time, the whole episode created a lot of discussions in India. In fact, discussions are still going on. These discussions directly or indirectly connoted and circled around the strengths or weaknesses of the economy and asked for increased competitiveness of the economy which also means ever more economic reforms.

The visit of the Chinese President to India also was quite interesting in this context as also the visit of Sri Lankan boss to Delhi. The Chinese chose their ancient Pallava trade contact centre of Mahabalipuram as the venue of meeting with the prime minister and they brought their own security personnel, and all other requirements like automobiles. The Chinese president thus visited in the manner of the last American presidential visit to Delhi. He also made a relaxed travel by road from Chennai to the ancient port city carefully studying the modern IT hub of East Coast Road, one of the biggest of its kind in Asia. Prime Minister Narendra Modi went by helicopter from Chennai but the visit ended up as a pleasant chat and sight-seeing with nothing very serious to show as outcome. Moreover, the Chinese President went straight from Chennai to Kathmandu where his officials signed a major contract to develop an extensive railway project in Nepal which will also establish high speed railway links between China and Nepal. This mega billion project is one for which India was angling for many years. For the Chinese it was not only a mega investment project but an important part of their one road one belt expansionist economic plan for Asia.

The Sri Lankan CEO visit to Delhi occurred in the background of increasing diplomatic pressure being exerted by New Delhi on Colombo to moderate the Chinese penetration in Sri Lanka. Officially he was told that India is displeased with the over increasing entrenchment of Chinese interests in the island nation which is also of grave security concern to the big brother. The Sri Lankan response was pedestrian but very forthright: The Chinese are coming to Lanka with money and India is equally welcome to come with money. Anyone with good money to invest is welcome. Power equation in South Asia cannot be put more clearly. Chinese investments in Lanka like the Hambantota port complex on the eastern coast are way out of the financial and technical capability of India. There is almost no competition from India as far as China is concerned. So is the case with Nepal and other neighbours of India.

Under a regime of free trade—zero rates of import-export duties and tariffs—it is invariably the cost of production of goods and services that determines the relative market shares and domination. And this cost advantage is determined by the costs of factors of production, principally that of labour, and actual and potential technological wealth. When prime minister Modi says that joining RCEP will result in the dumping of Chinese goods in the Indian market to the detriment of Indian producers it is an identity equation statement. This is a admission of the relative weakness of the Indian economy vis-à-vis global forces which flies in the face of claims of approaching the stage of an economic super power. But despite this frank admission the ruling party leaders are always upgrading the growth trajectory of the economy. In fact the 5 trillion $ economy goal was recently upgraded by the ruling party into a ten trillion $ goal. Luckily, even small time economists, not to speak of the people at large, cannot easily conceive what is a trillion! Those who liberally produce such gas also probably do not understand the language of trillions. It is actually the language of leaders of global capital, particularly finance capital, not the language of chronic dependency epitomised by crony capitalism and capitalists.

When the government talks about the harms of Chinese goods in the Indian market one wonders whether they are aware that already a multitude of Chinese goods are dumped in the Indian market. These goods range from kitchen gadgets, cloth, toys and electronic items like laptops. Anyone travelling by train to Eastern India from the southern direction can tell one that after someone reaches Odisha the whole train becomes a super bazaar selling Chinese goods at very low prices. In organised shopping areas, too, the presence of Chinese goods has successfully driven out their Indian counterparts. This is especially so in Eastern India and all the areas that border Nepal, Bhutan and Tibet. From these areas the goods easily percolate to the whole of India. This is without any free trade agreement between the two countries. The government ought to tell the people how and why this is happening and what they plan to do about this phenomenon.

Indian economy is undoubtedly in severe doldrums. All significant macro-economic indices show this only. The rulers are endlessly repeating confused lies like there is no economic downtrend even if there is deceleration of growth and magically enough this country can never experience economic recession. Moreover, all those who are expressing doubts about the health of the economy are speaking the language of enemies of the country and hence are outrightly unpatriotic and Pak agents. This tendency to submerge real structural maladies under false nationalism shows the limits of jingoism but it can easily be dangerous for the people. Logically speaking, such a blind alley can lead to desperate attempts at diversion like war and/or communal, ethnic pogroms. Such totally mindless diversionary trends are already attaining visibility and democrats of all hues ought to be seriously aware of their dangerous possibilities.

It is true that economic indices like gross national product and its vicissitudes do not directly reflect on the actual condition of the people. But its spread-effects can easily lead to very unsavoury secondary effects like price inflation, especially of essential goods like food. In fact, this is happening in India now though the capital market is dull and decelerating. For one thing India may not be far from famines and food riots. The crisis that the economy is facing is basically one of production and reproduction of capital which is intrinsic to capitalism as a world system. The same is manifested in the Chinese economy too. But they are trying to get out of it by expanding outwards like the massive one belt one road project which involved huge capital exports. India is not associated with this project, though all of India's neighbours are involved. RCEP can very well be a great complement to this ambitious project which is taken by dominant powers like the US as a threat to their world domination. This is why it is possible to surmise that India's walkout from RCEP is under pressure from the US hoping thereby to scuttle China's calculations. The well-being of poor farmers or small businesses in India is a far cry from pandering to US global interests. The prime minister's concern for small businesses and farmers as the reason for not joining RCEP thus becomes yet another illustration of blandly hypocritical sadism.

Earlier there were active discussions between the European Union and the US on the one side and India on the other to bring about a free trade deal. These talks had collapsed six years back because the concessions that India was asking for nullified the tenets of free trade, according to EU and US sources. Within these six years the negative balance of trade for India has only increased and many influential governmental policy analysts are again asking for restarting the earlier discussions and unconfirmed reports say that at the time of India walking out of RCEP unofficial secret discussions were already on regarding free trade between this most powerful economic bloc and India. Also, statements came out from the Indian side that India would prefer free trade with the US and EU rather than RCEP and China. On the whole the big corporate establishment in India seems to be quite sentimental about the US and EU. Ditching RCEP has TO be viewed in this broader background.

Of course, nobody could possibly take this hypocritical posturing regarding people's welfare seriously as a reason for walking out. The recent past is packed with governmental measures to drive the small businesses to bankruptcy and farmers' suicides are a continuing sordid story which is not even considered worth documentation. Demonetisation as a single measure was devastating to small businesses immediately followed by writing off large chunks of corporate debt to the public sector banks. GST became a severe blow to whatever remained of federal economics and now the Centre is exhibiting symptoms of indeterminacy of transfer of legitimate tax revenues due to the federal units. Delays and even non payments cannot be ruled out in future given the precarious condition of central finances and clash of interests in terms of expenditure priorities. Mismanagement of finances ably aided by sectarian monetary policies enabling hyper accumulation by select cronies is day-by-day becoming more and more an obvious characteristic of the macroeconomic policy. Anyone trying to point out this mismanagement stands the chance to be labelled anti-national, a comic reaction at best. Elements within the corporate community themselves are now openly expressing this fear. The statement of Rahul Bajaj, the head of one of the oldest and biggest business houses in the country, that things are in a messy way was immediately responded to by the finance minister, that such statements are anti-national. Things are becoming 'curiouser and curiouser'! 'Hindutva' economics is obviously going berserk with the whole world watching.

Theories of international trade always played a significant role in the development of modern economics. This is so from the days of mercantile capitalism, and the theory of comparative advantage became a widely circulated formulation to rationalise international trade. Colonialism, a world system that developed from the exigencies of mercantile capitalism, practised a highly enforced, brutally destructive system of international trade that facilitated the growth of mercantile capitalism into industrial capitalism through the drain of surplus from the colonial outposts to the capitalist metropolis. In India early nationalists developed the drain theory creating the economic rationale for political freedom from the colonialists. The grossly unequal trade relations were replaced by neo-colonial trade relations during the post-1947 era which maintained inequity and geographical division of labour as the cornerstones of international trade. The situation has continued to date. The crux of the matter is that there can be no equality between unequals and any talk of free trade between, say, India and the EU or the US is simply nonsense. During the 1980s the US imposed 'free trade' with several South American countries with the objective of reinforcing the already existing client state status. This free trade has created great misery for the peoples of these countries and vitiated the dependency syndrome further. It also helped in a surge of nationalist economics in countries like Venezuela. Now political and economic manipulations are in full swing to bring these countries back to the client state status.

Then there is the case of India. Whatever free trade agreements were agreed upon with immediate neighbours have acted detrimental to the disadvantage of basic classes like peasantry. The India-Sri Lanka agreement did a lot of harm to the small local growers of crops like pepper, coffee, tea and other similar cash crops. At the same time this acted as a great windfall gain to big traders and corporates who could import these products for reselling or value adding, depress the home market for home producers and indulge in adulteration which resulted the tarnishing of the global image of several world renowned products like Wayanadan pepper and Nilgiri tea. This is an ongoing issue for several other commodities too. There is a chain action too. Sri Lankan traders can easily import agricultural products into their port, mix it with Lankan products and then export to India where the same items will be mixed with home produce and then traded. This sort of free trade is simply racketeering.

Free trade proving beneficial to neo-colonial economies is an unknown story. It is in the  basic logic of things that such trade will always benefit the stronger at the expense of the weaker and thus becomes a drain from the latter. If there is free trade between India and China, Japan or the EU or the US it is bound to prove grossly unequal trade with India at the suffering end. All of India may not suffer but whatever retains any national characteristic is bound to suffer grievously. The farming sector and communities who are already subject to structural distortions and maladies perpetually driving them to destroy themselves obviously becomes the first and worst victims of free trade. This is so because the structural strengths and weaknesses of these large economies dictate the balance or imbalance of economic power, and trade is a derivative phenomenon of this power balance or imbalance. It is a hard economic reality and no amount of verbosity can alter it.

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Vol. 52, No. 37, Mar 15 - 21, 2020