The IUP Journal of Applied Economics
India and RCEP Agreement: The Cost and Benefit of Joining the Trade Deal

Article Details
Pub. Date : Oct, 2022
Product Name : The IUP Journal of Applied Economics
Product Type : Article
Product Code : IJAE011022
Author Name : Pritish Kumar Sahu
Availability : YES
Subject/Domain : Economics
Download Format : PDF Format
No. of Pages : 16



The number and coverage of the free trade agreements across the world has increased significantly in recent decades. The belief that removal of market access barriers enhances economic gain has made many developed and developing countries enter into several bilateral, regional and multilateral trade agreements. The Regional Comprehensive Economic Partnership (RCEP) is one such trade agreement that 10 ASEAN members and its five trading partners have entered into. In this context, the present study attempts to estimate the cost and benefit of joining RCEP for India in two different scenarios. First, using the SMART partial simulation analysis, the study finds that if India joins RCEP, the trade deficit could widen by as much as $23.9 bn annually. Second, the empirical estimation by employing an augmented gravity model shows the relative low impact of tariff on trade among RCEP partners, compared to other explanatory variables in the model. Based on the findings, the study concludes that India' s decision to not join RCEP is a wise one at this stage.


There has been an increasing worldwide emphasis on mega trade agreements in the recent past. It is considered to be a stepping stone towards a global free market economy by many countries with an expectation that it would stimulate economic growth, boost trade and investment, create regional and global supply chains, reduce poverty and increase employment. Keeping this in mind, a considerable number of countries have become a part of bilateral and multilateral free trade and investment agreements in the Asia-Pacific region.

India is not an exception and it has signed a number of bilateral, regional and multilateral free trade agreements (FTAs) in the past and is in the process of signing many bilateral and regional FTAs. Whether these trade agreements have benefitted India or not is a matter of debate for academia and policymakers. But in the recently concluded Regional Comprehensive Economic Partnership (RCEP), India has chosen to withdraw from it, which was formally launched in November 2012 at the 21st ASEAN Summit in Cambodia and took effect on January 1, 2022. As RCEP has come into effect, and India is given the window to join it in future, it is important to evaluate the likely trade implications of joining the agreement. RCEP