Why did India Pull Out of Regional Comprehensive Economic Partnership (RCEP)? A Gravity Explanation of the Indian Puzzle

: India’s decision to pull out from the Regional Comprehensive Economic Partnership (RCEP) was a surprise to analysts as RCEP is currently the most significant Free Trade Agreement (FTA). This paper examines the rationality of India’s decision. We used gravity set-up and Poisson Pseudo Maximum Likelihood (PPML) estimator to analyse India’s export and import data for nine sectors with 45 trading partners for the period 2001-2021. The results show that India’s export is inelastic to tariff while import to India is elastic to tariff. Export remains positive despite tariff on Indian export while import declines with tariff imposed by India. This rationalizes India’s decision to pull out from RCEP. At the sectoral level, tariff elimination reduces India’s export of vegetables, food, minerals and chemicals, plastics and plastics goods. However, tariff elimination increases India’s export of animal and animal food, leather, wood and wood products, textiles and foot ware. Tariff elimination increases import of vegetable, food stuffs, chemicals, plastic and leather to India. The sectoral results show that India has reason to doubt its gain from joining RCEP as the sectoral results are mixed and the overall gain might not be in favour of India.