India risks hurting its exports to RCEP countries for very reason it quit the trade agreement

India’s key manufacturing exports may lose market share to a China-backed Asian trade bloc, from which Prime Minister Narendra Modi walked away last year to protect the interests of local farmers and industry.

Some of India’s exports such as engineering goods, chemicals, pharmaceuticals, and electronics face erosion in market share on account of lower tariffs those members of the 15-nation Regional Comprehensive Economic Partnership enjoy for trading among themselves. To put things in perspective, engineering products alone account for a quarter of the nation’s merchandise exports.

“In sectors where India is somewhat contributing to the global supply chain, RCEP would prove to be disadvantageous,” Amitendu Palit, a senior research fellow at the National University of Singapore, said.

“Under RCEP, cost of trade will come down which is a big advantage.”

As the trade pact kicks in, tariff will be eliminated on at least 92% of traded goods among participating countries. This is much more broad-based than what India has committed under its existing FTAs with Japan, South Korea or Asean.

The common rules of origin make the bloc an attractive destination for supply chains by making it easier for RCEP members to source inputs from within the bloc, said Priyanka Kishore, head of economics for South Asia and South-East Asia at Oxford Economics.

On the other hand, for India, the withdrawal will result in a loss of 1.2% of the nation’s projected GDP in 2030, according to Peterson Institute For International Economics paper.

This has exporters worried about expansion plans which may take a hit due to lack of competitive access to a huge market.

“Many sectors would want to shift to nations in the bloc to get access to the market and common rules of origin is a big advantage,” said Sharad Kumar Saraf, president of the Federation of Indian Export Organisation, India’s largest exporters’ group.

As China takes an even greater role in Asian trade, Saraf says the only consolation for Indian exporters in a post-RCEP world are the proposed free trade deals with the EU, the U.K. and the U.S. three economies that are India’s top export destinations.