Finally, it turned out that I should specify the path in the next line after -data. Specifying the path in next line is the key here. So, in your application .ini file, it should look like:
Also, make sure that this (or any other program argument) appear before vm arguments.
But, we did not want to hardcode the path and instead wanted to point it to users home directory. For this, you could use:
This program argument can also be supplied as command line parameter. For example,
In your RCP application, you can just specify these program arguments in "Launching" tab in your application .product editor. When you export your product, it will put the appropriate entry in your application .ini file.