India-Asean ties offer huge potential

Year 2017 occupies a special place in India-Asean partnership, as exactly 25 years ago, in 1992, India inked a sectoral partnership with Association of Southeast Asian Nations (Asean).

 

In hindsight, one could argue that the raison d’etre of India’s ‘Look East Policy’ found its relevance in the partnership that India took forward in establishing a Free Trade Agreement (FTA) with the Asean. It was a vision that resulted in forging a significant strategic, trade and economic partnership.

Since 1992 many bilateral meetings, summits and ministerial meetings have taken place on a wide range of sectors, so much so that the prime minister and President of India have visited a majority of the Asean countries.

India’s kickstart in implementing the FTA between Asean and India in 2010 resulted in further tariff liberalisation and trade expansion. In addition, the services, trade and investment agreement signed in 2015 also represents major achievements in Asean–India integration.

India completed its tariff liberalisation obligations in December 2016. Investment flows have started coming into the country in a miniscule form, but they tend to contribute to the activity ‘Make in India’ programme.

India is also a partner of the Regional Comprehensive Economic Partnership (RCEP), which is a comprehensive free trade agreement being negotiated between the 10 Asean members and its six FTA partners.

By becoming a partner of the RCEP, India would be in a position to deepen integration among member countries, while promoting goods and services trade, investment, the IT sector, competition and dispute settlement.

Given that the possibility of India joining the TPP is still a long way off, being a member of the RCEP will help India prepare itself to better engage with mega FTAs in the future. The RCEP itself will also benefit India. The RCEP is an ambitious mega FTA that covers 16 countries, a third of the world’s economy and 45% of the global population.

Last couple of years however have witnessed dismal growth as far as trade relationship goes between India and Asean but 2016-17 is showing some signs of improvements. Countries like Malaysia, Indonesia and Singapore are emerging as India’s top three trade partners in Asean.

Total trade increased to $70.68 billion in 2016–17, from $65.12 billion in 2015–16. During this period, India’s exports to Asean increased to $30 billion from $25 billion. While traditional import sources are yet to stabilise, India is gaining industrial, technological and digital production linkages with Malaysia, Thailand and Singapore.

To take this trade and econo­mic activities forward, India ne­eds to sharply focus on the issue of connectivity which is just not about a strategic priority for both India and the Asean countries.
Connectivity can evolve great source of trading activities which can connect India to a great extent with Australia, New Zealand and South Africa, which are the main emerging and powerful trading destinations for India. Improved connectivity can also help in facilitating cross-regional production networks.

India has announced a line of credit worth $1 billion to promote projects that support physical and digital connectivity with Asean, and a Project Development Fund with a corpus of $77 million to develop manufacturing hubs in Cambodia, Laos, Myanmar and Vietnam. India contributes to three major cooperation funds with Asean, namely the Asean–India Fund, the Asean-India Science and Technology Development Fund and the Asean–India Green Fund.

Value chains

Further advantage for the India-Asean partnership will provide India to connect itself with global value chains. Asean has been a great region in establishing international production network (IPN). India can gain from such experience and help micro and small-and medium-sized enterprises (MSMEs) into regional value chains.

The Ministry of External Affairs has taken initiative to provide project development fund to encourage integration of Indian producers into the grouping’s regional value chains. This initiative plans to help create manufacturing hubs in Cambodia, Laos, Myanmar and Vietnam leading to the establishment of a new regional economic order within Asean.

The growing strategic partnership between India and Asean needs to be further strengthened by consistent engagement with the Asean member countries. Both Asean and India need each other. For the bloc, India not only offers a huge domestic market with a growing aspirational middle class, but also a growing working population.

Given that India is a world leader in IT sector and an attractive destination for foreign direct investment, there are huge opportunities for the grouping to forge a deep relationship with India. Focusing on trade in services with Asean will give India an opportunity to use its competitive strength to become the regions’s services export hub.

Being a part of the RCEP and having strong relations with Asean through its existing FTA will facilitate further economic reforms in India. And, more significantly, it will allow India to establish itself as a growing economic power in Asia.

(The writer is Professor, Lal Bahadur Shastri Institute of Management, New Delhi)