Up the economic game with ASEAN

India must address the gaps in economic cooperation with ASEAN to enhance its strategic footprint.

On July 22, India handed over its in-service missile corvette, INS Kirpan, to Vietnam. This is the first time India has gifted a fully operational ship to a friendly foreign country. This handover not only underlines India’s growing maritime cooperation with Vietnam but also represents one in a series of recent events where India has accelerated its strategic outreach in Southeast Asia.

In May this year, the first-ever ASEAN-India Maritime Exercise was held off the coast of Singapore, with nine ships, six aircraft, and over 1,800 personnel from India and the ASEAN member states participating. India backed up this engagement with interactions with Indonesia, the Philippines, and Malaysia.

Greater strategic engagements with Southeast Asian countries are concomitant with India’s ASEAN-centric vision of the Indo-Pacific Region. Not only is there a thrust on joint military drills, but Southeast Asian countries are increasingly looking to acquire Indian-manufactured defence equipment, including the BrahMos missile system and Light Combat Aircraft Tejas.

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While India is taking positive steps to enhance its strategic footprint in the region, it is imperative to address the gaps in India’s economic cooperation with ASEAN countries. To counter China’s influence in the region and to provide the Southeast Asian countries with an opportunity to diversify their engagements, India needs to strengthen its economic cooperation with the region.

Recently, India has initiated talks with ASEAN to address issues of rules of origin and trade imbalance. The increasing trade deficit with ASEAN has resulted in these renegotiations. India’s trade with ASEAN for 2022–23 was $110.58 billion, while the trade deficit was $43 billion. The ASEAN-India Trade in Goods Agreement (AITIGA) is proving insufficient for India to increase its economic clout within the ASEAN, as China has deeper access to the ASEAN markets than India.

At present, ASEAN and China remain each other’s largest trading partners. China has replaced the European Union as ASEAN’s largest trade partner since 2020. ASEAN and China have enjoyed a positive trend in their trade despite a negative trend in general at the global level as economies across the world are recovering from the Covid-19 pandemic and limping back to normalcy.

The ASEAN-China trade grew by 15 per cent in 2022, with the total trade volume reaching $975.3 billion. Defying the negative trend of the Covid-19 pandemic, ASEAN-China trade rose from $641.5 billion in 2019 to $975.3 billion in 2022. In 2021, China became the joint-largest source of Foreign Direct Investment (FDI) in ASEAN countries. China’s investment in the region has grown from $7 billion in 2020 to $13.6 billion in 2021. ASEAN and China are also currently negotiating a third version of the ASEAN-China Free Trade Agreement (ACFTA).

Much of China’s growing economic clout with the ASEAN has been attributed to the Regional Comprehensive Economic Partnership (RCEP) coming into force. The growth in ASEAN-China trade for the year 2022 is directly attributed to the RCEP.

It is pertinent to note that India walked out of the RCEP in 2019. India’s concerns were that accepting RCEP would have meant Chinese products flooding Indian markets, which are already struggling to shrug off their dependence on China. All 10 member states of the ASEAN are part of the RCEP, which also includes China, Japan, Australia, New Zealand, and South Korea. Seven out of the 10 ASEAN member countries are also members of the Asia-Pacific Economic Cooperation (APEC). The RCEP and APEC offer Southeast Asian countries platforms for greater economic engagement with the members of these organisations.

The Indo-Pacific Economic Framework (IPEF), initiated by the United States to counter China’s influence, is a major avenue for India to engage with the region. One of the concerns for India about the RCEP was regarding the origin clause, which would have allowed China to circumvent the rules and reroute its products to India through another member country. However, barring India and the United States, all the other members of the IPEF are also members of the RCEP. Besides, the economies of these countries are closely linked to China.

India must continue its negotiations with ASEAN for a better trade and investment deal. India’s ASEAN-centrism can be successful only if the acceleration in defence outreach is backed by strong economic engagements.

(The writer is an independent political analyst and researcher)