The fractious relations that Asean countries have with China underscores the need for the former to deepen economic ties with India.

India is fully justified in seeking the expeditious conclusion of a free trade agreement (FTA) in services with the Association of South-East Asian Nations (Asean) as an extension of the existing pact covering trade in goods. The goods FTA, which came into force from January 2010, has led to a considerable spurt in bilateral trade between India and the ten-member bloc: From under $44 billion in 2009-10 to over $79 billion in 2011-12. While India’s exports of $36.7 billion were lower than its imports of $42.5 billion last fiscal, that cannot be an argument in itself against having an FTA or saying it has only benefited ASEAN producers. A big chunk of India’s imports — palm oil from Indonesia and Malaysia, hard disk drives from Thailand, and pulses, or in the future, natural gas from Myanmar — would happen even without an FTA, given the country’s sheer deficit in these commodities. On the other hand, India’s trade surpluses with other ASEAN economies like Singapore, Vietnam and Philippines have grown, which again dispels the impression of the FTA turning the country into a one-way dumping street.

If FTAs are fine for goods — the overall efficiency gains from increased trade more than offsetting losses in individual cases — the question is, why not have it in services as well? This is precisely what the Prime Minister, Manmohan Singh, has flagged at the recent India-Asean summit in Phnom Penh, Cambodia. An Agreement on Trade in Services and Investment Promotion, he has pointed out, would “be a strong signal of our deepening engagement and will allow for (a further) rapid expansion in trade and investment flows in both directions”. India definitely has a strong interest in pushing for such a pact, given that it would open up a 600 million-strong market (bigger than the US or the European Union) to doctors, engineers, lawyers, chartered accountants and other professionals from the country. Moreover, a host of Indian companies have set up shop in Asean countries and would want their investments, in sectors from steel and IT to natural resources, to enjoy some form of treaty protection.

Asean members, on their part, may not be as enthusiastic about inking an FTA in services or an investment promotion treaty with India. But these countries would also like to shake off excessive dependence on China (trade between the two was in excess of $360 billion last year), and engaging more with India is certainly one way to do that. India can play on this – as also its far less militaristic or threatening image — to extract a deal from Asean on services and movement of natural persons, similar to the concessions it extended through the FTA in goods. And the same logic applies to all FTAs it has already, or intends to enter into.

(This article was published on November 20, 2012)
XThese are links to The Hindu Business Line suggested by Outbrain, which may or may not be relevant to the other content on this page. You can read Outbrain's privacy and cookie policy here.