India must go bullish on Asean

This Republic Day, heads of the all the ten Asean economies — Thailand, Vietnam, Indonesia, the Philippines, Malaysia, Singapore, Myanmar, Cambodia, Laos, Brunei — will meet in Delhi. And the world will possibly sit up to take note of this gathering for reasons more than one.

Asean is touted to become the fourth largest economic bloc in the world by 2030. As the region increasingly witnesses Chinese adventures in and around the Indian Ocean, it has become ìmportant for India to strengthen its relationship with other Asian economies.

The 3Cs, namely commerce, connectivity and culture, should ideally become the pivot of cooperation between Asean and India. This idea was fittingly placed by External Affairs Minister Sushma Swaraj at an Asean event last year.

It is true that India’s mythology and culture find great resonance across the entire Asean region. However, repeated mention of the historical linkages appear rhetorical, and unable to add any real value as these economies anticipate a proactive and constructive commercial engagement with India.

Asean today is one of the most thriving business and commerce centres globally. The region constitutes around 8 per cent of the global exports, and receives 15 per cent of world investments, while having almost 26 per cent in outward investments. It is also home to economies such as Cambodia, Laos, Myanmar and Vietnam, which are often touted as the last frontier economies in the world having exhibited more than 7 per cent growth consistently over the past few years.

That said, India’s commitment to trade and investment in Asean remains far from impressive. While around 10 per cent of India’s exports goes to Asean, we contribute only 2 per cent to Asean’s total import from across the globe. In fact, the balance of trade has always been in favour of Asean.

Asean’s strength today lies in plantations, electronics and heavy machinery, while for India it is largely in computer services, light engineering and pharmaceuticals. Both sides needs to create appropriate frameworks to reduce both tariff and non-tariff barriers to widen the scope of trade, while looking at participation in the value chain.

There exists the continuous dominance and interference by China in some of the economies in the region as it gets desperate to win control in and around the subcontinent. The entire Asean region is flooded with Chinese products. For example, in Cambodia, many government vehicles sport the tag, “Gifted by friends from China”. Coincidentally, India was instrumental in Cambodia securing freedom, but today finds it difficult to have a significant commercial presence in that country.

Meanwhile, China has gained significant prowess and is able to exploit differences within Asean. Investments, soft loans, grants and assistance have been offered to most of the new frontier economies, making it difficult for countries such as India to do genuine business there.

Recently, for instance, the Philippines expressed its allegiance to China over its age-old partner the US, which could have far-reaching strategic and defence spillovers. Amidst all this lies the Malacca Strait, which carries about 40 per cent of world trade and has been of Chinese interest for long; India and the Asean economies have expressed concerns over this and have agreed to manoeuvre the maritime borders.

India in 2015 announced a ₹500-crore Project Development Fund, which was meant to encourage Indian businesses to set up ventures in CLMV countries (Cambodia, Laos Myanmar and Vietnam). The region offers a lot of opportunities for Indian entities in project exports, supply contracts, and creating utility infrastructure, apart from having manufacturing set-ups. It is important for India that such initiatives are realised soon, especially when it faces competition from an aggressive Chinese.

Many free-trade zones have already come up in the frontier economies. For example, Japan is helping build one in Sihanoukville in Cambodia and another at Thilawa in Myanmar, while Taiwan is aiding one at Vientiane Industrial Trade Park in Laos. Vietnam already has a free-trade zone flourishing with Singapore’s support.

India must strive to penetrate in select Asean economies where China is well entrenched, while increasing its influence in others where China is gaining a foothold. India must shrug off its traditional inertia and replicate the Chinese approach of offering the entire bouquet of its services to engage with the Asean economies. This would essentially mean avoiding procrastination and inordinate delay.

Indian businesses could benefit by setting up production units in Asean, which could then act as a platform for them to enter China with whom Asean has an FTA. India could also benefit from Asean’s trade agreements with other economies in the region.

Further, the ambition to have an Asean Economic Community would catapult the ten economies of $2.6 trillion into a single market and production base, providing Indian business unparalleled access to over 622 million people, almost double the populaton of the US.

However, India needs to be cautious while negotiating the Regional Comprehensive Economic Partnership (RCEP) with China being the big elephant in the room. Trade facilitation is another key area. It is important for Indian banks to set up operations in the region which would help Indian businesses.

Aspects such as Mutual Recognition Agreement in the context of services should be ratified at the earliest keeping aside any apprehension on the impact that this could have on Asean’s services sectors which are largely confined to Singapore. India may also explore opportunity to be a part of the Asia-Pacific Economic Cooperation or APEC, and to the Chiang Mai Initiative Multilateralisation (CMIM) — a mechanism created in 2010 to help manage regional financial crisis.

Both India and Asean would require to chisel their existing policies to facilitate trade and investment and, more importantly, maintain a sustainable environment for peace in the region. Given that the US is moving towards protectionismwith the withdrawal from the Trans-Pacific Partnership, its influence over Asean may see some relegation.

In this context, a benign and non-hegemonic engagement between India and Asean would yield sound economic results and would be a shot in arm as far as strategy is concerned. Should this happen, it may possibly be one of the most successful foreign policy initiatives of the Modi government.

The writer is an economist with EXIM Bank. The views are personal

COMMENT NOW