India’s ASEAN engagement needs a digital push

Sriram Chakravarthi/Vikram Nair | Updated on May 06, 2021

Set to become one of world’s top five digital economies, the Asian bloc presents an opportunity for businesses and investors

India’s desire to enhance its commercial and trade relations with the Association of South East Asian Nations (ASEAN) is well-known. At the last two India-ASEAN summits, in 2019 and 2020, Prime Minister Narendra Modi reiterated ASEAN’s centrality to India’s ‘Act-East’ policy and called for enhanced connectivity between India and ASEAN to boost ties stating that a strong and prosperous ASEAN was in New Delhi’s interest.

In August 2020, Commerce and Industry Minister Piyush Goel stated that if India and ASEAN could work together to resolve their differences and harness their trade potential, a bilateral trade target of $300 billion could be realised.

On the ground, however, trade ties have not grown at the pace or direction that India aspires to. The latest statistics from the Ministry of Commerce and Industry show that India-ASEAN trade declined 17 per cent (from $73.2 billion to $61.1 billion) during the period April 2020 to January 2021 compared to the same period in the previous year with exports and imports falling by 7 per cent and 22 per cent, respectively.

While multiple reasons can be attributed to the declining numbers, it cannot be denied that the Covid-19 pandemic and the lack of physical connectivity in the past year has had an adverse impact on trade.

On the brighter side, Covid has accelerated what ASEAN has been hoping to do for a while now — that is, to have its economies embrace digital technology, so as to drive new economic activities and realise the full potential of its young demographic.

An ‘e-conomy 2020 report’ by Google, Temasek and Bain & Co. shows that internet usage continues to surge in South-East Asia with 40 million new users added in 2020 alone taking the total to 400 million users. The report further states that the unprecedented move to digital services will ensure that the internet economy in South-East Asia will remain resilient with Gross Merchandise Value expected to grow from $100 billion in 2020 to $300 billion in 2025.

And, it is in this digital growth opportunity that India should prioritise its ASEAN engagement.

Digital opportunity

At the government level, existing engagements can be scaled up. At the recently concluded 1st ASEAN Digital Minister’s meeting, ASEAN ministers sought to enhance digital cooperation, develop human resources, and explore emerging technologies for adoption in the implementation of the ASEAN Digital Masterplan 2025.

On the digital payments front, India could share its experience in creating an integrated interoperable system with the Unified Payment Interface. The UPI enables payment systems to be fully interoperable across all payment system players and allows for exchanges between a range of products, or transfers across different banks.

India’s engagement on this front with ASEAN could be hugely beneficial as it may allow for seamless fund transfers across borders, incentivise innovations in payment systems and allow fintech companies to expand and scale their operations.

On the trade front, India can leverage off the digital cooperation mechanisms to engage individual ASEAN member-states through Digital Economy Partnership Agreements (DEPAs) similar to the one Singapore entered with New Zealand and Chile in 2020. A DEPA represents a new form of engagement and trade in the digital era. It aims to facilitate seamless end-to-end digital trade, enable trusted data flows and build trust in digital systems. Businesses can look forward to benefits such as improved efficiency, reduced cost and increased trust when conducting business and trading digitally with their overseas partners.

From a business perspective, India and ASEAN must facilitate and encourage start-ups and growth companies to tap each other’s markets. A report by Datalabs in March 2020 stated that over 35 big ticket Indian start-ups have expanded or plan to expand to South-East Asia. Singapore is the most favoured location followed by Indonesia, Malaysia and the Philippines.

The Indian government should invite promising start-ups and growth companies from ASEAN to India to expand their business, scout for partners and talent as well as tap into the well-established venture capital networks in India. In doing so, India could seek similar market access commitments from its ASEAN counterparts.

‘Act-East’ and ‘Act-Fast’

The Covid pandemic has reshaped ASEAN’s digital landscape with governments and businesses being forced to transform their economies using digital technologies. With ASEAN having the potential to become one of the top five digital economies in the world, its digital landscape presents a unique opportunity for businesses and investors alike.

India’s engagement with ASEAN should therefore be driven by and focussed on expanding the digital connectivity between the two. Given India’s solid digital infrastructure and booming digital economy, a rejuvenation of the ‘Act East’ policy by engaging ASEAN through digital means would prove advantageous.

Perhaps, it may also be the most effective mechanism to enhance the pace and direction of India-ASEAN trade ties that India so strongly desires.

The writers are lawyers at Rajah & Tann Singapore, LLP and are part of the firm’s South Asia Practice group.

Published on May 06, 2021

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