Why India should focus nearer East

Rahul Mazumdar | Updated on January 20, 2018

Before sunset India must capitalise on opportunities LUCIANO MORTULA/SHUTTERSTOCK.COM

It makes strategic and economic sense for India to engage with Cambodia, Laos, Myanmar, and Vietnam

India recently concluded the long-awaited contract with Iran to develop the Chabahar port, and a related deal involving the establishment of a trilateral trade and economic corridor. This engagement is possibly one of the most crucial steps which would not only enable India’s access to Afghanistan, but also large parts of Central Asia which are rich in natural resources. It is significant also because India gets to contest China’s influence in the region.

While there’s been some headway in Central Asia, in the immediate neighbourhood things have not been quite so impressive in terms of India’s investments. Cambodia, Laos, Myanmar and Vietnam (CLMV) have all been exhibiting more than 5 per cent GDP growth over the last few years, as the world economy struggled to breach the 2.5 per cent growth. Myanmar and Vietnam have led the pack, with 8.5 per cent and 6 per cent growth respectively.

‘Acting’ East

In 2014, the Government announced the Act East Policy to bring more focus to this region, in particular, to the CLMV nations. However, no significant business engagements have resulted, and if this situation continues, the Act East Policy may just appear as old wine in a new bottle.

The CLMV region has received a significant amount of FDI. Since 2011, the amount of FDI into the region has increased phenomenally from $13.3 billion in 2011 to $38.7 billion in 2015. A chunk of this has gone to Vietnam (60.6 per cent), followed by Myanmar (25.3 per cent). In 2015 alone, CLMV saw a 22 per cent increase in investments from around the world.

Interestingly, both these countries, Vietnam and Myanmar, also offer tremendous opportunities for India to access huge markets. Myanmar, along with Cambodia and Laos, by virtue of being a Least Developed Country, benefits from the most favourable regime available under the EU’s ‘Everything But Arms’ scheme, providing duty-free and quota-free access to the EU for the export of products, except arms and ammunition. On the other hand, the recently concluded Trans-Pacific Partnership (TPP) agreement to which Vietnam is a signatory along with 11 other Pacific economies representing 26 per cent of world trade, would provide almost duty-free access to goods produced in and exported from Vietnam.

While Myanmar could act as the gateway to the entire Asean region apart from tapping the significant local market, Indian companies in Vietnam would get direct access to the developing and developed markets of TPP members such as Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and the US, as well as Vietnam. Besides these, it goes without saying that CLMV would provide access to the entire Asean landmass.

India’s negligible presence

Unfortunately, bilateral economic engagement between India and the CLMV countries is less than satisfactory. The irony is that in spite of these apparent benefits, India’s cumulative investment in two of the large markets in the region, Myanmar and Vietnam, stands at an abysmal low of $1.1 billion and $2.2 billion, during 2011 and 2015. India’s share in total investments in the CLMV region during the same period stands at just 2.4 per cent.

On the other hand, while imports by CLMV doubled during 2010 and 2014, India’s share in its imports remained the same, hovering around 2 per cent, since 2010.

The ground reality is that while China already has made significant inroads into CLMV, countries far from Europe and the Asia-Pacific are not far behind. It may not be out of place to conclude that India is increasingly being observed to be missing the bus in the CLMV region. Ideally, India should have been playing to its strengths in the region, executing projects in the area of healthcare, ICT and education, and possibly even replicating some of its African models.

Good economics is good politics. India must increasingly push for engaging more with these four countries in the region so as to benefit not only on the economic front, but also be a constructive and strategic partner in their growth stories. For example, for India which supports the democratic principles in Myanmar, it would be easier to get the economic relationship with that country stronger. In the case of Vietnam, India’s current interests have been more skewed towards defence and security, and this needs to be widened economically as well.

A big dose of lethargy

While the Government in 2014 had expressed the desire to set up a ₹500-crore Project Development Fund (PDF) for catalysing Indian investments in CLMV countries, the same has not seen any significant traction on the ground either. Should this initiative see the light of day, it will usher in a good amount of Indian investments into the region, possibly in textiles, leather and low-end manufacturing, amongst others.

The Kaladan multi-modal transit-transport system conceived in 2008 envisioning connecting India’s north-eastern States through Myanmar to its Sitwe port has been in limbo due to delay and escalated costs. The project was intended to be a landmark initiative that would facilitate India’s links to the Asean region.

It is extremely important, given the geopolitical conditions, that inertia at the government level be shaken off so as to see the completion of the planned projects. There has been apprehension in some quarters about completion of the Chabahar port in time, in light of India’s recent record in delays in completion of strategic projects. Such notions should be corrected.

As India goes to Laos in a few months to participate in the Asean summit, we hope to see some focus shifting back to the region.

The writer is an economist with Exim Bank, India. The views are personal

Published on June 21, 2016

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