31 October 2011By Dr. Mohammad Samir Hussain & Dr. Janatun Begum
Close geographical proximity, historic trade ties, the complimentary nature of economic needs and convergence of views have created a strong bond between India and the Association of Southeast Asian Nations (ASEAN). India and ASEAN share a multi-faceted relationship spanning political, economic, energy, defense, strategic, security, and cultural realms. Besides, India's economic ascent and growing pragmatism in international affairs created a conducive atmosphere for regional cooperation. India today stands at a threshold that will provide dividends not only in the short-term, but also in the future long-term perspective. The growing strategic partnership between the two sides is of national security significance for them.
Economic and trade cooperation forms an important aspect of the growing strategic partnership between India and ASEAN. The economic performance of India since the liberalization of economic reforms in 1991 has brought a significant change in the partnership, and today the Indian economy is being increasingly integrated with those of its Southeast Asian partners. By the turn of the twenty-first century, there was no way of backtracking India’s economic growth. The Indian economic growth rate of 8.5 percent in 2004 and 2005 was quite impressive, followed by a much better growth rate of 9.4 percent in 2006. Because of which, India has emerged as the twelfth-largest economy when measured by the size of its gross domestic product (GDP) in the market rate, and the fifth-largest economy in terms of purchasing power parity (PPP). Moreover, there are huge targets for India’s economic growth rate in the future. India’s potential economic growth rate has led ASEAN Secretary General Surin Pitsuwan to say that India will be a future engine of growth in the Southeast Asian region.
The two-way merchandise trade between India and ASEAN had witnessed a significant leap from a paltry $7 billion in 2000-01 to $57 billion in 2010-11, representing an impressive eight-fold increase in a span of 10 years (Refer to Table 1). India’s share of total ASEAN exports has increased from 7.49 percent in 1996-97 to 8.27 percent in 2010-11, while ASEAN’s share of India’s total exports has moved from 7.08 percent in 1997-98 to 10.86 percent in 2010-11. This way, ASEAN members account for roughly 10 per cent of India’s global trade resulting in the former becoming India’s fourth largest trading partner behind the European Union, the People Republic of China, and the United States. The main items of India’s exports to ASEAN are agricultural products, chemical and related products, engineering goods, textiles, and readymade garments, while India imports food and related items, raw materials and intermediates, and manufacturing goods. Given ASEAN’s economic significance, India still does not figure prominently as a trade partner for ASEAN.
In the Association of Southeast Asian Nations, Indonesia and Singapore are important trading partners. Both countries account for more than half of India’s export to ASEAN during the current fiscal year 2010-11. In recent times, India’s exports to Malaysia and Thailand have improved significantly from $773.69 million in 2001-02 to $3956.98 million in 2010-11, and $633.13 million in 2001-02 to $2792.80 million in 2010-11 respectively. Overall, with the exception of a few new members in ASEAN, the volume of exports has increased from 2005-06 to 2008-09. A similar trend can be observed in the case of India’s imports from ASEAN. Most notably, India’s imports from Indonesia and Thailand have increased more than nine and ten-fold respectively during the period between 2001-02 and 2010-11. In addition, Malaysia and Singapore have imported significantly from India during this period. Overall, Singapore has continued to remain the largest market in ASEAN for India’s merchandise exports, followed by Indonesia, Malaysia, and Thailand. However, India-ASEAN trade, though increasing, is not substantial enough compared to global figures and needs to be increased further to realize the potential between the countries. The present level of trade volume is well below the actual potential. By working closely together, both sides would be able to contribute positively to each other’s recovery from the current global financial crisis.
The Framework Agreement for Comprehensive Economic Cooperation, signed in 2005, is at the heart of our economic engagement with ASEAN. The key elements of the Framework Agreement on CECA cover the FTA in goods, services, and investment as well as economic cooperation in identified areas. After six years of intensive negotiations, on August 2009, India signed a free trade agreement in goods with the ASEAN members and it came into force on January 1, 2010. Under the ASEAN-India FTA, ASEAN member countries and India will lift import tariffs on more than 80 percent of traded products between 2013 and 2016, according to a release by the Ministry of Commerce and Industry. The free trade in goods agreement has come into force with Malaysia, Singapore, Thailand, Indonesia, Vietnam, Myanmar, Laos, and Brunei Darussalam. Cambodia and the Philippines have agreed to ratify it soon. The next step in the Framework Agreement is a conclusion of negotiations on the Trade-in-Services and Investment Agreement for which a target date of March 2011 has been agreed on. This agreement would hold the key to achieving a trade target set by both sides of $70 billion by 2012, up 40 percent from $50 billion in 2010.
From this figure we can observe that India exports less than what it imports from ASEAN. Since India’s imports from ASEAN have outpaced those of its exports, the balance of trade has been largely in favor of ASEAN during the last ten years. But the important aspect is that the volume of trade continues to improve since 2001 except for 2009-10, which is a result of the global financial crisis. However, this year, the trade volume has bounced back to cross the US $50 billion mark.
India and ASEAN are also investment partners. The amount of Indian investment in ASEAN has reached $21.8 billion (2004-2010), equivalent to 25 percent of the country's total foreign investment, while ASEAN members have also invested significantly in India. The amount of ASEAN members excluding Brunei Darussalam, Cambodia, and Laos’s investment in India during the last nine years (period from April 2000 and April 2009) has been $8,253.23 million. Singapore topped the rankings followed by Malaysia and Thailand in the Association of Southeast Asian Nations’ biggest investors in India (refer to Table 2). However, the level of investment flowing in both directions is not beyond the actual potential. There are huge targets for expanding the Indian investment in ASEAN and vice versa. This would require both sides to create the suitable climate, while opening more and more areas for investment. The decision making process also has to be improved.
To conclude, India-ASEAN economic and trade ties in the coming decades will be determined by the sustained growth of the economy of both sides and the competitiveness of the Indian industry, commerce, and services. The present time is ripe for increased India and ASEAN engagement in trade and investment, as the close economic and trade partnership has the potential to provide inclusive growth to the economy of both sides. India is a natural commercial partner for ASEAN given the extensive and increasingly complementary nature of our industries, expertise, and demand-supply profiles. It is also worth mentioning that both sides have agreed to work together in resisting protectionism in all its forms, reducing barriers to trade and investment, and implementing the development action plans. In doing that, both sides must pursue a constructive dialogue on trade and investment and economic cooperation.
*Dr. Mohammad Samir Hussain is a Research Associate in the Yashwantrao Chavan National Centre of International Security and Defence Analysis, Pune. He can be reached at email@example.com.
*Dr. Janatun Begum is an Assistant Professor in the Department of Geography, Manipur College, Manipur University.