The sky is the limit for ASEAN-India cooperation (Comment)

Prospects of more Southeast Asians working in India and skilled Indians — techies and teachers, bankers and accountants, engineers and architects — making their presence felt in key sectors in that region have brightened.

The Eighth ASEAN-India Summit taking place in Vietnam Sunday cannot but underscore the need for accelerating the pace of economic cooperation among 1.8 billion people that form a strong grouping.

As the ASEAN-India free trade agreement (FTA) gets moving and consolidates in the form of bilateral FTAs between India and member- nations, and the Comprehensive Economic Cooperation Agreement (CECA) in the case of Singapore and one on the anvil with Malaysia “the sky is the limit”, say Indian officials.

The trade graph in each case has to move upwards. And while that rises, the next big thing is the service sector and investment for which the stage was set April 27, again in Vietnam.

Trade ministers of India and the Association of South-Eeast Asian Nations (ASEAN) asked their negotiators to complete talks on bilateral trade pacts in services and investment by March next year.

The setting of the deadline was needed. Indian Commerce and Industry Minister Anand Sharma, while reviewing the progress of negotiations with ASEAN counterparts, noted that progress had been slow.

The ministers underscored the importance of trade in services and investment negotiations to complement the trade in goods agreement, in order to enhance the economic integration of ASEAN and India.

Services account for 55 percent of India’s gross domestic product (GDP), while exports from the sector were valued at $93.7 billion (RM291 trillion) in 2009-10.

The leaders emphasised that challenges encountered in the services and investment negotiations could be overcome “through greater understanding and flexibility” among the parties to bring the negotiations to a successful conclusion.

The emphasis was on “ambitious and commercially meaningful offers” being exchanged between the two sides.

The services negotiations are taking place on that basis, wherein both sides make requests for the openings they seek and offers are made by the receiving country based on the requests.

India has made requests in several areas, including teaching, nursing, architecture, chartered accountancy and medicine. It has a large pool of English-speaking professionals in these areas. India is also keen on expanding its telecoms, information technology, tourism and banking network in ASEAN countries.

As for trade, the deepening of ties between India and ASEAN is reflected in rising numbers. India’s trade with ASEAN countries has increased from $30.7 billion in 2006-07 to $39.08 billion in 2007-08 and to $45.34 billion in 2008-09. ASEAN is already India’s fourth largest trading partner after the European Union, the US and China.

India-ASEAN trade in goods is expected to touch $70 billion by 2012.

India will soon implement the FTA in goods with two more ASEAN countries (Indonesia and Cambodia) by slashing duties on hundreds of products, including seafood, chemicals, apparel and tyres. For their part, Cambodia and Indonesia will also slash import duties on hundreds of Indian goods.

Currently, the India-ASEAN FTA is functional with four members (Singapore, Thailand, Malaysia and Vietnam). The remaining four (Laos, the Philippines, Brunei and Myanmar) will take more time to become full members.

Indian Prime Minister Manmohan Singh’s visits to Vietnam and Malaysia this week should help accelerate the process.

Two major questions still need to be answered. Will the India-ASEAN FTA help India increase its trade and make its presence stronger within the ASEAN region? Does this complex FTA compel India to pursue its economic reform programme more vigorously?

Geethanjali Nataraj, visiting scholar at the Policy Research Institute under Japan’s Ministry of Finance and fellow of the National Council of Applied Economic Research (NCAER), New Delhi, posed these questions and replied in firm affirmatives.

Writing for the East Asia Foundation, she says: “With a combined population of 1.8 billion and GDP of $2.75 trillion, the ASEAN-India FTA is one of the largest in the world. It offers huge growth opportunities to both ASEAN and India.

“Currently, India’s share in ASEAN imports is 2.1 percent against 13 percent for China. Given the China-ASEAN FTA, which makes Chinese goods cheaper in the ASEAN market, India needs the FTA with ASEAN even to maintain this trade share.

“But if the FTA manages to extend not only to goods but also services and investment, India stands to achieve even greater gains.

“The ASEAN region is a net importer of services and it imported nearly $180 billion worth of services in 2007. In view of this and India’s competitive advantages in terms of cost and expertise in a range of areas, such increased access will be very beneficial.”

But, there are caveats.

“In order to render the Indian market receptive to ASEAN investment, India will need to continue institutional reforms and make further bold policy changes.

“These reforms are essential for the Indian government to boost Indian economic resilience, increase export competitiveness and improve the Indian business environment. As the infrastructure and retail sectors are large targets for ASEAN investors, these sectors will require particular focus. These much-needed reforms would only bolster the Indian domestic economy.

“And finally, as a by-product, the India-ASEAN FTA may go some way towards stemming the growing Chinese economic dominance of Asia. This would contribute to managing China’s rise in a peaceful and constructive way.”

Any negative impacts? And their remedies?

“There are concerns that the FTA will adversely affect India’s trade balance with some of the ASEAN countries. A few countries like China will route their products into India through ASEAN as the China-ASEAN FTA is also operational.

“The Indian domestic industry must be prepared to face the challenge of cheap imports from ASEAN flooding the Indian market. Even without this FTA, India faces large trade deficits with Indonesia and other ASEAN countries.

“Both ASEAN and India need each other,” says Geethanjali. Need one say more?

(27.10.2010-Mahendra Ved can be contacted at mahendraved07@gmail.com)