India’s Growing Relevance In SE Asia Is Hamstrung By Economic And Cultural Matters

India’s Growing Relevance In SE Asia Is Hamstrung By Economic And Cultural Matters

The fact is that while India’s economic ties with ASEAN have become stronger, India faces a huge trade deficit with the bloc

Patralekha ChatterjeeUpdated: Wednesday, September 18, 2024, 09:54 PM IST
article-image
Representative Image | Pixabay

India has ancient and fresh links with Southeast Asia. But its growing global clout has limited reach in the region. To get a sense of the roadblocks, it is important to be aware of not only how India views Southeast Asia but also how significant sections in Southeast Asia view India.

Arguably, Prime Minister Narendra Modi’s recent visit to Singapore and Brunei is seen by many as a shot in the arm to the country’s ties with the Association of Southeast Asian Nations (ASEAN), the 10-nation bloc comprising Brunei Darussalam, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam. Malaysia’s Prime Minister Anwar Ibrahim and Vietnam's Prime Minister Pham Minh Chinh have come to India on state visits in recent months. These are powerful signals of the importance that India accords to Southeast Asia, a dynamic economic powerhouse attracting foreign investors and new commitments from global corporations. India has recently sent emergency humanitarian assistance to Laos, Myanmar and Vietnam ravaged by Typhoon Yagi and the subsequent floods.

In the last three decades, India and ASEAN elevated their relations from the sectoral level to summit level and then to a comprehensive strategic partnership. In 2014, India rebranded its ‘Look East Policy’ to ‘Act East Policy’. New Delhi has stepped up defence engagements with Southeast Asian states and ASEAN is an important trade partner, with about 11 per cent share in India’s global trade.

But India’s ASEAN outreach faces challenges.

The State of Southeast Asia 2024 Survey paints a grim picture of India’s diminishing economic and political influence in the region. “Among nine major powers including ASEAN and the EU, India emerged as the least influential economic, political and security power. This has been the case since the start of the Survey in 2019,” noted Joanne Lin, co-coordinator of the ASEAN Studies Centre at ISEAS – Yusof Ishak Institute, an influential Singapore-based think tank, in a May 2024 opinion piece. The annual State of Southeast Asia Survey is a flagship publication of the Institute’s ASEAN Studies Centre.

Most Southeast Asian commentators acknowledge India’s rising clout on the global stage, its growing economy and its strengths in specific areas, but they have reservations which should not be dismissed.

“In a time of geopolitical upheaval, India sees strategic opportunities to become a new centre of power that extends its influence in multiple directions. But to Southeast Asians, India’s global reach is not yet keenly felt despite Modi’s refrain to make ASEAN a “central pillar of India’s Act East Policy,” noted Hoang Thi Ha and Eugene R L Tan, researchers affiliated with ISEAS-Yusof Ishak Institute, in a commentary piece published in October 2023.

“India’s lagging influence in Southeast Asia is closely associated with its limited economic engagement and protectionist policies towards the region. India’s share of ASEAN’s total trade has stagnated between 2-3 per cent in the last decade,” say the authors. In contrast, “China’s (excluding Hong Kong) share of ASEAN’s total exports and imports between 2012 and 2021 increased from 11.4 per cent to 16.4 per cent and from 14.4 per cent to 23.9 per cent respectively. Amongst ASEAN-plus FTAs, the ASEAN-India Trade in Goods Agreement (AITIGA) has the lowest level of trade liberalisation and the most restrictive rules of origin requirements,” they add.

In their view, the root cause is “India’s underdeveloped manufacturing sector and low integration with East Asian GVC (global value chains).” India runs high deficits with ASEAN countries that have robust manufacturing sectors, including Singapore, Vietnam, Thailand, and Malaysia, the authors note.

Many Indians would bristle. Their counter arguments are likely to stress India’s realities and constraints. But the fact is that while India’s economic ties with ASEAN have become stronger, India faces a huge trade deficit with the bloc. India’s exports to ASEAN were USD 41.2 billion in 2023-24, while imports were USD 80 billion. A review of the ASEAN-India Trade in Goods Agreement is on the cards.

“India’s growing relevance to Southeast Asia may be most tangibly felt in the realm of regional military security and it is indeed a rising great power. However, when it comes to economic and cultural matters, India still pales behind China,” says Chelsea Ngoc Minh Nguyen, a former UN civil servant in Southeast Asia, and currently based at the University of Cambridge.

“If India wants to really trade and invest more in ASEAN markets, the pie at home needs to become bigger,” adds Nguyen.

That said, there are promising signs. People-to-people connections between India and Southeast Asian nations are growing. Many Indian engineers now work for some of Vietnam’s top tech companies, including the state-owned telecommunication firm Viettel, says Nguyen.

Southeast Asian countries are sparing no efforts to woo affluent Indian travellers. Thailand has extended visa exemption for Indian tourists till 11 November 2024.

During Modi’s recent visit to Singapore, the buzz was around semiconductors. Singapore and India exchanged a Memorandum of Understanding (MOU) to collaborate in the field of semiconductors. “Singapore and India’s longstanding partnership can serve as a beacon to rally like-minded countries to cooperate for growth and development in a more contested world,” reported The Straits Times, Singapore’s leading newspaper, quoting Singapore’s Deputy Prime Minister Heng Swee Keat.

These are good signs. Partnerships like this can unlock many new opportunities for collaboration.

But India has to address challenges on the ground. A key challenge pivots around India opting out of the Regional Comprehensive Economic Partnership (RCEP) — a free trade agreement among the Asia-Pacific countries of Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam. India argues such a trade deal would negatively impact critical sectors and groups in the country.

India’s decision has not gone down well in Southeast Asia. “Had India decided to join the deal, RCEP would have become the world's largest free trade area -- covering 45% of the world's population, accounting for 39% of global GDP, 30% of global trade, and 26% of global foreign direct investment flows,” observed Nehginpao Kipgen and Shivangi Dikshit in a 11 Nov 11, 2019 opinion piece in The Bangkok Post.

India and ASEAN have divergent worldviews on many fronts, including on China.

While wary of Beijing’s rising assertiveness, Southeast Asian countries have overwhelmingly “sought mutually beneficial economic cooperation and tried to avoid sustained confrontation with it. They have been careful not to be swept up in the emerging China-US rivalry…. New Delhi considers Beijing to be its strategic and economic rival, and it increasingly sees its presence in Southeast Asia as a direct competitor to China,” noted Sandeep Bhardwaj, an independent researcher in a recent article in The Diplomat, a current affairs magazine for the Asia-Pacific region.

“The deepening economic interdependence of China and the Association of Southeast Asian Nations (ASEAN)—each other’s largest trading partners—stands out. ASEAN accounted for 15 percent of China’s total trade in 2023, up from 10 percent in 2010, while China accounted for 20 percent of ASEAN’s total trade in 2023, up from 12 percent in 2010 . Further integration could be propelled by the Regional Comprehensive Economic Partnership, the world’s largest free-trade agreement, which covers 15 economies in the Asia–Pacific region,” observed McKinsey’s Gautam Kumra and Jeongmin Seong in a commentary piece for Bloomberg.com

All said, there are some stark truths — many ASEAN countries such as Vietnam and Thailand have invested in robust manufacturing sectors with higher productivity levels than India. Unlike ASEAN countries, India is not yet a big part of global supply chains in critical areas. India's participation in these regional production networks remains limited.

Indian commentators allege that apart from tariff asymmetry. Indian businesses have to deal with non-tariff barriers imposed by ASEAN, including complex regulatory requirements, such as stringent sanitary and phytosanitary measures. They hinder Indian exports. India’s advantage lies in services, particularly in information technology and information technology-enabled services.

The bottom line — both sides need patience and persistence for the relationship to take wing.

Patralekha Chatterjee is a writer and columnist who spends her time in South and Southeast Asia, and looks at modern-day connects between the two adjacent regions. X: @Patralekha2011

RECENT STORIES

Baba Siddique: Bollywood’s Quiet Powerbroker & Cinematic Bridge

Baba Siddique: Bollywood’s Quiet Powerbroker & Cinematic Bridge

How Should Households View The Credit Policy?

How Should Households View The Credit Policy?

Editorial: India Can Count On High Growth Despite Slowing Global Economy

Editorial: India Can Count On High Growth Despite Slowing Global Economy

The Dangers Of Language As A Weapon Of War: Talking About The Conflict In Gaza

The Dangers Of Language As A Weapon Of War: Talking About The Conflict In Gaza

Editorial: Maharashtra Election Pressure Triggers Hasty Schemes

Editorial: Maharashtra Election Pressure Triggers Hasty Schemes