Prime Minister Narendra Modi’s hectic international travel schedule also includes attending a meeting of the 10-member Association of Southeast Asian Nations (ASEAN) in Myanmar in November. After having scuppered a WTO trade facilitation deal, India must ensure that second-best options of free trade agreements (FTAs) that have been signed with Southeast and East Asian countries, among others, work to its advantage. The NDA government is reviewing some of them amidst a general feeling that countries like Thailand, Malaysia, South Korea and Japan have benefited more than India.
A case in point is the India-ASEAN FTA, which was single-handedly taken forward by Manmohan Singh, when the UPA regime was in power from 2004-2014. An internal assessment of this landmark pact — that is a building block for India’s policy of looking eastwards to integrate with Asia — has indicated that the country has “got almost nothing” from this agreement! India’s FTA on goods trade with the ASEAN was operationalised from January 2010. After much delay, the services and investment component of this deal was finally signed by the NDA government on September 9.
The NDA’s concern is while our exports of goods have risen, if not doubled, imports from ASEAN members like Thailand, Malaysia and Indonesia have grown much more. It is only with Singapore that India enjoys a favourable trade balance. Despite expectations that this FTA might result in a boom in bilateral trade that can easily cross $100 billion by 2015, up from $74 billion last year, the pervasive sense is that this agreement hasn’t provided much benefit to India. As if all of this weren’t bad enough, big deficits have also been registered with other FTA partners like South Korea and Japan. The question is whether registering a trade imbalance per se is a satisfactory yardstick to assessing a trading relationship negatively? In India’s neighbourhood, for instance, a far bigger problem exists as we are registering ballooning trade surpluses with every member of the South Asian Association for Regional Cooperation, notably, Pakistan, Nepal, Bhutan, Bangladesh, Sri Lanka and Maldives! As is well known, tensions between India and Pakistan have virtually put paid to cooperation, if not integration, in South Asia. But regional integration is problematic also because of India’s sheer dominance.
The negative sentiment regarding the India-ASEAN and other FTAs predominantly emanates from stakeholders like farmers and industrialists who nurture an ambivalent attitude over the benefits of such bilaterals due to the persisting domestic handicap of inverted duty structures: Tariffs on raw materials are often higher than on finished goods that encourage more imports of the latter. Presumably, the only ones who remain enthusiastic are bureaucrats and politicians, especially the so-called reformers in their midst, who are susceptible to the need to show that India has arrived on the world stage!
Even if the India-ASEAN and other FTAs are not optimal from India’s standpoint, the point is that we cannot walk away from signed agreements. To be sure, there is scope for remedial measures which must be negotiated in a spirit of give and take. However, to get the most out of this deal, India must first get over its defensive mindset. In this regard, a positive development is that Indian businesses are beginning to show greater confidence in investing in Singapore in a big way. Malaysia is fast emerging as a major manufacturing hub for India’s pharmaceutical companies for exports to southeast Asia.
To leverage more of these possibilities, India Inc and other stakeholders need to shed their inhibitions to engage with this region. As in the past, Indian industry must no longer seek protection through tariffs and must prepare for the brave new world of global integration. They must form more joint ventures or alliances with local businessmen in the ASEAN. What surely helps is that the conditions for doing business are better in most ASEAN countries than here. India’s lowly ranking at 134 out of 189 countries is only a tad better than Cambodia (137), Laos (159) and Myanmar. At the other end, Singapore (1) leads the way, followed by Malaysia (6), Thailand (18), Brunei (59), Vietnam (99) and Indonesia (120). Although it is not market-driven, Vietnam does business better than India. To get an electricity connection, it takes fewer procedures (6), but more time (115 days) to get it there, compared to seven procedures and 67 days in India. Indonesia’s problems, however, are akin to India.
India must leverage the FTA in services as we have comparative advantages in this area. Freer cross-border movement for its professionals like teachers, nursing, architects, chartered accountants, software techies and doctors is a win-win situation for us. Our leading edge also is the vast number of English-speaking professionals who can fan out across ASEAN. Gains from services trade certainly can offset what little India derives from goods trade and dispel the pervading gloom that we have nothing whatsoever to gain from the India-ASEAN FTA. However, this effort of making the best of this FTA will not bear fruition unless there is connectivity. To be sure, India recognises this problem.Connectivity with Thailand entails establishing road, rail and other linkages traversing through Bangladesh and Myanmar. Clearly, these infrastructural projects must be operationalised as early as possible so that this free trade agreement serves our interests. Greater engagement with this grouping is bound to spur the globalising drive of India Inc eastwards, to leverage the business possibilities in this region.
(The writer is an economics and business commentator based in New Delhi.)
N Chandra Mohan
