Abstract
Strengthening economic and strategic partnership with the Association of Southeast Asian Nations (ASEAN) is a key component of the Indian government’s ‘Act East Policy.’ From a sectoral dialogue partnership in 2002, India’s partnership with ASEAN has scaled up to a strategic partnership in 2012. In the year 2009, India and ASEAN signed a free trade agreement in goods, which was followed by agreement on services and investment that is likely to come into force soon. India and ASEAN are negotiating the Regional Comprehensive Economic Partnership (RCEP) Agreement, which will encompass ASEAN and six countries, namely Australia, China, India, Japan, Korea and New Zealand. India also has bilateral comprehensive trade agreements with ASEAN member countries—Singapore and Malaysia. Thus, India’s economic engagement with ASEAN is at different levels and encompasses a wide range of areas including trade in goods and services, investment, people-to-people connectivity and trade facilitation, to name a few.
The ASEAN member countries have a prominent role in global production network and value chains. India is trying to integrate into the global value chain through the ‘Make in India’ campaign of the present government. The RCEP, along with the ASEAN integration into ASEAN Economic Community (AEC), is going to change the contours of global trade and investment. India, with its intention to be a key player in the region, cannot afford to be left behind. Therefore, it is in the India’s interest to strengthen its economic ties with the ASEAN.
In this context, right before the 13th ASEAN–India Summit in Kuala Lumpur, Malaysia, in November 2015, the ASEAN–India Centre at the Research and Information System for Developing Countries (RIS), New Delhi, released their flagship report—ASEAN–India Development and Cooperation Report 2015, published by Routledge, India. The report focuses on ASEAN–India economic integration and the way to take the partnership forward. It collates 12 papers written by experts as a part of a project led by Prabir De, Professor, RIS. This is one of the most comprehensive reports on India–ASEAN economic partnership in the context of recent global developments.
The report begins with a comprehensive analysis of the global and regional economic development after the economic crisis. It highlights that the economies of ASEAN, India and China are on the road to recovery from the recent economic slowdown. However, these economies continue to face macroeconomic challenges, which have to be addressed through appropriate policies and effective implementation of the India–ASEAN trade agreement. Chapter 2 highlights that the ASEAN–India FTA (known as the AIFTA) in goods has not significantly altered the trade pattern or ASEAN’s position among India’s trading partners, although trade continues to be in favour of ASEAN. Furthermore, the small share in component trade explains that India has not been able to integrate into the regional supply chain. To address this issue, the report suggests that both, India and ASEAN, have to accelerate the pace of reforms in order to further integrate and benefit from trade agreements. Efforts should also be made to harmonize the customs procedures and implement other trade facilitation measures.
Services sector is a growing component of the GDP and trade in India, and in several ASEAN countries. The ASEAN is poised for integration in selected services sectors such as air transport and information communication and technology through the AEC Blueprint. Chapter 3 points out that the ASEAN member countries are more willing to liberalize services under a regional agreement than under the WTO. Since India has an export interest in services, especially with respect to movement of professionals, liberalization of services can lead to higher market integration. To facilitate services exports, it is important to address not only the market access barriers (such as liberalization of the foreign investment), but also the domestic regulations. In this context, mutual recognition agreements between professional bodies in India and ASEAN will facilitate inter-firm mobility of professionals.
While countries, such as Singapore, are one of the biggest investor to India, there is scope for increasing the bilateral investment flows further, through a conducive, legal environment, better infrastructure and regulation. Various suggestions have been made in Chapter 4 on how India can attract more investment from ASEAN by offering the ease of doing business, simplifying the tax regime and liberalizing foreign direct investment (FDI), among others.
Chapter 5 discusses that the development of production networks depend on a wide range of factors including infrastructure, conducive, industrial policies, technological innovations and so on. India has been slow to integrate into the ASEAN production network, but this scenario can change through the right policy. Corridors, better connectivity and lower logistics costs are crucial for the establishment of production networks. Chapter 6 highlights how policy reforms can promote regional infrastructure development. It discusses the various connectivity projects that have been undertaken by ASEAN and India, and emphasizes the role of countries, regional organizations and multilateral development institutions in the development of economic corridors.
While trade agreements, such as the AIFTA, have, to certain extend, been successful in reducing tariffs, non-tariff barriers such as those related to sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT) prevent market integration. Chapter 7 examines the non-tariff measures under the AIFTA, identifies the barriers and makes policy recommendation on how to discipline non-tariff measures so that the gains of tariff liberalization are not nullified by non-tariff barriers. One option suggested in this chapter is an agreement for the mutual recognition of standards for select products.
Energy security is a major challenge for India due to the shortage of resources. On the contrary, ASEAN is a relatively resource-rich region. Thus, ASEAN and India have complementarities in resource base in energy sector. Furthermore, India is engaged in energy infrastructure development in a number of ASEAN countries. ASEAN is in the process of developing region wide grid of natural gas pipelines and electricity transmission, and India can be connected to these grids. Given this background, Chapter 8 analyzes the prospects for collaboration in energy sector between India and the ASEAN. It highlights that the collaboration should encompass both renewable and non-renewable resources. It also states that the ASEAN–India energy cooperation would depend on the activities under other regional agreements such as the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), which would also work as an avenue for cooperation between the South Asian Association for Regional Cooperation (SAARC) region and ASEAN in energy sector.
Chapter 9 lays down the roadmap for strengthening monetary and financial cooperation, which is a key component of economic integration. The chapter points out that the Chiang Mai Initiative can be a good starting point for such cooperation. Some of the other suggestions are: the banking sector has to be technology driven, there is need for development of corporate bond market, there should be cross-border collaboration between the capital markets in ASEAN and India and ASEAN can collaborate to penetrate the insurance market in India, among others.
Chapter 10 examines science and technology cooperation, which is one of the key pillars of the ASEAN–India partnership. In the recent years, India has taken a keen interest to cooperate with ASEAN, especially the poorer ASEAN countries, in capacity-building projects in areas like information technology, agriculture and space. India is also keen on a ministerial level dialogue on science and technology cooperation with ASEAN and has drafted a memorandum of understanding (MoU) on science, technology and innovation cooperation with ASEAN, which can support projects jointly funded by ASEAN and India. These are steps in the right direction and can help to deepen the cooperation between India and ASEAN in the area of science and technology.
Given that food security is a key challenge for India and ASEAN member countries, Chapter 11 discusses how India and ASEAN can cooperate in food security and food reserves. The following chapter, Chapter 12, focuses on strengthening cultural linkages through tourism and cooperation in the field of education.
Overall, this is a very comprehensive report that analyzes all the aspects of ASEAN–India integration. The report not only covers a wide range of areas for cooperation and India–ASEAN integration, but it also carefully assesses the policy priorities, differences in the levels of development and approach towards market integration, barriers to market integrations and the way forward. The recommendations in this report can be inputs into the proposed ASEAN–India Plan of Action for 2016–2021. It will be a valuable input for policy-makers engaged in India–ASEAN cooperation and those engaged in domestic reforms process in India and ASEAN member states. The report is a must read for academics and students working on India–ASEAN relationship. This provides detailed market information for businesses and industries engaged in trade, investment and cooperation between India, ASEAN and its member states.
Last, but not the least, it is important to note that the liberalization under the AIFTA is lower than many of the trade agreements signed by the ASEAN, which puts Indian businesses at a comparative disadvantage vis-à-vis businesses from other countries with which ASEAN or its members have a trade agreement. This is even worse for services agreement where the autonomous levels of domestic liberalization has not been bound in the trade agreement. The low level of commitments under trade agreements limit the benefits of liberalization and, hence, there is a need for greater liberalization and market integration as India and ASEAN move towards mega regional agreements such as the RCEP. The policy-makers of India and ASEAN member states have to take this into consideration as they outline their reform agenda and future strategic and economic cooperation.