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Among Neighbours - How to energize India’s Look East policy

Calcutta Telegraph, India

Among Neighbours - How to energize India’s Look East policy

By Jayanta Roy

17 May 2012

India has traditionally looked West for trade, investment, and economic cooperation. But since the late 1990s, trade policy rightly focused on the Look East policy, and recognized that India needs to become integrated into the cross-border production and trade networks in Asia. The immediate attention was towards South Asian integration. But since the South Asian Association for Regional Cooperation and the South Asian Free Trade Area remained just on paper on account of the yet unresolved differences between India and Pakistan, the government simultaneously initiated trade agreements with Southeast Asia. India has successfully negotiated the India-Singapore Comprehensive Economic Cooperation Agreement, followed by the India-ASEAN Free Trade Agreement, India-Korea Comprehensive Economic Partnership Agreement, India-Japan CEPA, India-Malaysia CECA, and ongoing talks with Thailand and Indonesia.

The success of the Look East policy is evidenced by the fact that from being just over a quarter of India’s export basket in 2000-2001, India’s exports to East and South Asia now account for 35 per cent. There has also been a decline in the European Union and North American markets to just 28 per cent from a high of 45 per cent. ASEAN economies today are more important for our exports than North America, and Northeast Asia almost as important as the EU27.

The Look East policy would have yielded far more impressive results if our global integration efforts had not led to un-coordinated and widespread diversification as a result of the slow progress of the Doha Development Round since the mid-2000s. Several FTAs were put into motion, even with relatively insignificant markets like New Zealand and Chile. India also invested a lot of negotiating energy in FTAs with industrialized economies like Japan and the EU. One has to question the merit of such FTAs, as industrialized economies have low tariffs on most manufacturing items anyway, with some textile-related products being the only exception.

Since agriculture is not included in these FTAs, and India’s most critical demand in services — liberalized visa regimes for its professionals — is also not included, the marginal gain for India, especially in the light of the negotiating resources invested, is not significant. The author’s efforts to initiate a US-India FTA in services in 2004 as a first step to India-US FTA met with stiff opposition from all quarters in the United States of America. The government of India had fully supported it as it would have removed the main impediments imposed by the West on trade in services.

With India’s rise as a global economic power in the same period, platforms such as BRICS (Brazil, Russia, India, China and South Africa), IBSA (India, Brazil and South Africa), and RIC (Russia, India and China) evolved to forge partnership with emerging countries like Brazil, China, Russia, and South Africa. While providing India with a space to cement its presence at the global table, such platforms will not serve the purpose of advancing India’s international economic priorities in actual terms. The recent BRICS summit hosted in Delhi was an example of spectacular extravagance. No concrete recommendations were made that would benefit India. Trading and lending in local currencies are non-starters since none of the BRICS currencies is fully externally convertible. It also appears that both Russia and India have not learnt any lessons from the failed rupee-ruble barter trade. Most important, engagement in so many multiple platforms has somewhat eroded the focused regionalism strategy of the late-1990s.

India’s Look East policy needs to go beyond trade in goods and services to help ensure stable energy security. India’s primary energy consumption has risen 4.6 times in the last 30 years, with a compound growth of 5.2 per cent per year. Coal accounts for 53 per cent of India’s energy consumption. India used to be self-sufficient in coal and gas, but has become a net importer of both. Oil production has been on a plateau since the mid-1980s, while consumption has soared, so most of the demand is now met by imports. This accounts for over a third of India’s import bill.

Moreover, an increasingly important trend demands our attention. Geo-politics in West and Southwest Asia could make India vulnerable to pressure from the US, Russia and even Pakistan, if India continues to depend on these markets for a bulk of its energy needs. The much-hyped Iran-Pakistan-India pipeline has been nixed by US opposition. The alternative Turkmenistan- Afghanistan-Pakistan-India pipeline will remain a non-starter given the unstable situation in Afghanistan. In either case, Indian access to Western resources in Central and Southwest Asia will always be uncertain given the dependence on Pakistan for an overland route and the volatility of the Persian Gulf region. It is high time to look East.

Apart from the India-ASEAN FTA and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation, growing strategic alignment individually with major Southeast Asian countries like Indonesia, Thailand and Vietnam points to India’s growing relevance in the geo-strategic calculations of these countries. A friendlier government in Bangladesh, and recent developments in Myanmar that has opened up new economic opportunities in that country, make such a re-alignment of our energy security policy more possible today than ever in the past.

Let us look at some of the facts:

1. Myanmar has the world’s 10th-largest natural gas reserves, estimated at over 90 trillion cubic feet in 19 onshore and three major offshore fields.

2. Indonesia is the world’s biggest exporter of coal.

3. Malaysia and Indonesia are the world’s second and third largest exporters of liquefied natural gas.

4. Malaysia’s East Natuna Gas Field can emerge as one of the world’s richest sources of natural gas as further exploration confirms prospective new wells.

5. Vietnam is expected to emerge as a major exporter of oil.

Southeast Asia is already looking ahead. The proposed Trans-ASEAN pipeline project aims to develop a regional gas grid by 2020, by linking the existing and planned gas pipeline networks of the ASEAN member states. The scope of the project includes eight gas pipelines with a total length of approximately 2,300 km, which are currently in operation, and a further five proposed pipeline projects totalling 4,500 km. A policy framework has been established to implement the $7 billion project, which is expected to be completed in 2020.

India needs to become a partner in this project, and connect India’s own rapidly growing pipeline infrastructure with the pipeline project. BIMSTEC, where energy is one the areas of proposed cooperation, offers a good platform. The Indian government can support the creation of a public-private consortium of Indian companies that can actively invest in the Trans-Asian pipeline, ensuring its success and fruitful implementation. India also needs to actively engage Bangladesh (a BIMSTEC member) to provide transit space for Indo-ASEAN pipelines.

The importance of our immediate neighbours and their role in the global economy can be easily understood by the fact that the British prime minister, David Cameron, did not waste any time in making a visit to Myanmar just after the recently concluded democratic elections, and called for an end to sanctions. Could that role not have been played by our prime minister? Instead, domestic political compulsions forced India into muddying waters by failing to honour its commitment to sign the Teesta agreement with Bangladesh, and voting in the United Nations High Commission for Refugees against Sri Lanka, both members of BIMSTEC, an important platform that can serve as a fulcrum for revitalizing South and Southeast Asia’s cooperation on a number of areas like trade facilitation, inter-regional transport development and energy.

The government should realize the growing strategic importance of the Look East policy in assuring India its rightful place in the global arena. The unstable EU and not fully recovered US lead to the same conclusion. It is about time that the balance tilts a bit more to the East.

The author is a well-known trade economist