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Asean FTA conclusion sets stage for India’s massive re-entry to region

Business Standard, India

Asean FTA conclusion sets stage for India’s massive re-entry to region

By Jyoti Malhotra / New Delhi

24 December 2012

The India-Asean commemorative summit just concluded in Delhi has been widely acknowledged as one of India’s recent successful diplomatic initiatives. As many as nine heads of states and governments out of ten Asean states attended — Philippines sent its vice-president because the president was unwell — along with a total of 47 ministers, proving, if proof were needed, that when Delhi puts its heart into something, it usually turns out alright.

The India-Asean free trade agreement in goods signed in 2010 was complemented this time around by agreements in services as well as investments, creating a potential arc of prosperity that stretches across half of Asia. From the edge of the South China Sea to the Indian Ocean, goods and services and investment can now flow back and forth, dropping anchor in the various ports of call littered across the region.

For the first time in over a hundred years, India may be reclaiming its right to return to south-east Asia as an equal partner. For years, the Asean nations were hesitant about their common civilisational heritage with India, claiming that the present was always more about Angkor Vat (in Cambodia) and Borobudur (in Indonesia).

But with more than a hundred dance and music artists from Asean fusing with Indian performers in a classical arts production at the Rashtrapati Bhawan — unfortunately, limited only to special guests and not thrown open to the Indian public — that was hailed across the board, Asean diplomats were openly seen rooting for an enhanced partnership with India.

According to Pisan Manawapat, Thailand’s ambassador to India, “We are now looking at India as a much more important partner than Europe,” while Dato Tan Seng Sung, Malaysia’s high commissioner to India pointed out that four senior ministers had accompanied the Malaysian prime minister to Delhi.

Clearly, the fellow feeling is rooted in the wholesome trade, as much as $80 billion this year, between the two regions, only second to India’s trade with the US (about $100 billion) and more than India-China bilateral trade (about $72 billion). Targets of $100 billion by 2015 are said to be easily achievable.

According to Anupam Srivastava, managing director of Invest India, a joint venture between the government of India and FICCI, trade between both regions is healthy and equitably distributed and has enormous potential because “value-added growth will soon begin to take place and given its potential in areas as diversified as palm oil and rajma beans, pharmaceuticals and engineering goods, this is a win-win situation for both sides.”

Unlike trade between India and China, in which India sends raw materials like copper and iron ore and China sends back finished goods, India and ASEAN have a much more complementary relationship. Both also have similar fears about being swamped — Philippines and Indonesia worry about India crowding out these nations on the IT-telecom front — and both have uneven models of development across the region.

To some extent, both regions have armed themselves against the fear of a potential onslaught. India, for example, has demanded a National Security Exception clause in the FTA, which allows it to prevent certain Asean companies from entering the Indian market, while Indonesia’s “sovereignty” clause in areas like banking transparency and accountability standards already acts like an effective deterrent.

Investment between the two regions, pegged at about $75 billion annually, is also bound to grow, considering infrastructure — roads, railways and cities along the Delhi-Mumbai Industrial Corridor — in India is poised for a great leap forward and pharmaceuticals is a growth area on both fronts.

Both sides hope that mutual growth will erase the pain that is bound to accompany greater economic integration. For the time being, movement of labour will be limited, as the Asean doesn’t seem very comfortable about large numbers of Indian professionals working in the region.

But both agree that greater integration is the only way forward. For example, Indian import duties have already dropped substantially, and now range between 10 to 5.5 per cent, which means that Indian manufacturing has had no option but to compete internationally.

Indian diplomats, speaking to Business Standard on the condition of anonymity, confirmed that Asean has become a choice partner.