By Mukul G Asher *, Rahul Sen ** & Sadhana Srivastava ***
E-mail for further correspondence: email@example.com
Revised version of the paper presented at the ASEAN-INDIA workshop on Economic Issues organized by the French center de Sciences Humaines, Institute of Southeast Asian Studies, Singapore, and School of International Studies, Jawaharlal Nehru University, New Delhi, March 17-18, 2001.
We would like to thank Dr. Ramkishen Rajan and Dr. Shashanka Bhide for helpful comments. The usual caveat applies.
The period since the early 1990s has witnessed a perceptible shift in relations between India and the members of the Association of Southeast Asian Nations (ASEAN)1 (CSIS, 2000). The density of economic and political interactions has increased, and this trend is expected to continue as both sides enhance their capacity and willingness to engage with each other, and establish institutions and mechanisms for wider and deeper linkages. A good beginning has been made, but the relations will require continued nurturing (Asher, 1997).
This paper discusses factors contributing to increased density of economic relations between India and ASEAN, and suggests possible measures and avenues to take advantage of emerging economic opportunities for mutual benefits. In the Post Cold War globalized era, the role of economic diplomacy has increased considerably in relations between nations. It is therefore expected that increased density of economic relations will help provide a more conducive context for cooperation in political and other non-economic areas as well.
From India’s perspective, its engagement with ASEAN will need to be at two levels. The first will be to engage ASEAN as an organization. However, because ASEAN as an organization has been intentionally provided by the members with very limited authority and resources to pursue economic cooperation and to acquire expertise or capacity for monitoring developments in the member countries, India will also need to devise country-specific bilateral strategies and tactics. The bilateral approach is also necessary because expanded ASEAN is considerably more heterogeneous in its economic structure and level of development, and in its political philosophy and orientation. As a result, it has become increasingly difficult to evolve a common ASEAN view on economic and other issues. The 1997 crisis has considerably reduced Indonesia’s capacity and willingness to provide political leadership, while high-income members such as Singapore have focused on economic opportunities with countries beyond the region since the crisis (Lim, 2001; Khanna, 2000)2. India has been sympathetic to the challenges faced by the ASEAN countries as a result of the 1997 crisis. The negative perceptions of the ASEAN region both internally and externally since the 1997 crisis notwithstanding3, the crisis has not altered its determination to engage with the ASEAN countries (Sridharan, 2001; Slater and Dhume, 2001). India thus takes a long-term view of its relations with ASEAN, and has proved to be a reliable partner.
The rest of the paper is organized as follows. A discussion of the major factors that have contributed to a more positive dynamics in economic (and political) relations between India and ASEAN are undertaken in section II. This is followed by a brief overview of the existing economic relations centering on merchandise trade, investments and tourism in section III. An analysis of the emerging economic opportunities between India and ASEAN as an organization, and between ASEAN and individual ASEAN members bilaterally is undertaken in section IV. The final section provides the concluding observations.
II Factors Contributing to Positive Dynamics
Various factors contributing to a greater density of economic and political relations between India and the ASEAN members may be grouped under political and security environment, globalization and associated technological changes, and institutional foundations. Each is discussed in turn.
Political and Security Environment
The end of the Cold War and disintegration of the former Soviet Union were epochal events of the 20th century. ASEAN was formed as a Cold War organization, and was aligned with the West. In return, the United States, Japan, and European countries were on the whole willing to integrate them in the international economic system, and in some cases subordinated their economic and commercial interests for security needs. Since the end of the Cold War, the US in particular, has been pursuing its economic and commercial interests much more vigorously, thus adversely affecting the original ASEAN members.
In the post Cold War period, much greater mutual understanding of security and strategic interests has marked India’s relations with the Western countries, particularly the US. India has demonstrated its willingness, backed up by expanded strategic capability and political engagement to play a role beyond South Asia to which its adversaries have attempted to confine it.
The political and security environment thus is no longer as lopsided in favor of ASEAN as it was during the Cold War period. ASEAN members do not have any outstanding bilateral or multilateral security or political issues with India (ASEAN Secretariat, 1995). Indeed, in a new post Cold War environment, greater engagement with India has the potential to enhance leverage of ASEAN with the rest of the world, as well as of each ASEAN member with respect to others in the organization. Attempts by some countries in ASEAN to confine India to South Asia are therefore not consistent with the broader interests of these countries as well as of ASEAN as an organization. Deeper and broader engagement between India and ASEAN is an essential element in Asia’s attempts to enhance its role in the world.
Globalization and Associated Technological Changes
The unfolding globalization process has centered on vastly expanded cross-border production and distribution networks, and on financial institutions, products, and transactions. Adjusting to globalization, while attempting to maintain social cohesion and internal political stability have become a vital pre-occupation of most countries around the world.
Globalization has been aided by the technological revolutions in communications, life sciences, including biotechnology, micro-electro-mechanical systems (MEMS), and information processing and dissemination. These have profoundly altered the requirements for participating meaningfully in the global economy and sustaining economic growth and employment. The importance of developing appropriate institutions, and of transparency and meaningful participation in social and political spheres has also increased. The role of individual initiative and entrepreneurship has also increased.
During the Cold War period, ASEAN countries grew rapidly, and were able to considerably improve their ranking in human development indicators including poverty reduction (ASEAN Secretariat, 1995). Their integration with the international economy provided substantial benefits in terms of markets, investments, technology, manpower flows, and bilateral and multilateral loans and assistance, while they experienced little pressure for institutional reforms in political and economic spheres.
India on the other hand, chose not to be integrated with the international economy, with detrimental effects on its economic performance, and poverty reduction, though in many significant ways it remained a much more open society than most developing countries. It also devoted considerable energies to developing institutions, including those mediating between the centre and the states; and in laying foundations for democratic participation.
Globalization and associated technological changes ushered in a new era of economic uncertainty. ASEAN countries had greater integration with the world economy but were ill equipped to suddenly deal with the new uncertainties. The 1997 East Asian economic crisis, whose proximate cause was the devaluation of the Thai Baht on July 2, 1997, and its aftermath has considerably reduced ASEAN’s earlier dynamism and adversely affected its medium term growth prospects. It is now clear that most ASEAN countries will need to devote considerable energies in developing political and other institutions, including for mediating centre-state issues (Lim, 2001). The 1997 crisis thus had an adverse impact on ASEAN’s capacity to act as an economic partner. This has reduced the attention paid by the high -income countries, including those from the region such as Singapore, to the ASEAN members. Thus, they need to diversify their economic partners. ASEAN’s limited domestic market has also increased the need to find economic partners with large markets, such as India. As India is not a direct competitor for ASEAN’s export-led economies, particularly in the manufacturing sector, the opportunities for mutual gain are considerable (Khanna, 2000).
India experienced a major economic crisis in 1991 which was a result of overvaluation of the exchange rate, persistent and relatively large current account deficits, and loss of investor confidence (Cerra and Saxena, 2000). While the crisis did coincide with the Gulf War, the root causes lay much deeper in India’s lack of emphasis on economic efficiency and limited integration with the world economy. The crisis clearly demonstrated the urgent need for a fundamental re-think of its economic philosophy, strategy, and tactics. Since 1991, India has embarked on wide ranging reforms that will significantly enhance the role of the markets and integrate it with the international economy4.
India’s real GDP grew at an annual rate of 6.4 percent between 1992-93 and 2000-01 period (The 2001-02 Budget Speech, Para 4). India aims to increase the annual growth rate to about 7.0 percent. This should provide ample opportunities to its economic partners, including those in ASEAN. India thus now has both greater willingness and capacity to engage with the outside world.
Unlike ASEAN, India clearly did not take sufficient advantage of the growth in international trade and investments since the 1960s. But its cautious approach to reforms, and nurturing of professional and technical human resources, and indigenous companies in pharmaceuticals and other knowledge-intensive sectors, are likely to positively contribute to its ability to compete in the 21st century. The new economy activities, particularly the Internet, are most beneficial when there is pluralism and contestability in not just economic but also in socio- political spheres. Indians are quite accustomed to operating in such an environment, and India’s complex, multi-ethnic society and polity, and its social networks provide advantages in operating globally in new economy activities (Tschang, 2001).
Its systems of governance and institutions, while in need of reform, are consistent with evolving international norms, and more importantly elicit widespread acceptance and internalization by the Indian population. Thus, in a real sense, India’s political and social systems have stability and resilience5. This is the main contributory factor in rapid acceptance of the reforms, even though consensus building process for introducing reform measures has been slow. India also needs to considerably enhance economic and technological sophistication of its policymakers and bureaucracy. For both India and ASEAN, the only realistic choice is to participate in shaping the globalization process in a manner that makes them less unequal partners in relation to the high-income countries; and to address social realities at home. Thus, globalization has increased the need for greater engagement between the two, particularly as both face challenges in areas such as environment, drug trafficking, cross-border terrorism, food security, designing effective social safety nets, applying technology to a diverse set of activities, and energy security6.
The 1990s have also witnessed strengthening of the institutional foundations for engagement between India and ASEAN. India enunciated a “Look East” policy in 1991 with a view to deepening economic and political relations with the East Asian countries, and drawing lessons from them for managing its economy (ASEAN Secretariat, 1995). In 1992, India became a sectoral dialogue partner of ASEAN on trade, investment, tourism, and science and technology. At the fifth ASEAN summit in Bangkok in December 1995, India was invited to be a full dialogue partner. This was followed by India becoming a member of the ASEAN Regional Forum (ARF) where regional security issues are discussed. India’ s participation in these two fora has been low-key but confident and constructive. India’s evolving economic cooperation with the United States has positively impacted on the environment in which India participates in the ARF. Participation of India in ASEAN working groups and in various committees as an observer could help deepen the understanding among the officials and private sector participants from both sides.
India and the ASEAN countries also have opportunities for cooperation and discussion in other such fora as G-15 (Group of 15 developing countries which included India, Indonesia, and Malaysia); Indian Ocean Rim Association for Regional Cooperation (IOR-ARC), which includes, Indonesia, Malaysia, Singapore and Thailand as members; Mekong-Ganga Cooperation (MGC), which includes Cambodia, India, Laos, and Vietnam; and BIMSTEC (which includes India, Myanmar, and Thailand).
In addition, India has been especially active in forging bilateral relations with individual ASEAN countries, particularly, Indonesia, Myanmar, Singapore, and Vietnam. This is reflected in a recent series of visits by India’s President, Prime Minister and External Affairs Minister, along with large business delegations, to these countries. The frequency of bilateral visits to India by the ASEAN leaders and their business delegations has also increased in recent months. The Indian Prime Minister’s State visit to Malaysia in May 2001 which had considerable business and technological as well as political and strategic objectives was designed to extend such bilateral relations to more countries.
India’s private sector has also been active in establishing institutional presence in ASEAN. This is exemplified by the establishment in Singapore in the mid-1990s of a South East Asian regional office of the Confederation of Indian Industry (CII), India’s broad-based, pro-reform organization representing the industry all over the country. The CII is set to open its second overseas office in ASEAN in Kuala Lumpur sometime in 2001. This would now permit businesses in ASEAN to reduce their transaction costs in finding suitable and reliable business partners in India, and vice-versa. There is however, no comparable private sector presence from the ASEAN side in India, a gap which ASEAN countries may consider addressing.
Before analyzing the emerging economic opportunities, it may be useful to gain an understanding of the recent trends in economic relations between ASEAN and India.
III An Overview of Existing Economic Relations
Existing economic relations between India and ASEAN cover a wide range; involving merchandise trade, trade in service transactions, investments, tourism, and manpower flows. Before discussing each in turn, some observations based on selected indicators provided in Table 1 may be useful. Because of data limitation, only six ASEAN countries are included in Table 17.
i. India’s population of one billion is more than twice that of ASEAN. The most populous country in ASEAN, Indonesia, has about one-fifth of India’s population.
ii. In contrast, ASEAN’s per capita income in 1999 of US $1,154.2 was about two and a half times that of India at current exchange rates, and 1.6 times that of India in PPP terms.
iii. In absolute terms, ASEAN’s GNP in 1999 of US $ 519.4 billion at current exchange rates was nearly one-fifth higher than that of India. However, in PPP terms, India’s GNP of US $ 2144.1 billion exceeded ASEAN’s by more than a third. The gap in GNP at current exchange rates between India and ASEAN has been narrowing during the 1990s, particularly since the 1997 crisis. If India sustains its current growth rate which is higher than that for ASEAN as a group for another decade, this gap could narrow further or even reverse. ASEAN however will continue to enjoy higher per capita income for the foreseeable future.
iv. ASEAN’s greater integration with the world economy is indicated by its FDI inflow in 1998 of US $19.0 billion as compared to only US $2.6 billion for India; by Official Development Assistance (ODA) per capita of more than four times (US $ 8) as compared to India (US $ 2.0); and by external debt of US $ 352 billion (68 percent of GNP), as compared to US $98 billion (20 percent of GNP) for India.
The data for aggregate merchandise trade for the 1991-92 to 2000-2001 (April-September) period is summarized in Tables 2-4, and shown on Charts 1-5. The source for the data is the Centre For Monitoring Indian Economy (CMIE), a respected, independent, private economic research organization. It should be noted that the CMIE data might not necessarily be consistent with the data from ASEAN country sources. This is because the CMIE data are on the basis of fiscal rather than calendar year; the data reflects as far as possible the country of origin for recording India’s imports, and country of destination for India’s exports, thus excluding re-exports; and reflects values recorded by the Indian authorities.
The following observations may be made concerning the trends in merchandise trade between India and ASEAN during the 1990s:
i. India’s merchandise exports nearly tripled from about US $1.0 billion (5.7 percent of its world exports) to US $ 2.9 billion in 1996-97 (8.5 percent of its world exports), before declining sharply to only US $ 1.6 billion in 1998-99 as a result of the Asian crisis (Table 3). There has been a recovery since then, but the pre-crisis peak has not yet been reached. Nevertheless, in 1999-2000, India’s exports to ASEAN exceeded its exports to Japan (US $1.7 billion), and to Germany (US $1.8 billion).
ii. There has however been considerable shift in the share of total Indian exports to ASEAN among the individual members during the 1990s. In general, the share of India’s exports to Indonesia (particularly until the 1997 crisis), and Vietnam increased significantly, while the share of Singapore declined during the decade. In absolute terms however, Singapore remains the largest market in ASEAN for India’s goods, followed by Malaysia, Thailand, Indonesia, Vietnam, and the Philippines.
iii. India’s imports from ASEAN have increased nearly four times, from US $ 1.3 billion in 1992 to US $ 4.9 billion in 1999-2000 (Table 3, chart 1). Indeed, in 1999-2000, ASEAN accounted for 10.5 percent of India’s imports from the world (Table 3, chart 2). Thus, there is an asymmetry. ASEAN is much more important to India as a source of imports (particularly electronic goods, cooking oil, forest products and petroleum products) than it is as a market for its exports. India thus has been able to contribute positively to ASEAN’s export –led recovery.
iv. During the 1990s, the relative importance of ASEAN countries in India’s imports has changed considerably (Table 3, Chart 4). In 1991-92, Singapore’s share was 54.6 percent, but by 1999-2000, its share had dropped to only 30.5 percent (Table 3, Chart 4). Correspondingly, the share of Malaysia increased from 30.8 percent to 41.6 percent; and Indonesia from 5.3 percent to 20.0 percent (Table 3, Chart 4). Thus, in relative terms, Singapore’s importance has been declining.
v. India-ASEAN merchandise trade has more than tripled from US $ 2.3 billion in 1991-92 to US $7.1 billion in 1999-2000 (Chart 1). As India’s imports from ASEAN have grown much faster than its imports, the balance of trade has shifted sharply in favor of ASEAN (Table 4). During the 1990s, in only two years did India exhibit a surplus with ASEAN. India’s trade deficit with ASEAN increased quite sharply after the 1997 crisis, reaching US $ 2.7 billion in 1999-2000, more than a quarter of its total deficit with the world8 (Table 4). In 1999-2000, India had the highest bilateral deficit with Malaysia (US $ 1.6 billion), followed by Singapore (US $ 0.8 billion), and Indonesia (US $ 0.7 billion). As noted below, India is also likely to experience adverse balance of trade in services, particularly in tourism, logistics and transportation services, with ASEAN. Precise data however are not available.
As India continues its reforms and good macroeconomic performance, ASEAN countries will find further economic opportunities with it. This could in part counterbalance adverse impact of China’s entry into the World Trade Organization (WTO) on ASEAN’s exports and investment flows (Thornhill, 2001).
Existing investment relations between India and ASEAN are limited. Among the ASEAN countries, only Singapore is a net lender abroad. Singapore-based MNCs, and Singapore’s government –linked-companies (GLCs) such as Singapore Telecom, Port of Singapore Authority, and Singapore Technologies have made investments in India. There have also been some investments by Singapore’s private sector companies in health care, real estate, and tourism.
Because of the significant presence of the MNCs in Singapore; use of Mauritius to route investments because of its favorable double taxation treaty with India; and the recording of investment flows by the Non-Resident Indians (NRIs) from around the world as a separate category, it is not possible to accurately quantify approved as well as actual investment flows from Singapore to India. Singapore’s role as a financial center has also been important in India’s transactions with the rest of the world.
Large companies, particularly conglomerates from other ASEAN countries, such as Malaysia, Indonesia and Thailand, have made occasional investments in India. But the 1997 economic crisis has affected them quite adversely, and many of their investments in India have undergone ownership and other changes9.
The Indian Diaspora in ASEAN countries has not played a significant role in expanding economic relations with India, including in investment. In part this reflects weak economic and political position of the ASEAN citizens of Indian origin who are a minority. In part, it reflects a lack of effective recognition on the part of the Indian political and business elites in ASEAN countries that without a strong and resurgent India, their own position will become even more marginalized than it is today. Indeed, Malaysia and Singapore are perhaps the only two significant economies in the world where the socio-economic status of their citizens of Indian origin is lower than that of the population as a whole. Prospects for reversing this situation in the near future are not favourable, as these are rooted in entrenched public policies and in the mind-set of the Indian leaders which have internalized the rationale for the current status of the Indian communities, and therefore are unwilling to take concerned action. As a result, the emigration rate of the Indian professionals from these two countries is quite large, though no precise data are available. In the case of Singapore, inward flow of Indian technical and professional personnel does counterbalance the above trend, but it changes the character and the dynamics of the Singapore Indian community.
A recent study by Yogarajah (2000) based on 75 interviews with firms from Malaysia and Singapore who have invested in India found a high-level of satisfaction with their decision to invest in India, and most were considering expansion or diversification. Favorable experience and profitability of Singapore’s technology park in Bangalore has also created a positive environment for investments in India.
The Indian companies had limited capacity until recently to invest abroad, including in ASEAN. There have been limited Indian investments in ASEAN countries, dating back to the 1960s. Their presence however is insignificant in aggregate terms. Businesses by the Indian Diaspora, particularly trading companies, were quite adversely affected by the 1997 East Asian crisis. Many are yet to fully recover from it.
However, as the reform process gathers momentum, and as the regulations permitting foreign investments by the Indian companies, particularly by those in the (Information and Communication Technology (ICT) sector, become more and more liberal (the 2001-2002 Indian Budget substantially liberalizes such investments), the presence of Indian companies in ASEAN is likely to grow. Unlike in the earlier period, their presence will be motivated by economic efficiency and profitability criteria and not by the desire to escape restrictive business environment at home. Indian business environment in such areas as taxation, regulations, and consistency with market logic is now at least comparable to most ASEAN countries, while its market potential is considerably greater than in ASEAN countries.
In ASEAN, Indonesia, Malaysia, Philippines, and Singapore have developed considerable expertise and competitive advantage in tourism services. In recent years, Vietnam is also developing into an important tourist destination.
India on the other hand has only very recently realized the need to implement an integrated tourism industry which will induce not only substantially larger number of international visitors than the current 2.2 million per year10, but also provide conducive atmosphere and value- for- money services to increase their expenditure per day. India has a substantial domestic tourism sector, and this could be leveraged for the above purpose.
In 1996, the year before the East Asian crisis, tourism receipts were highest for Thailand (US $ 8.7 billion), followed by Singapore (US $ 8.0 billion), Indonesia (US $ 6.1 billion), Malaysia (US $ 4.1 billion), India (US $ 3.0 billion), and the Philippines (US $ 2.7 billion) (Table 5).
Trends in visitors arrivals from India to ASEAN-5 indicate that the total number of visitors have increased from 421.4 thousand (2 percent of total visitors) in 1992 to 578.6 thousand (2.1 percent of total visitors) in 1999 (Table 6). In 1999, Singapore attracted nearly half of all Indian visitors to ASEAN-5, followed by Thailand (31.3 percent), Malaysia and Indonesia about 8 percent each, and Philippines accounted for about 3.2 percent (Table 6). Malaysia has recently been taking aggressive steps to make up for the missed opportunities in developing the Indian tourism market. Thus, in 2000, Indian visitors to Malaysia increased by 217 percent to 140 thousand (Business Standard, New Delhi, February 6, 2001). (http://www.business-standard.com)
The flow of ASEAN visitors to India is quite small. While data are not available for ASEAN countries, in 1998, visitors from Singapore to India numbered only 54 thousand (Sen et al. 2000, p.22). As similar imbalance in tourism flows is likely to prevail with respect to other ASEAN countries, the balance of trade in tourism services is likely to significantly favor ASEAN countries.
ASEAN’s rapid economic growth has led to manpower shortages at all skill levels, particularly in Singapore, Malaysia, and Thailand. The 1997 crisis did affect the demand for foreign talent in ASEAN for the limited period. However, their recovery from the crisis has once again revived the need for foreign talent. In India on the other hand, supply of manpower has exceeded demand. There are therefore complementarities between the two in this area. The world- wide shortage of talent, particularly in the ICT sector, has also increased the demand for talent from India as its manpower is internationally competitive, English speaking, and accustomed to operating in multi-cultural environment (Tschang, 2001). Increasing presence of the some Western MNCs in both ASEAN and India has also been a contributory factor in augmenting manpower flows from India. Unfortunately, no data are available on the manpower flows to undertake a more detailed analysis.
IV Emerging Economic Opportunities between ASEAN and India
The discussion in the previous sections has provided an overview of the growing economic linkages between India and ASEAN, and the basis for increasing density of economic relations. This section examines specific areas and prospects for India’s future economic opportunities with ASEAN as a regional organization as well as exploration of emerging economic opportunities on a bilateral basis with each ASEAN country.
ASEAN as an organization has an important role to play in facilitating trade and investments. The ASEAN Free Trade Area (AFTA), and the ASEAN Investment Area (AIA) have laid the foundation for greater cooperation among the ASEAN members. ASEAN holds a large number of technical meetings on wide range of subjects relating to trade facilitation, technology, particularly IT, and industry standards. ASEAN may consider permitting India to participate as an observer in selected technical meetings related to trade facilitation and standards. ASEAN and India could also use their dialogue partner relationships to expand technological cooperation, educational exchanges, and rules governing movement of natural persons, and E-commerce.
To further strengthen the institutional base for deeper engagement, and to forge Asia wide cooperation, India’s participation in ASEAN plus Three (China, Japan, and South Korea) annual meeting; or alternatively, holding of ASEAN- India annual summit merits serious considerations.
India does engage in fruitful annual dialogue with the European Union at the summit level. Its relations with the US have also become deeper and wide ranging. If East Asia in general and ASEAN in particular continue with their unwillingness to take the relationship at a higher level, economic and broader human security options for both will unfortunately narrow at the time when other regions such as the Americas and Europe are expanding their options.
The emerging opportunities between Indonesia and India exist in a wide range of areas from food and energy security to infrastructure and human resource development. India is seeking to diversify its conventional energy sources, and significantly increase exploration of oil in its territory. Indonesia possesses enough expertise in this area as well as in the nuclear power sector, providing considerable scope for energy cooperation.
For both countries, food security is an important area of concern. This will require application of biotechnology, and other knowledge-intensive activities to improve the productivity in the agricultural sector. Both countries would also need to encourage food-processing industries. India also has considerable shortages of cooking oil, while Indonesia is emerging as a major palm oil producer. Thus, there exist significant avenues to enhance the cooperation in food security. Besides, India is also a major importer of forest products while Indonesia is a major exporter, which indicates another potential area of expansion of bilateral trade.
India could also cooperate with Indonesia in pharmaceutical and health care sectors. Indonesia is heavily dependent on imported drugs and health care equipments. Indian pharmaceutical companies are internationally competitive in certain areas particularly in generic drugs that are much cheaper than branded drugs.
Another important area of economic cooperation between the two countries could be in the area of infrastructure development, particularly in railways, aviation etc. and in commercialization of space activities in which India is emerging as a competitor.
Given the recent developments in the ICT sector in India, the two countries also benefit from cooperating in the area of Information and Communication Technology, particularly in the area of development of human resources and in that of software programmes in Bahasa Indonesia. Another area of cooperation that holds promise concerns the entertainment and media sector. Firms from the two countries could consider joint production of films, television programs, and Internet content for both domestic and international audiences, particularly those whose main language is Malay. India and Indonesia may also consider cooperating in the area of telecommunications, particularly in expanding rural connectivity. The India technology in this area has been found to be cost effective, and cooperation could benefit both sides.
As Indonesia continues its recovery from the 1997 crisis, there are prospects for the emergence of Indian Diaspora in Indonesia, centering on professional and technical personnel. This development will also have a positive impact on economic relations between the two countries. Indonesia’s public support at the highest levels for India’s bid for a permanent seat on the UN Security Council has created a favourable atmosphere for deeper economic engagement between the two countries (Baruah, 2001e)
In recent months, the two countries have shown renewed interest in exploring substantial complementarities existing between them.
The Indian Prime Minister’s state visit to Malaysia in May 2001, accompanied by a large business delegation has given impetus to bilateral economic relations (Baruah, 2001d). The aim is to triple the current bilateral trade of US $ 2.5 billion in the next few years by broadening and deepening the economic linkages.
The decision of India’s Confederation of Indian Industry (CII) to set up its second office in ASEAN in Kuala Lumpur has provided an institutional basis for private sector interactions between the two countries. It is hoped that the Malaysian business organizations will consider setting up a similar representative office in India. Malaysia has permitted one of India’s state-controlled but partly privatized banks to operate in Malaysia. This should reduce transactions costs for bilateral business and individual customers.
Malaysia has in recent years, particularly before the 1997 crisis, made substantial investments in expanding capacities in selected infrastructural areas such as airports, seaports, highways, and information technology. It is also aiming to reduce its dependence on the infrastructural facilities in Singapore in its international trade. The large capacities which it has built-up require large volumes to be economically viable. India could be one of the trading partners to assist Malaysia in this respect. Encouragement of direct linkages between the two countries could be one such measure. India has granted permission for Malaysia’s national carrier to fly to three new destinations, namely Mumbai, Bangalore, and Hyderabad. This should encourage competition in these sectors, positively impacting the customers. This should also have a positive impact on business visitors and tourist flows.
Malaysia aims to be an important centre for information technology. It has invested heavily in requisite infrastructure facilities, but lacks a critical mass of talent in the ICT sector. India is an internationally recognized source of such talent (Tschang, 2001). Malaysia needs to augment its current talent pool if it is to realize its objectives. The Indian talent could also be leveraged to develop software and E-commerce services in the Malay language, and to take advantage of the opportunities in entertainment and multi-media activities. In particular, Media Development Corporation which is in charge of developing Malaysia’s ambitious multimedia super-corridor may consider being more deeply engaged with India’s IT training and development institutions and firms.
An impediment to Indian companies setting up operations in the Malaysia’s multi-media super corridor is that these companies undertake work for Malaysian entities indirectly, through sub-contracting from the US and European firms. If the Malaysian entities were willing to provide direct contracts to the Indian companies, there would be mutual benefits, including a more sustainable business model for Indian information technology companies to set up operations in Malaysia’s multimedia super-corridor.
India is currently a centre for medical education for Malaysian students. The cooperation between the two countries in the education sector could be widened to other areas, such as management and information technology. Given the rapidly rising health care costs in Malaysia, opportunities exist in health care activities, and in generic and other drugs, including for the HIV-AIDS. Indian Ayurvedic medicines also have potential to be culturally more compatible and affordable to a wider population in Malaysia. Joint efforts in this area thus could be beneficial to both sides. Some Indian companies from the health and pharmaceutical sectors already have presence in Malaysia, but the two countries could consider strengthening it.
India and Malaysia have undertaken joint ventures to facilitate satellite launch by Malaysia from Indian facilities on globally competitive terms (Baruah, 2001d). This cooperation in space has the potential to open up new avenues for economic linkages as India is intent on commercial spin-offs from its investments in space research and development (Business India, 1997). Malaysia is among the first set of countries with which India is sharing its space technology.
Malaysia on its part is in a strong position to assist India in providing infrastructure expertise and investments; and in the energy sector. The Indian government has recently signed a MoU with the Malaysian government for roads (Business Standard, New Delhi, January 15, 2001). The Malaysian government will bring in equity for this project.
The Malaysian companies have won over a dozen tenders for road and highway projects in India in open international competition. This testifies to their international competitiveness and to their acceptability in India. The potential for their participation in India is much greater, and they may consider setting up a consortium office in India. The energy sector companies from the two countries could also cooperate with each other in oil and gas exploration and in downstream processing activities.
Malaysia possesses considerable strength in the plantations sector, particularly in research on rubber. India’s need and low level of development in this sector therefore could provide opportunities for mutually beneficial cooperation, particularly as Malaysia’s wage levels require it to restructure more labour intensive aspects of the value chain of its plantations sector.
A key issue of concern to Malaysia is the high import duties levied on refined Palm oil by India to protect its farmers and industry. The permitted maximum tariffs under the WTO vary depending on the type of crop. Thus, for Soya beans, the maximum tariff rate is 45 percent, while for Palm oil it is 300 percent. India already levies duties on Soya beans at the maximum rate, but for Palm oil, its duties of 45 percent are considerably below the maximum rate.
India has however agreed to consider the current level of Palm oil tariffs in view of the importance attached to it by the Malaysian side. The Palm oil has a limited market due to perceived health concerns, and India is among the largest buyer of Palm oil. During the Indian Prime Minister’s visit in May 2001, Malaysia offered a barter deal worth US $ 1.5 billion involving Palm oil for railway lines contract. Both sides need to find a satisfactory solution to the Palm oil, perhaps through an agreement on division of labour in Palm oil value chain.
Myanmar and India have only recently begun to lay a foundation for closer economic relations. This has been achieved through a series of recent bilateral visits. The two share a 1600 kilometre long border; and Myanmar’s strategic location as a gateway to ASEAN from India’s Northeast, an area India wants to develop for both economic and security reasons, have provided an impetus for cooperation. Currently, the main emphasis is in developing road and banking links.
In 1999-2000, the two-way trade was US $ 217 million, with Myanmar’s exports being US $ 141 million. Indeed, India is now Myanmar’s largest export market. Its exports are mainly forest products, and agricultural commodities, such as pulses. Given Myanmar’s isolation from the Western world, it can reap significant benefits from economic cooperation with India.
There are emerging bilateral opportunities in infrastructure sector such as roads and ports; hydroelectric and hydrocarbon sectors, particularly in natural gas; and in technological cooperation in such areas as agriculture and natural resource monitoring. Indeed, in February 2001, Myanmar-India friendship center for Remotes Sensing and Data Processing was inaugurated. The center has capabilities in weather forecasting, determination of forest cover and other land-use delineations; ground water survey, and other areas. The two countries should also consider reestablishing banking and other financial institutional linkages.
The existing economic relations between the two countries are rather limited (Tables 2-4). The end of the Cold War has not significantly altered the worldview of the policy makers and the elites in the Philippines who have traditionally been rather indifferent towards their relationship with India. It is the only ASEAN country with which high level contacts have not taken place in recent months, or is being currently contemplated. Both sides need to address this gap in bilateral relationship.
There are however, indications that in selected areas, greater cooperation between the two countries may emerge. Thus, the government of Philippines has used importation of selected drugs from India to enhance contestability in the sector and thus reduced the pricing power of the domestic manufacturers. This shift at the margin from nearly exclusive concentration on producers to consumer interests holds promise as Indian pharmaceutical companies are internationally competitive, particularly in generic drugs which are cheaper. Whether this shift will be retained by the Philippines government however remains to be seen. But if it does, many drugs, including those needed to treat HIV-AIDS could be sourced from India at affordable prices.
Philippines and India are internationally competitive in selective niches in the ICT sector. The business concept of competition through cooperation could be applied by the ICT firms from both countries to pursue mutually beneficial opportunities. As an example, one of India’s leading software companies is exploring the feasibility of opening a major software development center in the Philippines that will eventually employ about 2000 people. This is a sizeable commitment to the development of the IT sector in the Philippines.
Indian companies are also exploring cooperation in the agricultural sector, including research. Some of the Indian companies have been accredited to export meat to the Philippines.
The potential network of the Indian alumni of the Asian Institute of Management (AIM), many of whom are now in responsible positions in business in India, has also not been fully exploited. This network may be an important avenue for further economic linkages. The AIM, based in Manila, may consider taking the lead in this regard, and strengthen its links with management institutes in India.
An internationally well-known brand of Philippine beer (San Miguel) is being produced in India under an exclusive manufacturing and marketing license. There are plans to expand its availability nationwide. This appears to be the only significant involvement of a major Philippine corporation in India.
While Singapore’s manufacturing base centering on electronics and petrochemicals, and its role as an entrepot centre will continue to sustain the merchandise trade, the emerging opportunities are largely in the services sector, particularly in the Information and Communication Technology (ICT), logistics services, business and financial services, tourism, and health services (Sen et. al., 2000). This is more so as Singapore plans to develop itself into a service hub and improve its capabilities in areas where there exist considerable complementarities with India. The opportunities are not only in trade in services transactions (such as used by Singapore Airlines of India as a base for some of its IT-enabled services)11, but also in investments (presence of Indian ICT, Pharmaceutical, and trading companies in Singapore, and Singapore’s investments in India’s ICT, tourism and health services, besides in port development and logistics). The probable involvement of Singapore’s polytechnics in technical education in Tamil Nadu, and perhaps other states, could further strengthen bilateral linkages.
The Info-Comm Development Authority of Singapore (IDA) has signed an MoU with India’s premier IT training company, National Institute of Information Technology (NIIT) to persuade IT professionals to locate in Singapore, from anywhere in the world (Jayanth, 2000). As Indian professionals are internationally competitive and culturally compatible, India is among the largest sources of IT manpower in the world, a significant proportion is likely to be sourced from India. This could create a dynamic Indian Diaspora with positive externalities for both countries. The investments by Singapore Telecom (SingTel) in India’s telecom sector in partnership with India’s Bharti Televentures to take advantage of India’s huge potential domestic telecom and Internet market is also another example in this sector.
In the tourism sector, opportunities are emerging rapidly for Singapore as Indian tourists have become the highest spenders among tourists to Singapore and became the fourth largest revenue generating market in 1999, with growing affluence among the Indian middle class. Singapore tourism authorities has also been actively involved in promoting select areas in India as a tourism destination for Singaporeans, through a joint marketing by the Government of India tourism office already established in Singapore.
Indeed, Singapore’s two airlines, Singapore Airlines and Silk Air have quite liberal rights to fly to several destinations in India. They could however take greater advantage of India’s open sky policies concerning air cargo. These carriers may be permitted by the Indian authorities to lease unused bilaterals of Air-India, as the national carrier is unlikely to be able to utilize them. These airlines may also consider new destinations in India to expand the air traffic volume between the two countries.
In the logistics sector, the Port of Singapore Authority (PSA) has been involved in port development and management in Tuticorin in Tamil Nadu and Pipavav in Gujarat. These have the potential to lead to major investment opportunities for other Singapore firms in the logistics sector. Negotiations between Singapore’s largest supermarket operator, NTUC Fairprice which has close links with the government, and India’s Apollo Group, one of Asia’s largest hospital and health-care management companies to set up a pharmacy and retail chain of convenience stores numbering in the hundreds in petrol stations run by the Indian oil corporation also hold promise for greater economic linkages (Saywell, 2001). It would contribute to Singapore’s food security, and to its supply chain for other essential household goods.
Indian IT companies have recognized the importance of Singapore as a marketing and development center, and their presence is growing. As Indian businesses have been given much greater freedom to invest abroad, presence of Indian companies from other sectors in Singapore is also increasing. This should also have a positive impact on Singapore’s importance as a business hub, and on trade in business services.
Singapore intends to increasingly rely at the margin on investment income from abroad. Its rather large reserves, conservatively estimated to be about US $ 90 billion, are mostly invested abroad through holding companies of the Singapore government. It is suggested that these holding companies consider passive investments in infrastructure projects in India. Setting up of a physical presence in India by the Singapore Government Investment Corporation (SGIC) , and other such Singapore government investment companies merits serious consideration. Currently, these holding companies do act in a limited way as venture capitalists for Indian IT companies. However, there is much greater scope in not only the IT sector but also in biotechnology, life sciences, and other areas. For these purposes also, physical presence in India would be beneficial.
The 1997 East Asian Crisis, which originated in Thailand, has severely impacted the Thailand economy and its growth prospects. Several Thai companies which had invested in India, had to restructure their operations. The bilateral trade has also been affected adversely though it is beginning to recover (Tables 2-4). Thailand also traditionally had weak institutional linkages with India, e.g. Thailand’s business and tourism promotion agencies have not set up offices in India; and the frequency of business delegations between two countries has been rather low. The decision by India’s Confederation of Indian Industry (CII) office to set up a representative office in Kuala Lumpur and deepen engagement with the Federation of Malaysian Manufactures could adversely impact these businesses in Thailand that compete with Malaysia.
There are several areas where Thailand and India could cooperate for mutual gain. As Thailand aims to develop knowledge-based economic activities, its needs to augment professional and technical manpower, particularly in the IT sector, have become more evident (Janviroj, 2000). There is a global competition for IT talent. India is internationally recognized as a major source for such talent (Tschang, 2001). Thailand’s realization of its higher technology objectives rests on attracting foreign, including Indian talent (Einhorn, 2001, p.21). It therefore needs to give more positive signals to India and to the Indians on economic cooperation. By fostering the formation of Indian Diaspora, Thailand can address one of the challenges in regaining economic growth and dynamism, namely the need to augment the pool of professional and technical personnel comfortable with the new economy activities12.
Thailand is experiencing rapid individual and population ageing as reflected in increased life expectancy, and increasing proportion of the population above 60 years of age. Its healthcare costs are expected to increase quite significantly due to population and individual ageing and due to sexually transmitted diseases viz. HIV-AIDS. Thailand has undertaken many innovative measures to address this issue, and greater cooperation between Thailand and Indian pharmaceutical industry could be an element in containing healthcare costs. This is because there is now an increased recognition that generic drugs are cheaper and more than commensurately effective, and in this area, Indian firms have a degree of international competitiveness. The catalytic role of Indian firms such as Cipla, in putting competitive pressures towards reducing prices of HIV-AIDS drugs worldwide has also been recognized (Harris, 2001). This should benefit not only Thailand, but other ASEAN countries as well.
Another area for potential cooperation is the gems and jewellery sector. Both Thailand and India have thriving gems and jewellery industry. Greater cooperation between the two could provide each with competitive advantages in the international arena.
Thailand’s expertise in the food-processing industry, particularly in deep-sea fishing and other marine related activities represent another area where cooperation is likely to be fruitful.
The balance of bilateral transactions is currently in favor of Thailand (Table 6). Bangkok is an important tourism destination and hub for Indian visitors. Thailand’s facilities for issuing visa to Indian passport holders at reasonable cost on arrival at the airport holds particular lessons for other ASEAN countries if they desire to increase visitors from India. There is however much further scope for expanding tourism services in both directions. India, for example, could facilitate more entry points and frequency of flights by the national air carrier of Thailand, just as it has permitted airlines from Malaysia and Singapore. The Thai carrier could consider taking greater advantage of India’s open sky regime for air cargo and for chartered flights. The two countries have also not adequately explored the opportunities of heritage tourism; given that the major Buddhist pilgrimage centers are located in India, while Thailand is a predominantly Buddhist country. Thus, the Thai national carrier may consider Bhubaneshwar in the state of Orissa as a destination to develop Buddhist heritage tourism.
A deeper and more broad-based economic engagement between India and Thailand would require appropriate signals from the high level political and economic policymakers. Thailand may consider appropriate signals to alter widespread perception in India that it is indifferent at best to the objectives of India’s “Look East” policy in economic and security spheres13. As India forges ahead with deeper engagement with other countries in East Asia, Thailand may be faced with narrower set of opportunities to sustain its growth.
The main challenge for Vietnam and India is to develop a substantial economic and commercial content to their traditionally close political relationship. Economic reforms being pursued by the two countries, and an increasing capacity of Indian companies to invest abroad, provides a conducive context in which to undertake this task.
India’s national oil company is already involved in a joint venture to explore oil and natural gas in Vietnam. Thus, the two countries are already cooperating in the energy sector, but there is scope for strengthening it. Cooperation in the civilian nuclear power sector for energy is also feasible and desirable. Mineral exploration and processing is another area which is being actively explored by the two sides.
For both the countries, food security is an important pre-occupation. While in some commodities, such as rice, tea, and cashews, the two countries are in competition, there are several other areas, particularly those relating to agricultural research, and biotechnology where the scientists from the two countries could fruitfully cooperate. Facilitating trade and investments in agro-chemicals and fertilizers also merit serious consideration.
As Vietnam aims to develop its ICT sector, cooperation between the companies from the two countries, particularly in human resource development, and in the development of software in Vietnamese language represents another avenue of emerging opportunities. The two countries could also cooperate in the area of pharmaceuticals and healthcare, particularly in the area of sourcing drugs for diseases like HIV-AIDS.
V Concluding Remarks
The previous sections have analyzed the factors that have contributed to the positive dynamics in India-ASEAN relations. During the 1990s, ASEAN as an organization, and many of its members demonstrated greater willingness to enhance economic and political relations with India. There are no contentious issues between the two sides as was the case during the Cold War period. India now has greater capacity and economic and technological momentum to sustain its growth in the 21’st century. Encouraging acceptance of Indian capabilities in the ICT sector in particular has perceptibly altered the environment in which India’s relations with major powers, particularly the United States, the European Union and Japan are being conducted. This has had a positive impact on India-ASEAN relations as well.
The previous sections have also indicated the emerging economic opportunities between India and ASEAN in merchandise trade, in services, and in investments and manpower flows. These are primarily in the ICT sector; biotechnology, and life sciences; agricultural products; infrastructure; logistics; tourism services; the energy sector; educational services; and in commercial use of nuclear and space technologies.
This paper has stressed that while the general areas of emerging opportunities overlap, to realize these opportunities, India will need to evolve strategies and tactics both with ASEAN as an organization, and bilaterally with each individual country. Both sides have much to gain from cooperating with each other. The potential of some bilateral relationships however, will not be realized unless high-level political commitment is made to do so. This applies particularly to Thailand and the Philippines.
India is determined to accelerate its integration with the world economy. Its first Special Economic Zone (SEZ) at Positra in Gujarat costing US $ 1.3 billion has achieved financial closure and another 2 to 3 such SEZs will do so in the near future. The SEZ is a specially delineated duty free enclave, for undertaking manufacturing, assembling, trading and various other services. It will have a public utility status, and a single point clearance for exports and imports. The private sector has taken the lead in establishing the Positra SEZ and similar ownership is expected in the other SEZs.
Several US and European MNCs have evinced keen interest in operating from the Positra SEZ. If ASEAN companies (or those MNCs based in ASEAN) similarly take advantage of the opportunities in India’s SEZs in selected areas, greater impetus to bilateral relationship could be achieved.
Cooperation between ASEAN and India in various multilateral fora, such as the WTO, particularly on issues relating to the workings of Intellectual Property rights regime involving access to life-saving drugs at affordable prices could bring mutual benefits. Greater convergence of views on economic management and similar developmental challenges faced by the two sides should help in this regard.
India needs to vigorously pursue its “Look East” policy, and continue its efforts to engage each and every ASEAN member in a mutually beneficial manner. It would therefore need to considerably strengthen its emphasis on commercial diplomacy, and coordination between business associations and diplomatic missions.
Indian missions in ASEAN need to set goals and benchmarks, and assess strategies and tactics on an ongoing basis. “Software” of being a global and regional economic player is important in commercial diplomacy as perceptions and “Brand Image” become increasingly important. ASEAN on the other hand, is strongly urged to facilitate India’s participation in all regional fora in which it has considerable leverage. Some of the ASEAN countries, particularly Malaysia, Singapore, and Thailand need to enhance the presence of their commercial and promotional agencies in India to build on the existing bilateral relations. ASEAN countries may also consider further measures to attract professional and technical talent from India, and to better utilize the possibilities provided by the presence of the Indian Diaspora, the way United States has done. Continued nurturing of the relations along these lines by the two sides is essential to translate the emerging economic opportunities into reality.
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* Professor, Public Policy Programme, National University of Singapore, e-mail:firstname.lastname@example.org
** Research Scholar, Department of Economics, National University of Singapore, e-mail:email@example.com
*** Research Scholar, South Asian Studies Programme, National University of Singapore, e-mail:firstname.lastname@example.org
1 ASEAN was founded in 1967 as a cold war organization by Indonesia, Malaysia, Philippines, Singapore, and Thailand. Since then it has doubled its membership to all ten countries in Southeast Asia. Brunei joined ASEAN in 1984, Vietnam in 1995, Laos and Myanmar in 1997, and Cambodia in 1999.
2 ASEAN members, particularly Malaysia, have expressed strong reservations about Singapore’s aggressive perusal of the bilateral free trade agreements with major trading partners such as the U.S., Japan, Australia, and New Zealand. (See Rajan, Sen and Siregar, 2001)
3 Indeed, some commentators such as Morgan Stanley’s Lian (2001) have already begun to suggest that the East Asian Economic Model (EAEM) may be in the early stages of being dismantled, though the alternative model is not yet in sight. The main attributes of the EAEM model are high savings and investment, and outward orientation in trade, and high reliance on direct and portfolio foreign investment. This suggests a certain lack of confidence and focus for the ASEAN countries which have followed this model.
4 For a report card on the reforms in different sectors and the tasks ahead, see Parikh (1999). The 2000-01 Economic Survey published in February 2001 by the Ministry of Finance; and the FY2001-2002 budget speech of the Finance Minster presented on February 28th 2001, are other authoritative sources on India’s performance and reform plans. Both these may be accessed on http://www.indiabudget.nic.in. India’s 2001-02 Budget has drawn nearly universal approval for its vision and specific measures designed to accelerate market-oriented reforms (Nageshwaran, 2001; The Economist, 2001; Slater, 2001). The budget has laid a blueprint for higher growth, and tackled many difficult reform issues such as labor market reform, pension reform, and infrastructure. The budget and India’s 2001 Export-import (EXIM) Policy demonstrated refreshing willingness to draw relevant lessons from other countries, particularly China. Please see details of the EXIM Policy on http://dgftcom.nic.in/exim/2000. India’s second-generation reforms will involve, privatization, labour market
reforms and deeper and more extensive de-politicization of economic decisions, and will involve legislative changes designed to bring India’s policy framework in line with International best practices.
5 Therefore, perceptions in some ASEAN circles that change in governments are indications of political instability in India are grossly oversimplified. They also ignore recent history in South East Asia where one person or one party rule has provided only superficial stability followed by considerable flux in the absence of necessary institutional foundations for participation and conflict mediation. In both ASEAN and India there is considerable room for improving governance and delivery of government services.
6 These themes were stressed by the Indian Prime Minister A.B Vajpayee in an address entitled “India and ASEAN-Shared Perspectives” to the Institute of Diplomatic and Foreign Relations in Kuala Lumpur during his state visit to Malaysia in May 2001. (Baruah, 2001c)
7 Brunei, Cambodia, Laos, and Myanmar are excluded because of the lack of comparable data in not only Table 1 but also in other tables and charts in this paper.
8 A combination of factors is responsible, though rigorous empirical studies assessing relative importance of each of the factors are not available. The factors include, depreciation of currency of most ASEAN countries increasing their relative export competitiveness, lower economic growth in ASEAN which has dampened demand; higher economic growth in India which has stimulated imports; and random factors such as weather-induced need for cooking oil imports by India.
9 As an example, in May 2001 an Indian firm acquired a 100 percent stake in Sinar Mas Pulp and Paper India Limited, a two-step removed subsidiary of Singapore-based but Indonesian controlled Asia Pulp and Paper Co. Ltd for US $ 136.5 million. A similar buy out of some of Indian investments of Thai firms has also occurred since the crisis.
10 The average length of stay per visitor is about 29 days, considerably higher than the average for the ASEAN countries. Thus, in Singapore, the average length of stay in 2000 was 3.16 days (http://www.cybrary.com.sg/pages/archive2000/fact1200.html).
11 Singapore Airlines has also bid with India’s Tata group for 26 percent stake in Air-India, currently a government owned national carrier.
12 The economic contribution that the Indian Diaspora can make to Thailand’s economic dynamism is indicated by the computer animation company founded by an India, Mr. S.R. Ramanna, which is headquartered in Bangkok, and which has the ambition to make blockbuster digital animated movies that will have global market (Seno and Mitton, 2001, p. 39-46).
13 A possible signal would be a visit by Thailand’s Prime Minister to India, which has substantive business as well as political content.