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28 August 2014

Indian Trade Seen Booming With ASEAN

August 26, 2014

A new report highlights the growing economic ties ASEAN is enjoying with India.

ASEAN business ties extending west into India have never enjoyed the same cachet as trade with China to the north. That’s partly because access to India was blocked by Myanmar’s isolation and partly because a two-decade economic boom in China soaked-up as much capital as ASEAN investors could spare.

But that equation is changing as China’s economy slows and growth buckles under debt while India reappraises its relationship with ASEAN amid the prospect that overland routes from Southeast Asia through Myanmar will improve east-west trade potential.

This optimism was underpinned this week with the release of a report from Standard Chartered forecasting that Indian exports into ASEAN would rise dramatically over the next 10 years to $280 billion a year, up from $33.13 billion in the 2013/14 financial year. Two-way trade is currently locked in at around $80 billion a year.

The report saw Indian export potential in six areas: petroleum products, organic chemicals, vehicles (including auto parts), pharmaceuticals, gems and jewellery, and apparel and clothing accessories.

“The first three are categories where ASEAN already accounts for a sizeable chunk of total Indian exports, and where export growth is high. The last three are areas where we feel there is potential for India to increase export growth rates,” Standard Chartered said.

Meanwhile ASEAN’s trading strengths would depend largely on natural resources and electronics.

The creation of the ASEAN Economic Community (AEC) by the end of 2015 will also dramatically reshape the economic landscape. The 10 members of ASEAN will emerge as a single market and production base with combined gross domestic product values of $2.3 trillion. That compares with India’s GDP of $1.8 trillion and China’s $8.3 trillion.

India, with its Look East policy, and ASEAN have already implemented free trade agreements in goods, while negotiations have concluded for an FTA on services and investments. The Standard Chartered report envisaged that improved transport links via road and river would help drive trade.

As a comparison, the all-weather highway that was supposed to link Singapore with China and was scheduled for completion by the end of 2012 remains incomplete, with several kilometres of busted tarmac still to be rebuilt on the outskirts of Phnom Penh.

The report should add some political gloss and perhaps for India’s new Prime Minister Narendra Modi some direction. Modi wants to see an acceleration of major infrastructure projects, desperately needed to ensure integration with the wider region, and in particular an Indian trade push into Myanmar, its sole overland gateway into Southeast Asia.

During a recent trip to Vietnam, India’s External Affairs Minister Sushma Swaraj said the Modi government preferred to act on its eastward policy as opposed to “just looking east,” adding that Vietnam would have an enormous role to play. “India and Vietnam are just not geographically close, but have very, very close ties,” she said.

From a trade perspective the visit was lavish with political niceties. However, China remains dubious about any further Indian involvement in ASEAN, particularly given Beijing’s unyielding position over its claims in the South China Sea and Vietnam’s determination to open its deep water port at Cam Ranh Bay for all the world’s navies.

India has indicated it would take advantage of the port.

The release of the Standard Chartered report was also timely, coinciding with the annual summit of ASEAN economic ministers, who sat down in Myanmar this week to upgrade existing trade pacts with China and South Korea and amend its FTAs with Australia and New Zealand.

Pivotal in the four day meeting are talks on the Regional Comprehensive Economic Partnership (RCEP) – essentially an FTA among the 10 ASEAN members – and the elimination of non-tariff barriers that will herald a new deal within the trading bloc once the AEC gets underway.

Luke Hunt can be followed on Twitter @lukeanthonyhunt

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