When it comes to competing in the world economy, the Chinese dragon always win hands down against the Indian elephant. India's share in world trade is stuck at around 1.8% since 2011, whereas that for China this figure is close to 12%. For the Indian elephant to catch the Chinese dragon at the halfway mark by 2020, the export figure need to grow in excess of 30% annually. Indeed, a hard task at hand.
Now it appears India has found a true friend in Asean. The day of reckoning from “look east” to “act east” has finally arrived as India host 10 leaders from Asean region as chief guests for the 2018 Republic Day parade. For India, hoping to grab 5% share of global trade by 2020 it is important that India nurture this friendship with the Asean region.
Although focus of the meeting is on maritime cooperation and security, trade and investment flows are important. Between 2008 and 2016, India’s trade with Asean region has increased faster than two of its two largest trading partners, namely, European Union and the U.S. The two way trade between India and Asean has moved from $65.1 billion in 2015-2016 to $71.6 billion 2016-2017. However, this figure is a meagre in comparison to China's $452.3 billion in 2016.
Over last 15 years, China has emerged as first or second largest trading partner with almost all Southeast Asian countries. Where China succeeded and India failed is about building connectivity and institutional linkages with the Asean counterpart. For India, a strong relation with Asean is important for five reasons. First, as cost of production is lower in Laos, Cambodia, and Myanmar, it means that Indian firms can gain significantly by investing in these countries. Second, investing in these regions meant a bigger market for Indian firms. Asean region has a combined GDP of $2.7 trillion. Third, Indian firms can evade protectionist measures (read Trump factor) targeted against their exports if they started exporting from Asean region. Fourth, investing in these regions will also ease out some of India’s energy requirements, enabling the Indian to access cheaper foreign energy (oil and power) and minerals from Cambodia, Myanmar and Vietnam. Fifth, and more importantly, participating in the South-East Asian production network will enable India increase its manufacturing base besides creating jobs for its young population.
Each year around 12 million people enter labour force in India when roughly 2 million jobs get created. Economically well-off Asean nations such as Brunei, Singapore, Malaysia, and Thailand, can gain from making use of India’s cheap labour. In recent times, labour costs in China have increased substantially, and India can take advantage of that. Thanks to strengthening of Yuan, Chinese labour costs are now only 4% cheaper than those in the U.S. Average wages in China’s manufacturing sector has surpassed that of Brazil and Mexico, and are fast catching up with Greece and Portugal. This is in contrast to India, where manufacturing wages have flattened since 2010 at just $1 an hour.
There are also other elements of complementarities. India’s nuclear power plant is yet to become fully operational. The energy source, particularly hydroelectric power generation on the Mekong river can be of use to the booming and fuel hungry economy of India. Similarly, electric power generations in India are mainly coal based. Indonesia possesses the largest and most easily accessible coal reserve in the Asean region. Malaysia sits on huge natural gas reserve. Vietnam is a major exporter of oil. All this can help India. India can gain by becoming a partner for the proposed Trans-Asean pipeline project. This project aims to develop a regional gas grid by 2020, by linking the existing and planned gas pipeline networks of the Asean member states.
Indian companies too can realign their resources to tap the region's potential. Companies such as L&T, Adani Port, and NTPC can invest in Myanmar with money and technical expertise to build infrastructure, such as building container dock and coastal ships, power stations, and cement factories. Indian telecommunication companies such as Bharti Airtel and Reliance, have the expertise for laying down optical fiber cables and telecommunication network, something in need for countries, such as Myanmar, Cambodia and Laos. Indonesia offer huge investment opportunity for Indian oil exploration and construction firms, such as ONGC.
Indian companies already have many joint ventures with their Indonesian and Singaporean counterparts. For example, Bajaj Auto has a joint venture for the assembly and production of three and two wheelers. Tata Motors has a manufacturing facility in Thailand. In fact, Tata group with 16 companies has designated Singapore as its regional hub. Other Indian companies with significant investment in Indonesia include Aditya Birla Group (Indo-Bharat Rayon), S. P. Lohia Group (Indo-Rama Synthetics), Ispat Group (Ispat-Indo), and Essar Group (ESSAR Dhananjaya).
A robust Indio-Asean relation will also open up opportunity for people to people contact. India has abundance supply of skilled professionals in areas related to computer and information services, other business services such as financial, medical tourism, insurance, etc., and movement of natural persons such as IT professionals and sea farers. The rise of e-commerce, especially in economies like Malaysia and Thailand presents an opportunity for Indian IT firms. Similarly, India offer a great place for medical tourism and education, something that Asean counterpart can make use of.
However, to keep this India-Asean relation on track it is worthwhile to take into cognizant the bugs. There are many export items—of interest both to India and Asean—which are in negative lists; with trade not permitted. A conscious decision is needed to reduce number of non-tariff barriers such as imposition of antidumping measures and phytosanitary sanctions. Similarly, to facilitate labour movement between India and Asean it is essential to have institutions for mutual recognition of standards in India-Asean bilateral services agreements. For example, in spite of India having a services trade agreement with Japan, Indian nurses, architects, and even yoga professionals are yet to get market entry. Likewise, agreement with South Korea that allow Indian engineers, consultants and other professionals to go and work in South Korea are met with limited success, with recognition of Indian engineering colleges remained an issue.
(The author is Professor, Bennett University, Greater Noida)
(The views expressed in this article are not those of Fortune India)