Is India Trying To Forge Closer Ties With ASEAN?

Trade & Policy

Is India Trying To Forge Closer Ties With ASEAN?

India hosted the heads of all 10 ASEAN members on the occasion of its 69th Republic Day celebrations, in a move aimed at fostering closer ties with the trade bloc.

The move comes at a time when a new TPP is in the making, and more importantly, China's Belt & Road Initiative is moving ahead despite many obstacles.

India will have an uphill task trying to improve economic relations with the 10 member bloc which comprises of Brunie, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam.

India's ASEAN agenda is driven by the three Cs-Commerce, Connectivity and Culture. India's trade figures with ASEAN have been lacklustre-US$ 71 billion last year compared to a whopping US$ 450 billion trade which China has with the ASEAN. Japan's trade with ASEAN is around US$ 239 billion, the EU's US$ 228 billion, and US at US$ 212 billion. And this despite India's proximity to ASEAN.

With a 650 million population and its GDP crossing US$ 2.8 trillion, ASEAN is a vital partner for trade and investment.

India has signed an FTA on trade in goods and investment and services with the 10-member group. While the FTA on trade in goods is in place, two ASEAN countries are yet to ratify the FTA on services and investment.

In the year 2016, India exported textiles and apparel worth US$ 1,203 million to ASEAN and imported textiles and apparel worth US$ 546 million from ASEAN.

Trade in textiles and clothing accounts for a mere 2.46% of total trade with ASEAN. And this is obvious. Most of the ASEAN countries have a textile industry that they would like to protect, given the employment potential.

Moreover, in most of these countries, China has already established itself as an important textile investor -be it in Cambodia, Myanmar, Laos, Malaysia, the Philippines, and Vietnam. Moreover, China, under its BRI, has become one of the largest financial supporters of infrastructure development and connectivity in these countries, and thus holds significant political sway too.

In contrast, India's connectivity projects with ASEAN are few compared to what China has planned.

There is the India-Myanmar-Thailand highway. Morever, Indian projects are moving at a snail's pace, whereas China's BRI projects have begun yielding results in some areas, attracting other LDCs and developing economies to the BRI.

The political landscape in ASEAN and India, the competing manufacturing and service industries, trade protectionism in the region will continue to be obstacles to growth in trade in the region.

2017: A bad year for major South Asian connectivity projects

And India will continue to compete with China in South and Southeast Asia. For giant infrastructure projects in South Asia and beyond, a number of setbacks blighted their progress in the second half of 2017.

The major reason has been the continued bickering between India and China to establish dominance, especially in the South Asian region.

Ironically, every country suffered from the overwhelmingly negative mindset of its neighbours. India's indifference effectively stalled the progress of the Bangladesh China India Myanmar (BCIM) Economic Corridor. China retaliated by persuading Myanmar to temporarily halt work on the Asian Highway Project, backed by the Asian Development Bank (ADB).

The India-sponsored Bangladesh Bhutan India Nepal (BBIN) Motor Vehicle agreement eventually got off the ground without Thimpu's participation.

As for the ambitious China Pakistan Economic Corridor (CPEC) project, difficulties just do not seem to end. bservers point out that while economic interests of China and India are suffering in the short-term, countries like Bangladesh, Nepal, Myanmar, Thailand and Malaysia too, cannot escape the long-term negative consequences either.

It has been reported how the promising South Asian Highway development project, which sought to link India's Moreh town with a Thailand border town running through Myanmar, was stalled. Myanmar authorities, who had earlier agreed to participate, suddenly backed off, explaining that they needed to re-examine the economic benefits and other issues relating to the project.

The ADB had announced its financial help for the project, which would have continued the traffic link-up from Thailand to Malaysia after completing the connectivity between India and Myanmar.

Delhi-based observers feel this was China's counter to India for its non co-operation on the BCIM corridor. The Chinese saw in the Asian Highway development project a strategic regional effort to forestall the economic prospects of the BCIM corridor itself, according to some reports.

It has been suggested that for Myanmar and its neighbours, there could be a sense of déjà vu about this. The Burmese have been long used to living without international economic or other co-operation, having been subjected to economic sanctions until recently.

A further similarity with the past is that then as now, China had remained Myanmar's main support. However, this does not bode well for either India or Bangladesh, the direct victims, of negative political developments beyond borders in Myanmar.

As for the glitch within the BBIN - reduced to BIN for all practical purposes - Indian policymakers can certainly be faulted for not having done their due diligence and preparatory exercises properly. They should have sensed and assessed Bhutan's environmental concerns, the fear of its small population and the consequences of the massive movement of people and goods on the fragile Bhutanese tourism infrastructure, before going public with BBIN. However, BIN has not failed either. Arrangements have been made for road (bus services) linkage for Bangladesh through Indian territories to Nepal for passengers and goods.

Between India and Bangladesh again, Dhaka has been linked to Agartala, Guwahati and Shillong, while a proposal to connect Chittagong with Kolkata is under review. Kolkata is already linked with Dhaka and Khulna. Facilities for Nepal to use the Chittagong and Mongla ports more and also for Bangladesh to access South Indian states (such as Andhra Pradesh) by road/rail and other means have been agreed upon. As for the CPEC, not unexpectedly, concern within Pakistan is mounting over certain aspects of the most ambitious infrastructure project in Asia, both in terms of its reach and eventual cost estimated in the region of US$ 50-58 billion by 2030. Analysts suggest that China appears keener on implementing certain projects that would bring it immediate economic benefits, instead of more long-term projects.

With this objective in view, China recently proposed to put on the back burner two major road projects in Baluchistan - a 210km Dera Ismail Khan artery, and the 110km Khuzdar-Basima route. The proposed highway construction at Karakoram too was delayed on account of local tribal protests.

Furthermore, negotiations were held between Chinese and Pakistani authorities over the implementation of railway projects for Karachi and the nearby industrial zone. China suggested that Pakistan make use of commercial loans from Chinese banks for these projects, even though they formed part of the overall CPEC scheme.

There was even a suggestion that Pakistan use the Yuan instead of the US dollar in these and other bilateral dealings. China has indicated it would avoid "overstretching" while carrying out CPEC projects, prioritizing the most important projects.