India’s free trade agreement with the 10-member Association of Southeast Asian Nations (Asean), which kicked off two years ago, is an integral part of the country’s Look East policy of integrating with a wider pan-Asian economic community encompassing China, Japan, Korea and India. At a time when the World Trade Organisation trade talks are going nowhere, the effort to put in place a regional bloc rivalling the European Union in terms of income and the North American Free Trade Area in trade commends itself. Although a substantial market for trade and foreign direct investment (FDI) has opened up, physical connectivity issues remain to be addressed.
This free trade agreement (FTA) has so far triggered a boom in bilateral trade that can easily cross $80 billion by 2011-12, up from $58 billion in 2010-11. India’s trade with Asean constitutes only 9.6 per cent of its global trade while Asean’s trade with India is only 2.5 per cent of its global trade — pointing to a huge upside trade potential that can be tapped with the FTA. On the FDI front, Indian business is beginning to show greater confidence in leveraging the business potential of a $1.5 trillion entity in investing in important member countries like Singapore in a big way. This drive has also extended to Vietnam.
Recently, two seminars were held on India’s engagement with Asean members Vietnam and Myanmar, organised by the Global India Foundation in collaboration with MAKAIAS (Kolkata), IFPS, University of Calcutta and Gamesa (India). The year 2007 marked a turning point with the steel projects of the Tatas and Essar in Vietnam. India’s FDI touched $500 million up to September 2011. At present, it has 52 investment projects with a registered capital of $220 million, noted Professor Ngo Xuan Binh, director-general, Institute of Indian and Southwest Asian Studies in Hanoi, Vietnam.
However, this effort of making the best of the Indo-Asean FTA and working towards a larger community encompassing Asean, China, Japan, Korea, India, Australia and New Zealand will not come to fruition unless there is connectivity. Without connectivity, pan-Asian integration will not be realised and will remain utopian. Unless India is linked with the region through road, rail, air and shipping services, freer trade with Asia will be sub-optimal. China’s trade with Asean is already four times India’s. If India wants to ramp up trade with the region to $80 billion plus by 2011-12, connectivity is crucial.
India recognises this problem and is, therefore, involving Asean in its north-east region, where Southeast Asia really begins. Connectivity with Thailand entails establishing road, rail and other linkages traversing Bangladesh and Myanmar. India has proposed to Myanmar that it will rebuild the Sittwe Port and make the Kaladan River navigable to provide an alternative access into Mizoram and the north-east region. The latter region could, therefore, be integrated with the rest of Southeast Asia. Participating in China’s Kunming initiative – which integrates Yunnan Province, Myanmar, north-east India and Bangladesh – is also a worthwhile initiative towards improving connectivity.
Unfortunately, however, progress on the ground is limited. Take, for instance, India’s north-east region that borders Myanmar. At the seminar, speaker after speaker noted the abysmal lack of surface transport infrastructure for border trade. While this has so far proved to be a failure, border trade between Myanmar, China and Thailand is flourishing. According to Dr C Joshua Thomas, acting director, ICSSR-Northeast Regional Council, Shillong, the reasons this has failed include the presence of many insurgent groups in Moreh, where border trade takes place with Myanmar.
During 2011, various pressure groups did not allow any movement of trucks on the highways to Moreh. Insecurity is rife among the non-local trading community. As if all of this weren’t bad enough, the legal system is poor. Corruption is rampant. Telecom services are poor. Also, there is lack of proper electricity supply in that border town. The way forward is to improve all these facilities so that the north-east indeed connects better with Myanmar and the rest of Southeast Asia. Moreh must be declared a dry port. There should be fewer checkposts. Besides, visa-free travel to Myanmar must be permitted.
The absence of connectivity also impacts closer business and people-to-people relations between India and Vietnam. There are no direct flights between the two countries to date. Although both nations are close in terms of geography, it takes 10 to 24 hours to travel from Hanoi to Delhi, due to stopovers in either Thailand or Malaysia.
Apart from this, strong historical maritime relations – responsible for our 2,000 years of engagement with Asia – must be revived. Sanjaya Baru, former Business Standard editor, has argued that historically Hyderabad/Golconda had extensive trade relationships including with Asia; and that a more modern Hyderabad, with its software prowess, is now once again spreading its wings to the far corners of the city’s old geographical and business reach, notably from the Straits of Malacca to the Straits of Hormuz. Hyderabad could be an international hub with connectivity to Singapore and Asean. Reviving and strengthening sea communications with Asean is, therefore, imperative for India.
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