India's grand Eastern u-turn

Last Updated: Wed, Oct 30, 2013 10:22 hrs

The summit commemorating the 20th anniversary of India's "partnership" with the Association of Southeast Asian Nations, or Asean, was held in New Delhi on December 20 and 21. Unusually for an occasion where so many heads of government arrived, it was kept low-key; this is all the more remarkable because its centrepiece was agreements for free trade in services and for investment. This comes – as the leaders of the Philippines and Vietnam pointed out in their speeches – when many countries in Southeast Asia are growing increasingly concerned about the sheer scale of Chinese influence in their region, and it thus has implications that go well beyond the domain of economics. As the culmination of a sustained focus on India's "Look East" policy steered by Prime Minister Manmohan Singh, it is a triumph for both foreign policy management and for reformist, open economics.

Of course, the economic implications are in themselves considerable. The agreement between India and Asean for free trade in goods, which went into force in 2009, meant that India-Asean trade was worth $80 billion in 2011 — as opposed to $47 billion in 2008, just before the agreement. However, given the competitive advantage that Southeast Asian nations possess in manufacturing thanks to India's poor infrastructure and restrictive labour laws, gains to Indian producers have not precisely been commensurate with the gains made by Indian consumers from cheaper goods. This hierarchy of competitiveness reverses in services, and thus the free-trade agreement in services is welcome. The investment treaty, too, will have wide consequences. Indeed, several countries in Southeast Asia are rushing to boost their non-banking financial sectors in anticipation of competition from Indian providers. The attempt is to raise India-Asean trade by $20 billion in two years. The total, $100 billion, will still be less than 30 per cent of the region's trade with China, but will nevertheless represent a substantial degree of interconnectedness. When put together with the reintegration of Myanmar with the international community, a process that is moving at some speed, and extensive investments in connective infrastructure in Thailand, Myanmar and even in India's own northeast, talk of a Regional Comprehensive Economic Partnership – a vast free-trade zone from Delhi to Jakarta – or the "Mekong-India Economic Corridor" might no longer be fanciful summit speak. The political leaders who control India's northeast and its east-facing port of Kolkata must be in the forefront of efforts to make this happen.

Twenty years ago, Asean's view of India was not positive. That matters have transformed themselves so radically is partly a tribute to the leadership of Singapore, which kept pressing India's case; partly to the emphasis given by Dr Singh in recent years to regional trade; and is partly, it cannot be denied, a result of the phenomenal growth of China. Dr Singh at the summit said that these agreements should be seen "not merely as a reaffirmation of ties with neighbouring countries or as an instrument of economic development, but also as an integral part of our vision of a stable, secure and prosperous Asia and its surrounding Indian Ocean and Pacific regions". The strategic reasons for increasing regional trade could not be clearer.

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