The prospects.

This paper analyzes recent trends in merchandise trade, services, investments, and manpower flows between India and ASEAN, and assesses future prospects for economic cooperation. Since India’s Look-East policy initiated in the early 1990s, there has been steady progress in economic cooperation and supporting institutional structures between India and ASEAN. There has also been a welcome diversification of India’s trade with ASEAN both in terms of the share of individual members in total trade, and goods and services being traded. The analysis in the paper is consistent with the view that India’s economic structure is largely complementary to ASEAN economies, and therefore there are significant opportunities for mutual gain. In Indian policy and business circles, ASEAN continues to be regarded as an economically important region. The paper however argues that a mindset change is needed among ASEAN policy makers and businesses before potential for mutual gains can be fully tapped. The paper concludes with specific suggestions for expanding cooperation between India and ASEAN countries. Introduction In the post-Cold War period, and particularly since the latter part of the 1990s, India’s relations with all the major powers, especially the US, have shown considerable improvement. There is now greater mutual understanding of inter1 We would like to thank Anantha Nageswaran, Prema-chandra Athukorala, Kripa Sridharan and Sadhana Srivastava for useful comments and suggestions. Thanks are also due to Amarendy Nandy and Arathi Jayaram for excellent research assistance. The usual disclaimer applies. * Fellow, Institute of Southeast Asian Studies (ISEAS), Singapore. E-mail: rahul@iseas.edu. sg (corresponding author). ** Professor, Public Policy Programme, National University of Singapore (NUS), Singapore. E-mail: mppasher@nus.edu. sg. *** Visiting Freeman Scholar, Claremont McKenna College, California. Email: ramkishen.rajan@adelaide.edu. au. linkages between economic, security and strategic interests of India on the one hand and major powers on the other. There are also hopeful signs that economic imperatives are gradually becoming much more important in driving relations on the Indian sub-continent, including between India and Pakistan (Solomon, 2004). As India demonstrates its economic and technological capacities to compete in the 21 century, it is becoming an important player in shaping the future political and security environment in Asia. Resilience and stability of India’s political and other institutions, and harmony between its decentralized economic and political arrangements also have the potential to contribute to India’s competitive strength. Following the initiation of economic reforms in India in 1991, India’s annual growth rate has averaged 5.9 per cent during the 1992-93 to 2002-03 period. Notwithstanding some concerns about the large fiscal deficit (especially in the states), India represents a compelling macroeconomic story, with potential to sustain high economic growth rates. Some analysts are perhaps over-optimistic in projecting the emergence of India as the third largest economy in 2003 dollars by the year 2050, only behind China and the US (Morgan Stanley, 2003; Wilson and Purushothaman, 2003). India needs to grow at a nominal rate of only 7.4 per cent (real rate of 3.4 percent assuming inflation rate of 4 percent per annum) to become a trillion dollar economy by the end of this decade. (Financial Times, 2004). As India’s nominal GDP growth in recent years has been in the range of 9 per cent to 12 per cent, this should not pose a formidable challenge. India’s domestic-led development is considered to be sustainable, spawning several globally competitive firms (Khanna and Huang, 2003). A consequence of India’s liberalization and rapid growth is the growing involvement of Indian companies abroad (Goswami, 2003; Merchant, 2004; Ramakrishnan, 2004). This has expanded India’s capacity to pursue its “Look East” Policy initiated in the early 1990s with vigour (Sridharan, 1996). The scope and density of relations between India and the ten-member ASEAN (Association of Southeast Asian Nations) has been steadily rising. India became a sectoral dialogue partner of ASEAN in 1992. The sectors were trade, investment, tourism and science and technology. Mutual interest in wider engagement led ASEAN to invite India to become a full dialogue partner of ASEAN during the Fifth ASEAN Summit in Bangkok in December 1995 (ASEAN Secretariat, 1995) and a member of the ASEAN Regional Forum (ARF) in July 1996. An important milestone was achieved with the hosting of the first ASEANIndia summit in Phnom Penh, Cambodia in November 2002. This came about through a confluence of factors. One, there were strong signals from Indian leaders of the desire to fortify relations with ASEAN via a series of bilateral visits by Indian leaders to many ASEAN members. Two, ASEAN leaders have recognized the need to actively engage India so as to develop a more balanced relationship with all of the major Asian economies, particularly as China is also pursuing an FDI-led, labour intensive manufacturing exports strategy (Goodman, 2004). Three, there is a growing body of literature suggesting that India’s economic structure is largely complementary (service-oriented) to ASEAN economies (light manufacturing) with significant areas of mutual gain (Asher et al., 2003; Gaur, 2003; Kumar, 2002; Bhattacharya and Ariff, 2002). A framework agreement for the creation of a free trade area (FTA) with Thailand was signed in October 2003. Under this agreement, 84 items can be imported from Thailand from April 2004 at 50 per cent of the normal rate of duty prevailing in India. India has been engaged in negotiations to form a Comprehensive Economic Cooperation Agreement (CECA) with Singapore. Sub-regional cooperation between India and some of the ASEAN members such as Vietnam, Thailand, Myanmar, and Laos has also accelerated (Gaur, 2003; Suryanarayana, 2003). These include the Mekong-Ganga Cooperation (MGC) and the BIMST-EC (Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Cooperation). India is also an active participant in Thailand’s initiative, Asian Cooperation Dialogue (ACD), which has representation from all parts of Asia. India has contributed US$ 1 billion to another initiative by Thailand on the Asian Bond Fund (ABF) (Rajan, 2004). India views the above groupings as consistent with strengthening its ties with ASEAN as a whole. India is considering FTAs with other entities as well. For instance, India and China are exploring the feasibility of an India-China bilateral FTA. India has also signed a framework agreement for a FTA with the Mercosur grouping, involving the Latin American countries (Sengupta, 2003). The recent bilateral and sub-regional efforts to strengthen economic relations are being complemented through an effort by India to intensify its economic relations with ASEAN as an overall regional grouping. Thus, a Framework