Roll No. 100
PGDBA 2nd Semester (2005-2007)
Jaipuria Institute of Management
“I reiterate India’s commitment to work with ASEAN and other East Asian countries to make the 21st century truly an Asian century”
– Prime Minister Manmohan Singh
With the participation of India in the recently held East Asian Summit and from the level of interaction in the 4th India-ASEAN Summit, both held at Kuala Lumpur from 12-14 December 2005, it is seen that the Look-East policy is being pursued aggressively and has started yielding results on the economic and political fields. This policy which was primarily directed towards improving relations with ASEAN will now be enlarged to cover other nations of the region such as China, Japan and Korea to facilitate more political and economic integration.
Look-east policy was launched in 1992 just after the end of the cold war, following the collapse of the Soviet Union. After the start of liberalization, it was a very strategic policy decision taken by the government in the foreign policy. To quote Prime Minister Manmohan Singh “it was also a strategic shift in India’s vision of the world and India’s place in the evolving global economy”.
The policy was given an initial thrust with the then Prime Minister Narasimha Rao visiting China, Japan, South Korea, Vietnam and Singapore and India becoming a important dialogue partner with ASEAN in 1992. Since the beginning of this century, India has given a big push to this policy by becoming a summit level partner of ASEAN (2002) and getting involved in some regional initiatives such as the BIMSTEC and the Ganga Mekong Cooperation and now becoming a member of the East Asia Summit (EAS) in December, 2005.
India – ASEAN
India’s interaction with ASEAN in the cold war era was very limited. India declined to get associated with ASEAN in the 1960s when full membership was offered even before the grouping was formed.
It is only with the formulation of the Look-East policy in the last decade (1992), India had started giving this region due importance in the foreign policy. India became a sectoral dialogue partner with ASEAN in 1992, a full dialogue partner in 1995, a member of the ASEAN Regional Forum (ARF) in 1996, and a summit level partner (on par with China, Japan and Korea) in 2002.
The first India-ASEAN Business Summit was held at New Delhi in October 2002. The then Prime Minister A.B. Vajpayee addressed this meet and since then this business summit has become an annual feature before the India-ASEAN Summits, as a forum for networking and exchange of business experiences between policy makers and business leaders from ASEAN and India.
Four India-ASEAN Summits, first in 2002 at Phnom Penh (Cambodia), second in 2003 at Bali (Indonesia), third in 2004 at Vientiane (Laos) and the fourth in 2005 at Kuala Lumpur (Malaysia), have taken place till date.
The following agreements have been entered into with ASEAN:
Framework Agreement on Comprehensive Economic Cooperation (for establishing a FTA in a time frame of 10 years) was concluded in Bali in 2003.
An ASEAN-India Joint Declaration for Cooperation to Combat International Terrorism has been adopted.
India has acceded to the Treaty of Amity and Cooperation (TAC) in 2003, on which ASEAN was formed initially (in 1967).
Agreement on “India-ASEAN Partnership for Peace, Progress and Shared Prosperity” was signed at the 3rd ASEAN-India Summit in Nov 2004.
Setting up of Entrepreneurship Development Centres in ASEAN member states – Cambodia, Myanmar, Laos and Vietnam. (The one in Laos is already functional)
The following proposals were announced by the Prime Minister at the 4th ASEAN-India Summit:
Setting up centres for English Language Training (ELT) in Cambodia, Laos, Myanmar and Vietnam.
Setting up a tele-medicine and tele-education network for Cambodia, Myanmar, Laos and Vietnam.
Organising special training courses for diplomats from ASEAN countries.
Organising an India-ASEAN Technology Summit in 2006.
Organising education fairs and road shows in ASEAN countries.
Conducting an India-ASEAN IT Ministerial and Industry Forum in 2006.
The ASEAN region has an abundance of natural resources and significant technological skills. These provide a natural base for the integration between ASEAN and India in both trade and investment. The present level of bilateral trade with ASEAN of nearly US $ 18 billion is reportedly increasing by about 25 % per year. India hopes to reach the level of US $ 30 billion by 2007. India is also improving its relations with the help of other policy decisions like offers of lines of credit, better connectivity through air (open skies policy), rail and road links.
Improving relation with the countries in Asia according to the policy
Thailand. The first Framework Agreement for a bilateral FTA (with an ASEAN nation) was signed with Thailand in October 2003. Under this agreement, the commencement of FTA in Services and Investments will be in 2006 and in Goods from 2010. Some Memorandums of Understanding were also signed in October 2003, on tourism, agriculture and cooperation in bio-technology. A Joint Working Group is also in place for information and intelligence sharing on terrorism.
Malaysia. India is Malaysia’s largest trading partner among countries in the south, excluding China and the ASEAN, with the bilateral trade valued at US $ 4.29 billion in 2004. Indian public sector undertakings such as BHEL and IRCON have undertaken and successfully completed a number of projects in Malaysia. There are 57 Indian joint ventures in Malaysia in the fields of palm oil refining, power, railways, civil construction, training and information technology.
During the visit of Prime Minister Manmohan Singh in December 2004, India and Malaysia agreed to initiate a Comprehensive Economic Cooperation Agreement (CECA). 12 agreement/MOUs were also signed covering wide ranging cooperation in satellite technology, biotechnology, information technology, infrastructure and education.
Indonesia. During the visit of the Indonesian President, Susilo Bambang Yudhoyono, to India in November 2005, Indonesia and India agreed to establish a “strategic partnership” based on shared values and commitment to democracy and aimed at broad based development of relations in the political, security, economic, commercial, cultural and science and technology fields. Three MOUs were signed- one on marine and fisheries cooperation, one on establishment of Joint Study Group for CECA and one on training cooperation for training of diplomats.
India has many joint ventures in Indonesia since the 1970s. The bilateral trade currently at around US $ 4 billion will be tripled to US $ 15 billion in the next five years. Indonesia was insistent on the inclusion of India into East Asia Summit and had supported India at the other forums like WTO and OIC.
Myanmar. Myanmar is the only ASEAN country with which India shares both land and maritime boundaries. Hence Myanmar has to be accorded a special position in its foreign policy, especially in view of India’s strategic and security concerns. Consequent to visit of Senior General Than Shwe, Chairman SPDC,to India in 2004, the bilateral relations are at an all time high.
India has extended a number of general and project-specific credit lines to Myanmar in the last few years. A number of agreements and MOUs, including the Tripartite Maritime Agreement between India, Myanmar and Thailand, the Border Trade Agreement and an agreement on Cooperation between Civilian Border Authorities, have been signed. Indian companies are involved in oil and gas exploration in Myanmar. A feasibility study has been undertaken for a rail link between India and Myanmar.
India had upgraded the 160 km long Tamu-Kalewa-Kalemyo highway in 2001 and will be maintaining it for the next six years. There is an ongoing project for construction of a trilateral highway from Moreh in India to Mae Sot in Thailand to Bagan in Myanmar, the progress of which is being reviewed regularly by the foreign ministers of the three nations. True to Myanamar’s assurances, it has been launching operations against the Indian rebel groups such as NSCN (K) camping in its soil.
Singapore. Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore was signed on 29 June 2005 during the visit of Singapore Prime Minister to India. This agreement which came into effect on 01 August 2005, includes a bilateral investment promotion treaty, a double taxation avoidance agreement and an air services agreement in addition to an FTA. It may be recalled that it was Singapore that paved the way of India’s association with ARF. Lee had also supported India’s bid for a permanent seat in the UN Security Council. Singapore along with Indonesia had also supported India’s entry in to the East Asian Summit.
Cambodia, Laos and Vietnam
These three economically under developed countries of this region, in comparison to the rest of ASEAN, have enough scope and opportunity for India to extend its influence and reap the benefits.
Since 1981, when India recognized the Hang Samrin regime, India had cordial relations with Cambodia. India has entered into a number of bilateral treaties and agreements for cooperation in the fields of trade, science & technology, agriculture, tourism, air services and visa exemption. India has some major projects in the areas of education, entrepreneurship development and information technology. India has helped Cambodia in a big way through the ITEC programme.
India and Laos have signed a number of agreements and MOUs in the fields of culture, cooperation in defense, cooperation in science & technology, agricultural cooperation, drugs and illicit trafficking, and exemption of visas for diplomats and officials. India has also set up and Entrepreneurial Development Centre in Laos and will be setting up an Information Technology Centre shortly.
India has a number of bilateral treaties and agreements with Vietnam in the areas of Consular relations, Avoidance of Double Taxation, Narcotics, Science & Technology and Culture. Since 1976, India has extended 14 lines of credit amounting to Rupees 3,610 million to Vietnam. Another credit line of US $ 27 million to Vietnam was signed in August 2004 between Exim Bank of India and Ministry of Finance, Vietnam. India is also helping Vietnam in setting up an Advanced Resource Centre in IT in Hanoi and HRD in the field of IT in six educational institutions in Vietnam.
India has also proposed in the 4th India-ASEAN Summit at Kuala Lumpur in 2005 to set up Centers for English Language Training, tele-medicine and tele-education centers in these three states.
The China Factor: India getting preference over china
China is virtually dominating this region. By the ASEAN-China Accord entered into in November 2004 (during the 10th ASEAN Summit in Vientiane), the world’s biggest free trade area has been created removing all tariffs. The tariff cuts that began in 2005 will be completed by 2010 drawing the ASEAN’s combined economies of US $ 1 trillion closer to China’s US $ 1.4 trillion.
In the Cold war era, India perceived China as dangerous country because of its high military expenditure and ambitious plans in this field. But now the image of China has changed and now is seen as an economic powerhouse. To gain confidence and to build trust among the Asian countries Chinese Premier Wen Jiabao, said in a speech during the last ASEAN Summit that “China will continue to seek peace and development through cooperation and will strive to achieve development that will bring about peace, openness, cooperation and harmony as well as benefit to itself and other countries”.
Despite the remarks of the Chinese Premier some analysts are of the opinion that China preferred a smaller Asian grouping (without U.S., India, Australia and New Zealand) that can integrate quickly on the economic front and which China can influence more significantly. Perhaps it is this increasing influence of China and its motives that had prompted countries like Singapore and Indonesia to cooperate with India, Australia and New Zealand into the EAS.
Hence India must be aware that it has not been invited to EAS because of its rising economic potential alone but more as a balancing force to offset the China factor. Although it is being said that India and China are not rivals and they can complement rather than compete in the EAS.
Advantages of the policy
* 1991 was a turning point in India’s economic relations due to its new Look east policy. Before 1990 India’s main focus was on the Soviet Union because of which ties with the other major Asian powers like China and Japan were not strong. India’s inward-looking orientation disconnected it from the neighborhood to the East, kept it apart from the economic growth of East Asia. By the turn of the 1990s, India had totally marginalized itself. The first phase of the Look East policy launched by the Narasimha Rao Government in the early 1990s focused on renewing contact with a region that India had drifted away from.
* The Look-East policy has been given a significant thrust since the beginning of this century and the results achieved are evident as mentioned in the report. Now India has entered into the phase two of this policy. The second phase in India’s Look East policy has a new dimension — the development of India’s remote northeast. India’s search for a new economic relationship with South East Asia is no longer driven by considerations of globalization, but to facilitate development of the Northeast by increasing its connectivity to the outside world. Instead of trying to isolate the Northeast from external influences, as it had done in the past, New Delhi is now recognizing the importance of opening it up for commercial linkages with South East Asia.
* Increased economic integration with Asia has helped India because the core competencies of these economies are different. So India can import the goods from other countries which can be produced by other countries at a lower cost then India. India can export those goods for which India has a competitive advantage. This arrangement is mutually beneficiation for India and East Asia countries .Due to this there is a Substantial potential of Asian Economic Integration in helping Asia resume a high growth path.
East Asia’s Strengths India’s Strengths
1) Electronic equipment Computer Software
2) Heavy engineering Light engineering and pharmaceuticals
3) Product development and marketing Process development
4) Underutilized capacity in construction Huge potential demand
* Look east policy has helped India in strengthening its place in the global economy and gets a better deal in its interactions outside the region. America and European countries had entered into a lot of different mutual agreement which has further increased their reputation and bargaining power. India was in danger of isolation in the global economy. India was not getting its due importance. But due to its Look east policy India economy is getting integrated with the Asian economy, so India gets support from Asian countries which have increased India’s importance at global level.
Short comings in the policy
* The Look East policy did not find Japan on its radar and failed to improve India’s economic ties with it. Trade with Japan actually declined dramatically dropping its share to one-third of its level of 7 per cent in 1993. One of the causes, of course, was the fact that the Japanese economy was stagnate during this period. But still it is difficult to explain the reason behind this dramatic drop. This was the biggest failure of Look east policy. Failure to involve Japan and a build economic relationship with it also resulted in closing the doors on Japanese foreign direct investment (FDI).
India missed out on Japanese FDI in the in the early 1990’s because of its policies that discouraged FDI. Following the reforms, however, the dedicated policy instruments of Look East policy should have succeeded in attracting Japanese FDI to India but that did not happaned. During 1993-2003, Japan’s global FDI averaged at $ 50 billion a year, of which India received $ 220 million a year or less than one-fourth of 1 per cent! Even at the regional level, India received just 2 per cent of Japanese FDI. (China’s share was 10 times higher at 22 per cent).But now the situation is getting better and trade with Japan is increasing.
* India has entered into a number of pacts, agreements and FTAs but its record for implementation of such accords has been poor as can be seen from the follow up of the Indo-Thai FTA and CECA with Singapore.
The reason for poor implementation of the pacts, agreements and FTAs
* The Indian industry’s doubts about its competitive efficiency.
* Indian industry does not want competition at home
* Indian industry scared of cheaper exports to India from these countries.
India should go ahead with proper implementation of the pacts, agreements and FTAs without bothering about the aforementioned factors. The Indian industry will ensure that India will always gain from these arrangements.
Suggested future framework
* The rise of China’s economic potential and the resultant influence on this region should not deter India, as the region is looking for an alternative in India because of its fair practices and peace loving nature. India is preferred over China by many countries because India is democratic country. However India has to set its house in order and go ahead with its economic reforms, liberalization process and infrastructure development to gain the confidence of this region, which at present is not all that high. Economic reforms and liberalization process is being negatively affected by the left parties which is supporting the government.
* Each nation has its own characteristics – some are supportive of India, some are predominantly Muslim, some are economically more developed then India, some are underdeveloped and one is a close neighbor influencing the security of India. Hence India should tailor the bilateral relations with every country in different way to suit the requirements of that particular country and that of India.
* ASEAN and EAS hold great promise for India. Adequate interaction with these groupings will result in better integration with this region and facilitate India economic development. Indian businesses which are looking to go global will get huge markets in other countries. They will be able to export their goods and get a market share because of low tariffs due to the pacts, agreements and FTAs. Although foreign companies will also get this advantage but Indian companies will be able to compete with these because of their competitiveness.
* CMI and emerging FTAs / RTAs between Asian countries provide foundations for a broader and more ambitious initiative to take the existing India-ASEAN relationship to a higher level, like an Asian Economic Community, which constitutes ASEAN, China, Japan, Korea and India as member countries. Such a community would be roughly the size of the European Union in terms of income, and bigger than NAFTA in terms of trade. It would account for half the world’s population and it would hold foreign exchange reserves exceeding those of the EU and NAFTA put together. This can give a greater push to Indian growth.
Roll No. 100
PGDBA 2nd Semester (2005-2007)
Jaipuria Institute of Management
Source : E-mail March 1, 2006