ASEAN relation with India

India is one of the fastest growing economies of the world and is currently the focus of a great deal of international attention. It is the seventh largest country in the world in terms of its geographical size. India has a large and diverse agriculture and is one of the world’s leading producers. India is the third largest economy in Asia after Japan and China, as measured in terms of its Gross Domestic Product (GDP) and it is continuing to grow rapidly. The Indian economy has seen high growth rates of more than 8% since 2003. In 2005 and 2006 GDP grew at a rate of over 9%. Globally India’s growth is surpassed only by that of China (Map, 2007).

Following the initiation of economic reforms in India in 1991, India’s annual growth rate has averaged 5.9 % during the 1992-93 to 2002-03 periods.

India’s domestic-led development is considered to be sustainable, spawning several globally competitive firms (Khanna, 2003). A consequence of India’s liberalization and rapid growth is the growing involvement of Indian companies abroad . This has

67

expanded India’s capacity to pursue its “Look East” Policy initiated in the early 1990s with vigor . Until the early 2000s, India and the Southeast Asian countries were not significant trade partners for each other except for Singapore. This has been fundamentally due to the fact that all the bigger Southeast Asian economies had been following a foreign direct investment (FDI)-driven export-led growth strategy since the mid-1980s .

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 ASEAN‐India cooperation covers a wide area which includes Trade in goods, Trade & Investment, Science & Technology, Tourism, Human Resource Development, Transport &

Infrastructure and Health & Pharmaceuticals. The negotiation also covered Rules of Origin; treatment of out‐of‐quota rates; modifications to be taken up as per WTO Agreements and NTBs. The Framework Agreement for trade in goods, which was the basis of trade negotiations, envisaged a substantial reduction in applied tariff rates and non‐tariff barriers. Mutual interest in wider engagement led ASEAN to invite India to become a full dialogue partner of ASEAN in 1995 and a member of the ASEAN Regional Forum (ARF) in July 1996.

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 Agreement on establishing a Free Trade Area (FTA) between ASEAN

68

and India was signed in October 2003. India’s economic relations with the member countries of the Association of Southeast Asian Nations (ASEAN) are set to undergo major changes as the ASEAN-India Free Trade Agreement (AIFTA) has come into force since 1 January 2010.

The rising trend of merchandise exports from India to ASEAN has been accompanied by a shift in the share of individual countries in India’s total exports to ASEAN during this period. With the exception of Singapore, the share of all other ASEAN member countries in India’s exports rose during the 1991-02 period, with a five-fold increase in the share of India’s exports to Vietnam. However, Singapore has continued to remain the largest market in ASEAN for India’s merchandise exports, followed by Malaysia, Thailand, Indonesia, and the Philippines .

Even though ASEAN has maintained a trade surplus with India until 2006, the same has turned negative in 2008. The trade balance which was 4.6 US billion in 2000 decreased to 1.5 billion in 2006. At the same time, India’s trade deficit with ASEAN also reduced during this period. Thus, the terms of trade improved for India as is reflected in the export/import ratio. In terms of bilateral trade flows of ASEAN member countries, the countries that have trade surplus with India are: Indonesia, Malaysia and Singapore. And, countries that have a trade deficit with India are:

Vietnam, Philippines and Thailand. As a share of India’s total agricultural exports, ASEAN which accounted for 9.7 percent in 2000 increased to 15.2 percent in 2008.

Similarly, ASEAN’s share has also been rising in India’s agricultural imports – from 11.2 percent in 2000 to 37.9 percent in 2008. Thus, ASEAN has emerged as an important trading partner for India in agricultural products. But from ASEAN’s

69

perspective, India is not an important export market. India’s share in ASEAN’s agricultural exports and imports was about 5 percent in 2008 (Raju,2010).

ASEAN-India trade totaled US$39.1 billion in 2009. The Trade in Goods (TIG) provides for a progressive tariff reduction and/or elimination of originating goods (subject to compliance with the rules of origin) traded for the ten ASEAN Member States and India. Under the Normal Track, tariffs imposed by Brunei Darussalam, Indonesia, Malaysia, Singapore and Thailand and India will be eliminated by 2016. Tariffs imposed between the Philippines and India under the Normal Track will only be eliminated by 2019. Meanwhile, a longer time frame is given for Cambodia, Lao PDR, Myanmar and Viet Nam (CLMV) to eliminate tariffs of goods under the Normal Track .

ASEAN and India are also working on enhancing private sector engagement, including the re-activation of the ASEAN-India Business Council (AIBC), the holding of the first ASEAN-India Business Summit (AIBS) and an ASEAN-India Business Fair (AIBF) held in New Delhi on 2-6 March 2011. The events were part of the efforts to stimulate trade and business-to-business interaction.