Look East Policy India

India Should Look Towards East

GROUP: 10

Soumya Saxena(91055) Stuti Gupta(91056) Sudhir Makkar(91057)Swagat Kumar(91058)Sweta Agarawal(91059)Varun Bansal(91060)

Our Group thinks :

Yes !!

Outline of the PresentationIntroduction

Review of literature

Evolution of Look east Policy

Factors driving LEP

Improving relations

Comparison between India and China

Different Trade Associations

Impact of LEP

Group’s views and issues to be resolved

Introduction

• Globalization: increase in trade, capital movements and investments and people across the borders

• 1991 (LPG applied): immense scope to redefine its relations with its neighbours, particularly ASEAN, via the Look East Policy.

• LEP’s philosophy: Economic interests are best served by greater integration with East and Southeast Asia

As Prime Minister Manmohan Singh said-

“ The Look East policy is not merely an external economic policy. It is also a strategic shift in India’s vision of the world and India’s place in the evolving global economy .”

Review of the Literature

Research Paper “ India Looks East- Strategies And Impacts” By: Dong Zhang, Asia Economic Section,

Australian Treasury, AusAID Public Affairs Group

Four broad Objectives of LEP Impacts of LEP Obstacles to India

• REFORM AND LIBERALISATION:• SUSTAINED RAPID GROWTH:• REGIONAL ECONOMIC INTEGRATION:. • EQUITY-BASED DEVELOPMENT:

Landlocked to land-linked, providing India with land routes to Burma, Thailand and other peninsular South-East Asian countries.

Objectives of LEP

Impacts of India looking eastNEW SOURCES OF GROWTH : India’s trade with East Asia is now 25 per centIMPACTS ON ECONOMIC REFORM AND LIBERALISATION : As India’s Prime Minister recalled in 2006:

When we first set the target of bringing India’s tariffs down to ‘ASEAN levels’, it was not just an exercise in tariff liberalisation but an attempt to benchmark our economic performance against some of the best performers in our neighbourhood.

(M Singh, ‘PM’s speech at the Asian corporate conference “Driving Global Business: India’s New Priorities, Asia’s New Realities”’, Mumbai, 18 March 2006http://pmindia.nic.in/speeches.htm)

IMPACTS ON INDIA’S SUBREGIONAL DEVELOPMENT STRATEGIESINDIA’S IMPACT ON THE FORMATION OF AN ASIAN ECONOMIC COMMUNITYEAST ASIA EMBRACING INDIA :country’s emerging status as an economic Superpowerhuge consumer marketIndia opened up more import channels to ASEAN member countries during the crisisSome ASEAN member countries have adopted a policy of ‘Look West’ to match India’s LEP. ASEAN and India have many areas of common interest, including information and communication technologies, public health, medicine, trade, investment and agriculture.

OBSTACLES TO INDIADifferent economic structures and degrees of openness

ASEAN economies more open Relying heavily on imports of raw materials Indian economy Relying more on domestic inputs.

Image problem ASEAN countries believe India hasIndian traders are perceived to be ticklish to deal with and its trade negotiators too tough. Images are not necessarily accurate, but they affect decision-making

For instance, Thailand thinks it is difficult to project its long-term economic relations with India, while India feels ASEAN is a lot closer to China than to India in terms of cultural affinity, managerial style and business operation.

The areas of co-operation between India and these countries include science and technology, biotechnology, financial services, information technology, human resources, education, transport and tourism.

Likelihood of India’s economic interaction with China, Japan and Korea which eventually would make it possible to forge an Asian Economic Community on the lines of European Union.

Research Paper:

“India and Globalization: Policy of look East and Beyond”

By : Sailaja Gullapalli, Indira Gandhi National Open University

Research paper

“ The Evolution of India–ASEAN Relations ”By - TAN TAI YONG and SEE CHAK MUN

During the Cold War Political distance that India consciously kept from the

newly formed ASEAN Bilateral relations with individual countries rather than

with the association as a whole.Now India’s trade : Risen from US$8 billion in 1990 to US$67.6

billion in 2005( 30 percent of India’s total external trade)Singapore and Malaysia : Two major contributors to

bilateral trade between India and ASEAN.

In contrast to China’s strategy of developing its backward regions through greater economic ties with ASEAN, India’s policy of strengthening its ties with eastern neighbours has been limited to counter insurgency efforts.

Research Paper

“ LOOK EAST, LOOK SOUTH: Backward Border Regions in India and China ” By : Sushil Khanna, IIM- Calcutta

Evolution of ‘The Look East Policy’

Narasimha Rao gave his Look East orientation to India’s external policy

Divided in to two phases:

Phase 1(1993-2002)

Phase 2(2003-now)

First phase: Focus on ASEAN (trade and investment linkages) • From a sectoral dialogue partner in March 1993 to a

Summit Level Partnership in 2002.

Second phase: (From 2003) Extending from Australia to East Asia, with ASEAN as

its core.• “Long Term Cooperative Partnership for Peace and

Prosperity” with ASEAN• Wider economic and security cooperation, political

partnerships, physical connectivity through road and rail links

Factors driving the Look East policy

• Need to counter China economically

( Source: http://www.chinability.com/FDI.htm )

• An emerging middle class( Source: http://www.dbresearch.com/PROD/DBR_INTERNET_EN-

PROD/PROD0000000000245808.pdf )

• Fear in a growing regional hegemony: the race to project naval power in South East Asian waters:

Improving relations due to LEP

• India and Singapore:• India and Australia:• India and Thailand• India and Malaysia• India and Indonesia• India and Myanmar• India and Cambodia, Laos and

Vietnam

LEP (Comparison between Phase 1 and 2)

1993-94

1994-95

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Total Import from Australia (in Crore)Total Exports to Australia (in Crore)

India and Aus-tralia

Source: Indiastat.com

1993-94

1994-95

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Total Import from Japan Total Export to Japan ( in Crore)

India and Japan

Source : Indiastat.com

Japan : A Shortcoming of LEP

Comparison of India and China regarding LEP

Source: Asia + India Trade Relations and Growth: Substantive Evidence and Implications for Regional Economic Integration Policy Note: X= Total Exports, IM= Total Imports, YCIN= India’s Annual Growth, YCCN= China’s Annual Growth

Findings:China: • China’s imports from East Asia (between

1990–94 and 2000–04) : Remained roughly same but its share of exports to East Asia dropped from 60.5% to 45.3%

• China is becoming the ‘assembly factory’ for East Asia, importing parts and components from that region and selling finished products to the rest of world.

India:• Despite India’s increasing trade relations with

East Asia, its exports and imports to East Asia account for only about one-quarter of its total trade

( Source: www.jef.or.jp/PDF/Report.doc.doc )

• India has not yet proved to be a major force in international manufacturing and it may choose to follow China’s model to attract foreign investment and beef up its manufacturing industry

Current distinction Between India and China

China as the ‘factory of the world’ and India as the ‘world’s back office’ in international trade

Different Associations

India and ASEAN

• Evolved relationship over the years

• The ASEAN–India Free Trade Area (AIFTA) is a free trade area among the ten member states of the ASEAN and India. The initial framework agreement was signed on 8 October 2003 in Bali, Indonesia.

• The free trade area came into effect on 1 January 2010

• Intra-ASEAN trade has increased from US$ 180.99 billion to US$543.37 billion in 2008—an average annual increase of 18.6 per cent.

( Source: http://www.eastasiaforum.org/2009/10/02/india-asean-fta/ )

• The India—ASEAN agreement may also strengthen the Indian economy by reflecting positively on its trade in goods. India—ASEAN trade was worth US$40 billion during 2007-08, about a quarter that of Japan, China or the EU’s trade volume with ASEAN.

( Source: http://www.eastasiaforum.org/2009/10/02/india-asean-fta/ )

=> Scope of improvement.

India and APEC• The region is likely to provide the main growth

springs in the global economy with over 40% of global trade and more than half of world production

• Unfortunately, India has been denied an entry into APEC ever since the latter’s creation. India has requested membership in APEC, and received initial support from the United States, Japan and Australia.

• Reason for Denying

ASEAN Economic Community (AEC)

• ASEAN has emphasised regional cooperation in the “three pillars” of security, socio-cultural and economic integration, aiming to create an ASEAN Economic Community (AEC) by 2015.

( Source: http://www.asil.org/aseanevent/Sim_Intro_to_ASEAN.pdf)

Advantages of the Look East Policy East Asia’s Strength• Electronic Equipment• Heavy Engineering• Product Development and Marketing• Underutilized capacity

India’s Strength• Computer Software (Information Technology)• Light Engineering and Pharmaceuticals• Process Development• Huge Potential Demand

India gets support from Asian countries which have increased India’s importance at global level.

Shortcomings in the Policy

• Failure to involve Japan and build economic relationship with it resulted in closing the doors on Japanese foreign direct investment.

• India received just 2 per cent of Japanese FDI (China's share was 10 times higher at 22 per cent)

Reasons for poor Implementation of FTA

• The Indian industry doubts about its competitive efficiency and it does not want competition at home.

• Cheap exports and costlier imports prevent Indian industries from these countries.

Current Scenario: 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.

Problems and Issues to be resolved for better trade

• Limited economic integration with East Asia

• Restrictive policies towards FDI

Such investment to India tends to concentrated in the service and IT sectors, which are often less capital intensive than the manufacturing sector.

• Different economic structures and degrees of openness

ASEAN economies more open Relying heavily on imports of raw materials

Indian economy Relying more on domestic inputs.

Mounting pressure from India’s business sector for protection has also tied the hands of Indian trade negotiators

• Inefficient bureaucratic processes

ASEAN feels confused by India’s political system of central and state governments.

Currently:

ASEAN now has insisted that any FTA signed with India should commit both its central government and its state governments

India has accepted this, although the effectiveness of its commitment is not yet tested and is questionable.

Group’s views

India has made itself a ‘member’ of the emerging Asian economic community but yet to become a significant market for most East Asian economies.

Need of the Hour

• Strong links with East Asia through a web of engagements at bilateral and regional levels.

• Proper implementation of FTA• Strong political will power and better cooperation between central and

state governments.• Further trial to become a member of APEC• Strengthening relationship with East- Asia neighbors ( China, Bhutan

etc.)

Strong links with East Asia through a web of engagements at bilateral and regional levels.

Source

o The bilateral trade between India and the ten-member ASEAN now stands at US$ 48 billion annually.

o Indo-ASEAN trade, which has been growing at a compounded annual growth rate (CAGR) of 27 per cent since 2000, stood at US$ 38.37 billion in 2007-08

o Need for further improvement.

http://www.ibef.org/india/indiaasean.aspx

Proper implementation of FTA

Source:

• India has Free Trade Agreement (FTA) with Thailand, Sri Lanka, South Korea

• Cooperation Agreement (CECA) with Singapore and Japan• India is a signatory to the Bangkok Agreement• Negotiations for a possible FTA with China and Australia are also on the

cards.

Recent: The India-ASEAN Free Trade Agreement was finally signed, on 13

August 2009 at Bangkok, after six years of negotiations : First multilateral agreement entered into by India.

http://www.cacci.org.tw/Journal/2008%20Vol%201/Modi-Speech.pdf

Strong political will power and better cooperation between central and state governments.

The case of POSCO : South Korean Steel giantSource:

After several rounds of discussions between POSCO and the Orissa Government, the MoU was finally signed, clearing the way for the largest foreign investment ever in India.

As per the MoU, Government of Orissa was supposed to recommend to the Central Government and facilitate granting of SEZ status as required by the company.

When POSCO requested grant of SEZ status, state government found it difficult to keep this promise, as the Centre did not seem to be too lenient with POSCO on SEZ.

http://www.icmrindia.org/CaseStudies/catalogue/Business%20Strategy3/BSTA130.htm

Further trial to become a member of APECSource:

• Western countries are behind moves to keep India out of an Asia-Pacific grouping because they are concerned that its entry would tip the balance of power towards Asia.

Source: • India should put forth two points while demanding

APEC membership:a) Strong demographic complementarities b) Ever growing strong economic linkages

http://afp.google.com/article/ALeqM5hZoirSNiHlYD3ZRa5JhKVsPbnKrA

India’s Membership: APEC’s Relevance by Mukul G. Asher and Rahul Sen

Strengthening relationship with East- Asia neighbors ( For ex. China )

2009 EXPORTS IMPORTS BALANCE

TRADE 128977.7 176537.0 -47539.4

US Trade with Mexico (NAFTA)

NOTE: All figures are in millions of U.S. dollarsSource: http://www.census.gov/foreign-trade/balance/c2010.html#2009

India trade with China While international trade has been growing at around 15% on an average, India-China trade has increased by more than 50% annually in the last five years. In 2008, China became India's largest trading partner and the bilateral trade between the two countries touched US$ 51.8 billion ( US $ 51800 million) Source: http://www.indiachina.org/trade_statistics.htm

Thank You !!!!