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Why India Needs to Look East?

, April 2, 2015, 1 Comments

India Needs to Look East MarketExpress-inMr Prime Minister, Narendra Modi, started his Make in India campaign amidst much fanfare. However, the idea is yet to take off. The perception is while the Central government is trying its bit to make India a better place to do business there are many concurrent issues that need to be solved at a sub-Central level.

Doing business in India still requires knowing rules pertaining to Central government, the state governments, the municipality, and all the rules therein. Internally, Indian policy makers should address domestic constraints affecting India’s trade competitiveness, and making it difficult to participate in the global production network.

In this aspect, India should take a lesson from its South-East Asian counterparts. Most of these countries are successfully able to implement Made in ASEAN. This became possible by participating in the South-East Asian production network. When a computer or cell phone is assembled, the constituent parts come from all across the South-East Asian region.

Notwithstanding the fact that ASEAN community is diverse, and private business in many ASEAN countries compete fiercely with each other and often lobby against the others, there are complementarities in the trading relation. The South-East Asian countries are able to make good use of these complementarities.

Complementarities exist in terms of trade in energy, consumer durables and food items. Consider this. Thailand is a major buyer of energy and food items from the ASEAN region. Laos has been supplying hydroelectric power to Malaysia and Thailand. Viet Nam has been supplying petroleum and petrol products to Thailand, Laos, and Cambodia.

The richer economies within the ASEAN region, such as Singapore, Indonesia, and Brunei Darussalam have demand for food, meat, and clothing – things which are supplied particularly by Myanmar, Laos, Cambodia, and Viet Nam. As labor is relatively cheaper in Cambodia, Laos, and Myanmar, and yet movement of unskilled labor are restricted, there is a potential for the richer economies to invest in garment, machinery spare parts and foot ware industries of the formers’.

In fact, Cambodia and Laos are giving tax-holiday to attract foreign direct investment in labor intensive industries, such as garment and foot ware.

To make the Make in India campaign successful, a realistic take would be to make sure that Indian government facilitate Indian business community to participate in the ASEAN production network. At times government lack necessary funds for facilitating trading activities (such as building roads and ports), but can surely provide support to the business communities by following easier procedures for doing business.

ASEAN region has become important for India, especially because two of India’s largest trading partners, namely, the European Union (EU) and the US, are yet to show sign of economic expansion.

It is to be noted that India signed a free trade agreement with the ASEAN region on August 2009, which came into effect on January 2010. In 2014, ASEAN region is reported as the world 7th largest economy, 4th largest exporter (after US, EU and China), 600 million plus consumer base, 3rd largest labour force, and house to 8.8 per cent of the world population. There exist huge potential for India to participate in the ASEAN production network system.

The energy source, particularly hydroelectric power generation on the Mekong river can be of use, to the booming and fuel hungry economy, of India. India can invest in hydroelectric power project in Cambodia. In the future, Cambodia with a potential of an estimated 8000 megawatt of hydropower can also be a major supplier for energy for India.

India’s nuclear power plant is yet to become fully operational, and there is a need for an alternative source for energy. In 2012, India’s per-capita electricity consumption is 630 kilowatt per hour which is one-fourth of global average. There is an average energy shortfall of around 10 per cent and a peak short fall of around 5 per cent.

Myanmar has opened up, and provides a huge investment opportunity for Indian firms. At a government-level, there is a precedence of joint work. In 2002, Government of India launched a Remote Sensing and Data Processing Program, to help Myanmar with weather forecasting, determination of forest cover, and other land use.

Indian firms, such as Larsen and Toubro, Adani Port, and NTPC Limited can invest in Myanmar with money and technical expertise to build infrastructure, such as building container dock and coastal ships, power stations, and cement factories.

Indian telecommunication companies such as Bharti Airtel and Reliance Telecommunication, have the expertise for laying down optical fiber cables and telecommunication network, something in need for countries, such as Myanmar, Cambodia and Laos.

There are around 17000 islands in Indonesia. Indonesia is building six economic corridors to become locally integrated and internationally connected. Each one of these corridors – Sumatra corridor (known for energy reserves), Kalimantan corridor (known for mining activities), Sulawesi corridor (known for oil and gas exploration), Java corridor, Bali Nusa Tenggara corridor and Papua Maluku island corridor – offer huge investment opportunity for Indian oil exploration and construction firms, such as Oil and Natural Gas Corporation Limited, Reliance, Bharat Heavy Electrical Limited, and Larsen Toubro.

Indian companies already have many joint ventures with their Indonesian and Singaporean counterparts. For example, Bajaj Auto has a joint venture for the assembly and production of three and two wheelers. Other Indian companies with significant investment in Indonesia include Aditya Birla Group (Indo-Bharat Rayon), S. P. Lohia Group (Indo-Rama Synthetics), Ispat Group (Ispat-Indo), and Essar Group (ESSAR Dhananjaya).

In case of Singapore, India’s largest trading partner in the ASEAN region, joint ventures are mainly in the fields of shipping, aviation, automobile and computer accessories, and chemicals. For instance, Port of Singapore Authority has started investing and developing sea ports in Southern States of India (Tamil Nadu and Kerala).

Tata group from India and Singapore Airlines have jointly launched airline named, “Vistara”. Sing Tel has invested in India’s Bharti Telecommunication, and Voltas and Dow Chemical Pacific Limited has set up joint venture for water waste treatment plant. The potential is certainly there for India to become a natural trading partner in the ASEAN region, and perhaps to make it’s Made in India campaign take off early.

  • PVRajeevS

    Asean does what India talks