Global Economy Indian Economy
Published in Financial Express, Sunday, Jul 18, 2010.
After Nearly two decades of embarking on the 'look east' path to link India's liberalised economy to the south-east Asian Tigers, Indian policy has laid the groundwork to facilitate an almost perfect platform for business to expand in the burgeoning region. The region, comprising Brunei Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam, boasts of over 500 million people with a $1.486-trillion GDP, is actively scouted by India for trade, acquisitions, manufacturing units and joint ventures. And the icing on the cake has been the India-ASEAN FTA that came into effect on January 1 this year. India's quest to expand its market and counter growing Chinese influence in the region has culminated in what Prime Minister Manmohan Singh hails as "not merely an external economic policy, but also a strategic shift in India's vision of the world and India's place in the evolving global economy".
Laying new ground
Since 1991, trade between India and south-east Asian countries picked up pace and as per CII estimates, Indo-ASEAN trade has been scaling up at a CAGR of 27% since 2000. FICCI secretary general Dr Amit Mitra says deepening of ties is reflected in continued buoyancy in trade. Today, ASEAN is India's fourth-largest trading partner after the US, EU and China. Total trade between India and ASEAN countries reached $46 billion in 2008-09 from $2.4 billion in 1990. In 2009-10, India's exports to ASEAN totalled $18.1 billion. DR Agarwal, director, Institute of International Trade, Kolkata, confirms, "From 2006-08, trade between ASEAN and India increased at an average annual rate of 28%-the fastest among ASEAN's trading partners. India remains ASEAN's seventh-largest trading partner."
Observers opine that growing trade is a result of India's engagement at many levels. CII director general Chandrajit Banerjee says bilateral FTAs are being negotiated with Thailand, Malaysia and Indonesia and India is also engaged in a technical regional arrangement through BIMSTEC, which includes some south-east Asian (SEA) countries. India-Thailand Free Trade Agreement signed in 2003 covered trade in goods, services and investment. One of India's most ambitious FTA, the Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore came into force in 2005 and was reviewed in March 2007.
The 2003 India-ASEAN CECA was complemented by India-ASEAN annual meetings since 2002 and culminated in signing of the FTA. The FTA, feels Swati Piramal,ASSOCHAM president, "Will facilitate trade ties resulting in greater presence of India Inc in SEA". To augment better engagement, Banerjee adds, "Track II diplomacy has become vigorous in the past couple of years. Regular B2B and G2B meets have resulted in better economic opportunities and policy support." He adds that CII has been active in SEA since 1993. "CII initiated the strategic dialogue process with Malaysia and Singapore. Every year, a mission of top CEOs travels to Singapore and engages in meetings with government and business. We also have encouraged Indian industry connect with the region through made-in-India shows, business missions and inward delegations."
Since the 1990s, several Indian companies in the region have expanded base. Punj Lloyd Group undertook its first project in 1993 for laying the multi-product Balongan Jakarta pipeline and established Punj Lloyd Indonesia in 1997. A senior official of the group says the first-mover advantage in the region led to many opportunities. Today, the group has subsidiaries through which it carries out operations, such as Sembawang Engineers & Constructors, PT Sempec Indonesia and PT Punj Lloyd Indonesia. "Now, the region's market is crucial to the company's overall growth and we are constantly exploring new opportunities. We recently won our first offshore project in Thailand to install three compressor units for the PTT Riser Offshore Platform in the Gulf of Thailand. Moreover, the region's markets recovered well after the recession and the outlook is very positive. It also has great opportunities in the infrastructure space."
Indian businesses are establishing holding companies to specifically cater to the SEAsian market and service the region across several sectors. Punj Lloyd Pte Ltd, based in Singapore, is the holding company for Punj Lloyd subsidiaries in Asia-Pacific region. TCS incorporated Tata Consultancy Services Asia-Pacific in Singapore to serve as headquarters for its operations in the region and cater to key regional offices in China, South Korea, Taiwan, Malaysia, Australia and New Zealand. Girish Vanvari, executive director, KPMG, says Singapore is the favourite destination for Indian companies to set up holding companies. "Comparatively, things are transparent and simpler in Singapore, with well-defined rules. It is a financial hub and provides good exposure to companies." Piramal adds, "Singapore will play a significant role for Indian industry's expansion in the entire region."
Essar also spotted opportunities in the region in the '90s. It set up a cold rolling complex in Indonesia in 1997. An official spokesperson of the group confirms, "The capacity of the unit has doubled since. In addition, we have also set up a galvanising mill and a steel service centre. Recently, we acquired a coal mine in Indonesia. Our experience in Indonesia has been very good. We enjoy excellent labour relations, the business environment is encouraging and there is transparency in governance."
SEA's market potential is attracting not just India, but other countries as well. As per reports , ASEAN aims to create its own single market or ASEAN Economic Community by 2015. Banerjee explains that ASEAN countries have become an important sub-engine of growth for the global economy. "FDI, chiefly from Japan, and to a certain extent from South Korea, has fueled manufacturing and engineering industry growth in the region. With its new middle class, Indonesia is seen as becoming Asia's third most attractive market after China and India. Similarly, the burgeoning middle class base of the rest of ASEAN countries, including Malaysia, Thailand, Vietnam and Philippines, would demand products ranging from healthcare to food and beverages to electronic goods."
Overall, macro-economic conditions of India and SEA are also adding sheen to the dynamics. Dharmakirti Joshi, chief economist, CRISIL, says Asian economies are leading the global recovery. "Within Asia, ASEAN economies weathered the global crisis relatively well, with Singapore, Thailand, Malaysia, Vietnam and Indonesia rebounding sharply. The resilience of the region was due to effectiveness of monetary and fiscal stimulus, relatively healthy financial sector and strength of inter-regional trade." He adds that India stands tall in the region and both India and ASEAN can benefit greatly from further integration.
Yashika Singh, head, economic analysis, Dun & Bradstreet India, says, "Given ASEAN's geographical proximity to India, Indian companies have an opportunity to leverage diverse resources of the region and develop strong manufacturing base in the region to their advantage, especially in areas of electrical and electronic products, automobiles, etc. Between 1995 and 2008, total Indian FDI into ASEAN was $1.696 billion." Besides Singapore, the largest recipient of Indian investments, Indian companies are looking to actively engage in Malaysia, Thailand, Indonesia and Vietnam. Total investments to these four countries exceed $1 billion. Sensing the opportunity, Tata Motors entered Thailand, the world's second-largest pick-up vehicle market, in 2008. A senior Tata Motors official confirms, "The automotive market is about 1.5 times that of India. Vehicle owners