India Looking East: Does the East Notice?
Delhi’s Trade Presence in Asia Needs a Serious Boost
Earlier tonight, I gave a presentation on the China-India relationship for a Washington foreign policy group. I spoke on the imbalance in bilateral trade, areas of cooperation, security competition, regional profiles, and the border dispute.
I showed slides of some thought-provoking (and perhaps disappointing) data on India’s economic weight in Asia; since the audience found it interesting, I am posting some of it here with a bit of discussion.
India’s global aspirations require it to escape the confines of South Asia, where it was effectively boxed in for most of the Cold War. This led to the “look east” policy introduced in the early 1990s, described in a 2003 speech by India’s external affairs minister at the time.
“Look east” was motivated by security and political considerations, too. This year, India signed free trade agreements with ASEAN and South Korea, but not only for economic reasons: India seeks, through greater regional engagement, to counterbalance China and develop closer ties with the countries on China’s periphery.
India’s trade with the region has already grown significantly:
Indian Trade with East and Southeast Asia
But the measure of India’s economic heft in the east is the relative importance of Indian trade for East and Southeast Asian countries.
Let’s start with ASEAN. Despite India’s proximity, India constitutes only 2.7% of ASEAN’s total trade; China constitutes 10.4%. Most unfortunate of all, however, is the fact that India’s weight has increased very slowly since the emergence of its “look east” policy. (India stood at 0.9% in 1981.)
Trading Partners for ASEAN Member Countries (% of Total Trade)
How about Japan and South Korea? India fares even worse, though the trends are also moving slowly in the right direction.
China vs. India as Trade Partners for Japan (% of Total Japanese Trade)
China vs. India as Trade Partners for Korea (% of Total Korean Trade)
India hopes that its free trade agreements will bolster its regional profile. But there are at least two reasons to be skeptical.
First, China’s trade gains did not come from free trade agreements. China did not have free trade agreements with any of the countries above in the years cited. Rather, China’s regional heft came from economic factors like investment in manufacturing and an almost regulatory-free environment. With so little manufacturing capacity, how could India rely on free trade agreements as its primary tool for economic engagement?
Second, since India’s trade profile will inevitably be measured compared to China’s (as it is here), it is worth noting that China has free trade agreements pending with the same countries as India. Both China and India have FTAs with ASEAN that will come into effect soon, and China is working with Japan and Korea on a potential trilateral FTA, which would negate any benefit of the India-Korea FTA.
More than anything else, India needs domestic economic reforms, including major infrastructure development, if it hopes to increase its contribution to regional trade.
Given recent political inertia in Delhi on meaningful reform, one cannot help but wonder: if India is unable to overcome domestic constraints to development, can it reach its potential as a regional, or even global power?
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