Why India-ASEAN FTA will pay off
Close to 17 years after former Prime Minister P.V. Narasimha Rao launched India’s “Look East” policy, reviving a civilisational relationship with Asia to our East, India has finally put its money where its mouth is and has signed the free trade agreement (FTA) with the Association of South-East Asian Nations (ASEAN).
The India-ASEAN FTA is not just an ordinary free trade agreement. It is a key that will open the door to wider strategic engagement with the region, facilitating India’s participation in efforts to build an “Asian Economic Community”.
This ‘strategic’ aspect of the FTA was laid out very clearly by none other than Prime Minister Manmohan Singh in a letter he wrote to his Party President and the Chairperson of the United Progressive Alliance, Sonia Gandhi, as early as in April 2006. The Prime Minister was defending the FTA against criticism from within his own party. The fear was that it would hurt the interests of Kerala’s plantation sector. Concern was also expressed by some politicians with interests in oilseeds and by representatives of some sections of Indian industry.
Defending his initiative, Manmohan Singh wrote to Sonia Gandhi: “Our approach to regional trade agreements, in general, and FTAs, in particular, has been evolved after careful consideration of our geo-political as well as economic interests. Although India has a large domestic market, our experience with earlier relatively insular policies, as also the global experience in this regard, clearly bring out the growth potential of trade and economic cooperation with the global economy.”
The reference to the geo-political angle was not lost on strategic analysts around Asia. China’s growing engagement with the region, its increasing economic weight and influence, was certainly one driver. The other being the fact that India seeks to benefit from the rise of Asia and be part of this new engine of global growth.
In spite of such compelling economic and strategic gains from the FTA, opposition from vested interests in the plantation and manufacturing sectors has been voiced time and again. On one such occasion, Kerala Chief Minister V.S. Achutanandan led a delegation to the Prime Minister to protest against the threat of cheap import of coffee and pepper under the proposed FTA. It is ironic that Kerala’s longstanding plantation economy feels threatened by imports from Johnny-comelately commodity exporters like Vietnam.
A wider concern has been about China using the ASEAN route to dump low-cost manufactured products in the Indian market. But rules of origin clauses in the agreement seek to prevent this. In any case, Indian manufacturing has to learn to compete with ASEAN. Interestingly, many ASEAN countries are equally worried about the coming threat of competition from India. Part of the reason for the delay in completing the agreement was on account of such fears within ASEAN.
How the FTA will in fact impact producers in India and the ASEAN region will be seen in years to come. But the signing of this treaty marks a turning point in India’s relationship with the region. It is time “Look East” graduated from policy to practice. That is what the FTA seeks to do.
Sanjaya Baru is Former Visiting Professor, Lee Kuan Yew School of Public Policy
