Why should India bet big on economic integration with the Asia-Pacific?

China is racing to fix speculations around its stuttering economy by laying plans for a domestic consumer-led model, but it has not let its global guard drop: the cargo train that clocked an impressive 10,000 kms to Tehran from China’s eastern city of Yiwu underlined Beijing’s focus on strengthening economic links.

However, attention will swiftly return to the Asia-Pacific, where China’s alleged deployment of surface-to-air missiles in the South China Sea is further exacerbating fears and drawing caustic reactions from several countries in the region. Even as President Obama and leaders from ASEAN nations reassert the need for a rules-based order in the region, it is not yet possible to determine the shape and course such an Asian order might take. During the last few months, a resuscitated Iran has drawn New Delhi’s attention westward. Considering the frantic nature of geo-political developments to its East, New Delhi will do well to assess progress on its engagements in this region. Speeding up India’s economic integration measures to match with its growing maritime ambitions in the Asia-Pacific should underpin the republic’s power goals in 2016.

Since the turn of the 21st century, the Asia-Pacific region has become central to Indian strategic thinking. The Act East policy, unveiled by the Indian Prime Minister Narendra Modi in late 2014, reinforced this ideal. And during his visits to , Australia and at the ASEAN summit, Modi vigorously underlined how India’s destiny was tied to the future of the Asia Pacific.

Given India’s recent growth rates and maritime prowess, countries such as Japan, the Philippines and Australia have lent support to New Delhi’s notions of an enhanced role in the region, leading India to increase its maritime commitments with Japan and Australia in 2015. Furthermore, India’s strategic competition with China, have also driven its increased naval enthusiasm in the Region.  As David Brewster explains, ‘India’s engagement with East Asia has occurred in the context of long-term strategic competition with China’.

Yet, just as Beijing grows increasingly restless in the Asia-Pacific, New Delhi’s eastward economic gallop has considerably slowed.

Even as New Delhi strengthens its ties with the ASEAN – through maritime exchanges and bilateral visits by Indian leaders – several ASEAN countries —  such as Philippines, Cambodia and Indonesia are yet to ratify the India – ASEAN agreement on services trade. In August 2015, New Delhi began a long overdue review process on its trade agreement on goods with ASEAN.

India’s interests in the multilateral ASEAN-led Regional Comprehensive Economic Partnership (RCEP) agreement have also meant that it has deferred the conclusion of a bilateral trade agreement with Australia. Despite India’s optimism – and Chinese pressure – for an early agreement on RCEP, any conclusion on the agreement, which was due in 2015, could take a lot longer. As Commerce Secretary Kher points, delays in multilateral trade agreements like the RCEP will in advancing global value chains. Also, the commercial incentives that the US-led Trans-Pacific Partnership generates for partner countries – six of which are also in the RCEP – could further increase these costs in the region.

New Delhi could use its growing global stature to reinforce its eastward economic goals. China’s aggressive military posture – and US’ rebalancing to a lesser extent – is effectively forcing powers like Australia and Japan to reconsider and reshape their national security priorities. Tokyo is stepping up its defense spending, as is Australia with the 2016 Australian Defense Whitepaper outlining Canberra’s US$ 30 billion outlay over the next decade. Australia and Japan are already drawing closer, and partly aided by Washington’s encouragement, are willing to co-opt India as a strategic partner in the region. In addition, East Asian nations are keen to deepen economic ties with India. The former Australian prime minister Kevin Rudd even boldly suggested that India could join key regional economic organisations such as the Asia Pacific Economic Cooperation (APEC) forum. In addition, East Asian nations are keen to deepen economic ties with India.

However, concerns remain about the pace of India’s economic response to these developments. Since 2012, India’s share of trade with prominent Asia-Pacific nations such as Japan, Australia and ASEAN nations has declined and New Delhi’s commercial partnerships – with Australia, Vietnam, and Japan among others – remain underdeveloped. Japanese exports continue to face tariff barriers that deter their flow to India. Despite Australia offering tariff concessions, India has delayed negotiations on a key bilateral trade agreement with Australia that was expected to be concluded in early 2016.

Developing border infrastructure at trading outposts between India and Myanmar – India’s gateway to Southeast Asia – will improve trade between India and the ASEAN nations. But budgetary allocations to develop such infrastructure have been cut by nearly 30 percent in FY 2016/17 from the previous year.

Whether or not India partakes in larger maritime security arrangements in the Asia-Pacific, strengthening economic ties with the region should be non-negotiable. Modi can begin by pressing his administration to conclude a pending trade agreement with Australia before the 12th round of RCEP negotiations begin in April at Perth. With New Delhi’s emphasis on economic cooperation, as India’s foreign secretary argues, developing connectivity will be crucial. To improve bilateral trade New Delhi should speed up port and road connectivity projects to Myanmar and Thailand, and address tariff concerns to improve bilateral trade. India is undoubtedly looking global, and as it transitions from being a balancer to that of a leading power in the face of Chinese restiveness, it should make better use of its growing ties in the Asia-Pacific to strengthen economic linkages. As the Vietnamese Ambassador to India Ton Sinh Thanh underlined recently, India not only has to act east, but act fast.

You can find an edited version of this article here with the East Asia Forum based in the Crawford School of Public Policy at the Australian National University.

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Published by: Hemant Shivakumar

The author holds an undergraduate in engineering and has worked in research roles at the Centre for Policy Research, New Delhi and Chaitanya in Chennai. The author is also a former LAMP fellow and a NPFP fellow visiting Australia.

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