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The Act East shortfall

Statesman News Service |

The paradigm shift in India&’s policy towards South, Southeast and East Asia after the NDA took over in New Delhi in June 2014 has shown marked changes in power relations in the entire region. It shifted from a mere opening up of its economic and trade relations with its South and Southeastern neighbours to setting up stronger strategic, diplomatic and economic ties with countries belonging to the Association of South East  Asian Nations —  to which India, till date, remains a dialogue partner.

This partnership has resulted in many joint summits, comprehensive trade, political and security cooperations. There had been dialogues and cooperation frameworks such as the Asean Regional Forum, East Asian Summit, Mekong-Ganga Cooperation and the Bengal Initiative for Multi-Sectoral and Technical and Economic Cooperation. All these initiatives are aimed at a larger regional integration of economies between Asean countries and India. These strategic partnership agreements were preceded by a wide-ranging Free Trade Agreement between India and the Asean  in  2003. It is also regarded as a facilitator of about $100 billion in trade achieved in 2015-16.

The Narendra  Modi government took up the challenge of pursuing the mechanisms and projects undertaken by the UPA-I and II governments, some of which are yet to be completed. The trilateral Asian highway, trans-Asian gas, petroleum and power lines, deep sea ports and such other infrastructural projects were carried over from the previous regime. As India had already accepted funds from multilateral agencies and  the Asian Development Bank for the implementation of such projects, work towards their completion is part of India&’s foreign and diplomatic commitments. Unfortunately, the trilateral Asian highway between Moreh-Kalewa and Sittwe port is yet to be completed because of the difficult terrain and other adverse conditions. The gas pipeline project too has run into rough weather as it is connected with the functioning of Sittwe port in Myanmar.

Given this set of ambitious but yet incomplete projects, trade and strategic partnership under Bimstec and other such cooperation agreements, the Modi government thought of emphasising more on trade potential through FTA than on what the framework warrants. The direct impact of a shift toward trade is that over the last two years India&’s participation in the value chain of various sectors, such as agriculture, electronics, wholesale and retail trade and  financial intermediation, has improved significantly by adding value to its produce as well as by way of improved tariff elasticity.

As trade is not merely determined by its gross value added but also by a response to demands for sectoral efficiency, much of which are intangible and yet globally important, India&’s performance has improved because of its diverse trade basket and variability of supply. With the global fall in the demand for manufacture, the 2003 model of trade on goods and services is slowly giving way to an emergent tariff elasticity in select sectors, to which India responded reasonably well by boosting its export in manufacturing and product recycling as a leading manufacturer among Asean nations. The resultant short-term gain is that India&’s total volume of trade has reached about  four per cent of the total Asean trade volume.

There are challenging grey areas in trade with the Asean. The Modi government&’s emphasis on free trade agreement faces challenges from the “noodle bowl” trade agreement between Japan, China, South Korea and the Pacific nations, which takes the trade winds away from India to a trans-Pacific trade partnership, of which India is still not a partner. To complicate the matter, countries that have overlapping membership in trans-Pacific as well as regional comprehensive economic partnerships, will have greater gains from trade that India envisages by 2022. India&’s lead in manufacturing, gems and jewellery, pharmaceuticals and other service sector industries like IT and electronics need to be maintained by following their export potential. What is rather emerging as a major constraint is the cost management in the factor market that a free trade agreement leaves to the specific countries and thereby induces an uncertainty in the product market, which is overcome in global consortiums like the Trans-Pacific trade agreement.

What emerges from the above is that there is a divergence between trade and the overall mechanism of regional integration that depends on so many other tangible and intangible factors. India&’s emphasis on trade, irrespective of corelated diplomatic and strategic initiatives like Bimstec and the Look East — now Act East —  policy changes the narrative from road-building/ connectivity to first cashing in on economic opportunities. Towards this, India developed the concept of a Bangladesh-China-India-Myanmar forum for regional economic cooperation that connects India&’s North-east through Bangladesh and Myanmar to Kunming and beyond, in China.

In a strong sense, Bimstec and BCIM at this moment lack enough dynamism to close the gap between trade and connectivity, as the government of India shifted its focus from the BCIM economic corridor to a Delhi-Mumbai dedicated freight corridor. Seemingly an economic corridor or a trade corridor through the North-east to East Asian countries is a difficult proposition than a corridor on the mainland. Indeed, such a mismatch between trade and its possible routes does not gel well with ADB-sponsored plans of various economic corridors that fall within the greater Mekong sub-regional plan or within a more direct South Asia Sub-regional Economic Cooperation.

Another significant issue is India&’s security concerns in South and Southeast Asia. India&’s role in the South China Sea, in tandem with other powers like Vietnam, Japan and the USA, created the context for a stringent competition with China&’s military strength. This is further complicated as China remains as the major partner of other Asean countries and drives almost half of the total trade within this,  a scenario which adversely affects India&’s advantage in East Asian markets. To complicate matters, China&’s ambitious “Look West” policy to sell its cheap products, arms and other consumer goods in South Asia have pushed India way down in terms of market access and trade volume.

The recent creation of  the Asian Infrastructure Development Bank with three trillion dollars and new silk route initiatives establishes a distinct Chinese lead in multilateral cooperation by combining what India got separated from, namely connectivity and trade. Chinese investments to build trans-Asian highways ends up in Myanmar and does not go beyond, which is a strategic gap created by China that could have been filled by India, provided the latter had enough funds to develop such infrastructure projects. Indeed, a new silk route initiative does connect the Eurasian land bridge through central Asia and its counterpart in Asian highways that has already covered most of East and Southeast Asia.

India&’s Act East policy, in turn. still needs to close a few gaps and rectify many a potential lapse. Two of the emphasised areas of trade and security that India moots largely depend upon a favourable international climate of cooperation. India&’s security apparatus and its perennial conflictual postures often run into troubled economic weather. For example, its current overtures in Vietnam and Indo-US joint military exercises in the South China Seas met with a joint SIno-Pak tactical offensive in various ways. Leakage of Scorpene submarine data points to a probable Sino-Pak offensive on India&’s strategic resources.

Therefore, the Act East policy needs to emphasise the need to build  bridges and confidence not just in the immediate neighbourhood but systematic cultural and civilisational corridors, instead of this or that economic corridor.

This brings us to understand the peculiarly disadvantaged and uneven position of North-eastern states that are treated only as a land corridor. Its regional natural and geographical spaces pose a far difficult challenge than any strategic and structural plan can accommodate. Besides, being a potentially vulnerable bio-diversity, hydrological and seismic region, there is the deep-rooted cultural insecurity of historically migrant communities who all need to be assured of a higher level of well-being, happiness and peace-building instead of mere social engineering. Once such a policy framework that addresses cultural insecurity and historical linkages with economic and trade possibilities with South and Southeast Asia is drafted, it will be possible to act eastward in a more positive manner.

The writer is Associate Professor, North Eastern Hill University, Shillong.