Source: Textiles
Committee, Ministry of Textiles, Government of India Mumbai
Implementation of the Free Trade Agreement (FTA) with
Association of South East Asian Nations (ASEAN) from
1st January 2010, India has achieved an important milestone in
pursuance of its objective to expand its economic and political relationship
with the neighbouring nations. ASEAN consists of 10 countries namely Brunei
Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The ASEAN-India FTA (AIFTA) is considered a major step
of India into the formidable regional trade block of south Asia. Indias engagement with ASEAN started with the Look East Policy in 1991 and became a sectoral
dialogue partner in 1992, further upgraded to Summit level in November 2001. A
framework agreement on Comprehensive Economic Cooperation between ASEAN and India was signed on 8th October 2003. The AIFTA of trade in goods (TIG) was
signed in August 2009.The agreement enshrined progressive liberalization of
duty to enhance bilateral trade. Under the agreement each of the partner
countries are allowed to keep a small number of products out of the coverage of
the agreement and size of those products will not exceed 5 percent of the
bilateral traded imports. Since ASEAN is more efficient in some sectors of
production such as agriculture, light manufacturing (includes T&C, plastic
manufacturing etc), auto and auto components, etc, India resorted to a negative
list approach to these sensitive products and without a provision of
protection, these industries would be adversely affected.
The macro scenario
The rationale behind the AIFTA is clearly in favour of Indias entry into the formidable south Asian regional trade block which has greater
significance in political maneuvering than trade. In the angle of trade, the
negative trade balance of India with ASEAN has been perpetuity in the recent
years. In spite of the fact that India has preferential trade regimes with
Thailand, Singapore and Myanmar separately and/or as a part of the Bay of
Bengal Initiatives for Multi-Sectoral Technical and Economic Cooperation
(BIMSTEC) trade group, the performance of Indian trade has not improved much. India has adverse balance of trade with these partners and over the years, it is worsening
(See table 1). The overall Indo-ASEAN bilateral trade deficit during 2007 is
around US$15 billion and that too has significantly gone up to this level very
recently. In spite of this, economic theory propounds inherent trade creating
possibilities of the FTAs by better flow of goods and services between the
regions besides helping transfer of technology for better production practices.
The combined Gross Domestic product (GDP) of the ASEAN10 is larger than India and has a much larger per capita income of the ASEAN indicating economic development
of the later (Table 2). The per capita income (PCI) of Singapore is approximately 38 times of that of India, Brunei Darussalam about 36 times, Malaysia more than 8 times, Thailand about 4 times and Indonesians income is double of the Indians.
The combined import of the ASEAN from the world during 2008 is US$ 895 billion
about 4.7 fold of the Indian export to the world. Given the economic and
development strength of the ASEAN, the FTA between India and ASEAN may trigger
a positive trade flow of goods and services in this region. Studies indicate
that the trade between India and ASEAN is below its potential (Bhattacharya, R
and Mandal Avijit, 2009). A large
number of studies are strongly pitching in favour of AIFTA (Sen, Asher and
Rajan (2004), Mehta (2005), Yong (2005), Joseph and Parayil (2004), Joseph
(2009), Karmakar (2005), Mukherji et al (2003). Though overall gain on account
of expanded bilateral trade is predicted, there has been widespread skepticism
on trade diversion and sensitivity of some sectors (Agriculture, Textiles, Auto
and auto components, Electronics etc) that are vulnerable to the ASEAN imports,
the sectors in which the member countries of ASEAN have efficient production
systems in place. There is also skepticism that India may not benefit from the
tariff liberalization of ASEAN as most members have low prevailing duty and
further lowering of duty will not provide enough room for accelerating exports
from India (Pal, P and Dasgupta, M (2008)).
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Dr. P
Nayak is an
expert in Market Research and International Trade. He has been instrumental in
creating the trade related capacity building in textile sector in India. An eminent scholar and speaker he has served in various ministries of Government of
India and is currently working as the Director in the Textiles Committee,
Mumbai in the Ministry of Textiles; a statutory organization of Government of
India.
