Source: TextilesCommittee, Ministry of Textiles, Government of India Mumbai


Implementation of the Free Trade Agreement (FTA) withAssociation of South East Asian Nations (ASEAN) from1st January 2010, India has achieved an important milestone inpursuance of its objective to expand its economic and political relationshipwith the neighbouring nations. ASEAN consists of 10 countries namely BruneiDarussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. The ASEAN-India FTA (AIFTA) is considered a major stepof 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 sectoraldialogue partner in 1992, further upgraded to Summit level in November 2001. Aframework agreement on Comprehensive Economic Cooperation between ASEAN and India was signed on 8th October 2003. The AIFTA of trade in goods (TIG) wassigned in August 2009.The agreement enshrined progressive liberalization ofduty to enhance bilateral trade. Under the agreement each of the partnercountries are allowed to keep a small number of products out of the coverage ofthe agreement and size of those products will not exceed 5 percent of thebilateral traded imports. Since ASEAN is more efficient in some sectors ofproduction such as agriculture, light manufacturing (includes T&C, plasticmanufacturing etc), auto and auto components, etc, India resorted to a negativelist approach to these sensitive products and without a provision ofprotection, 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 greatersignificance in political maneuvering than trade. In the angle of trade, thenegative trade balance of India with ASEAN has been perpetuity in the recentyears. In spite of the fact that India has preferential trade regimes withThailand, Singapore and Myanmar separately and/or as a part of the Bay ofBengal 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 isaround US$15 billion and that too has significantly gone up to this level veryrecently. In spite of this, economic theory propounds inherent trade creatingpossibilities of the FTAs by better flow of goods and services between theregions besides helping transfer of technology for better production practices.The combined Gross Domestic product (GDP) of the ASEAN10 is larger than India and has a much larger per capita income of the ASEAN indicating economic developmentof the later (Table 2). The per capita income (PCI) of Singapore is approximately 38 times of that of India, Brunei Darussalam about 36 times, Malaysia more than 8 times, Thailand about 4 times and Indonesians income is double of the Indians.The combined import of the ASEAN from the world during 2008 is US$ 895 billionabout 4.7 fold of the Indian export to the world. Given the economic anddevelopment strength of the ASEAN, the FTA between India and ASEAN may triggera positive trade flow of goods and services in this region. Studies indicatethat the trade between India and ASEAN is below its potential (Bhattacharya, Rand Mandal Avijit, 2009). A largenumber of studies are strongly pitching in favour of AIFTA (Sen, Asher andRajan (2004), Mehta (2005), Yong (2005), Joseph and Parayil (2004), Joseph(2009), Karmakar (2005), Mukherji et al (2003). Though overall gain on accountof expanded bilateral trade is predicted, there has been widespread skepticismon trade diversion and sensitivity of some sectors (Agriculture, Textiles, Autoand auto components, Electronics etc) that are vulnerable to the ASEAN imports,the sectors in which the member countries of ASEAN have efficient productionsystems in place. There is also skepticism that India may not benefit from thetariff liberalization of ASEAN as most members have low prevailing duty andfurther lowering of duty will not provide enough room for accelerating exportsfrom India (Pal, P and Dasgupta, M (2008)).


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Dr. PNayak is anexpert in Market Research and International Trade. He has been instrumental increating the trade related capacity building in textile sector in India. An eminent scholar and speaker he has served in various ministries of Government ofIndia and is currently working as the Director in the Textiles Committee,Mumbai in the Ministry of Textiles; a statutory organization of Government ofIndia.