The Association of Southeast Asian Nations (ASEAN) was established 50 years ago in 1967, with the signing of the ASEAN Declaration (Bangkok Declaration), and since then, has emerged to become one of the fastest growing regions in the world. Over the past five decades, ASEAN has made extraordinary progress both economically and socially, with deepened intra-ASEAN cooperation and narrowed developmental gap within and across the ASEAN region.
The ASEAN economy has witnessed a robust growth during the last five decades and expanded over 100-fold since its establishment, to reach a total GDP of $2.55 trillion in 2016, with a share of 6.2 per cent in the world GDP (based on US$ at PPP). In 2016, the combined GDP of ASEAN, as a single economy, placed it as the sixth largest in the world and the third largest in Asia.
International trade and investment scenario
ASEAN’s international trade has gained significance and has been growing rapidly with the establishment of the ASEAN Free Trade Area (AFTA), which has also resulted in greater intra-regional trade flows in terms of both value and volume. The importance of international trade as a growth facilitator has been recognised by ASEAN countries and is evident from their growth performance in recent years. ASEAN’s total trade accounts for 7.1 per cent share of the world’s total trade, making it the fourth-largest trading region in the world, behind the European Union, USA and China. Over the past decade, ASEAN’s total trade witnessed an upward trend increasing from $1.6 trillion in 2007 to $2.3 trillion in 2016.
Collectively, the intra-ASEAN market is the largest for ASEAN’s trade. It is observed that the share of Intra-ASEAN exports in ASEAN’s total exports has continued to be on an increasing trend since 1995, varying between 21 per cent and 28 per cent, while the share of Intra- ASEAN imports increased over the same period, from 16.5 per cent in 1995 to 22.2 per cent in 2016.
In recent years, the ASEAN’s economic growth has also benefited from its growing foreign direct investment (FDI) inflows, even amidst global economic uncertainties. FDI flows have significantly evolved from $3.04 billion in 1984 to $96.7 billion in 2016, growing at a CAGR of 11 per cent, attaining its peak in 2014, at $133.1 billion. Particularly during the past decade, FDI inflows to ASEAN have more than doubled, from $41.9 billion in 2005 to $96.7 billion in 2016.
25 years of ASEAN and India partnership
India’s relationship with ASEAN is an important aspect of India’s foreign policy and the foundation of India’s ‘look east’ policy. ASEAN-India dialogue relations emerged into a sectoral dialogue partnership in 1992 and gradually grew into a full dialogue partnership in December 1995. The bilateral relations, which saw an expansion of trade and investment, exhibit the intensity of economic engagements between India and ASEAN. In order to further strengthen India-ASEAN relations and as an attempt to provide an impetus to the regional integration that India has with its eastern neighbours, India’s ‘look east’ policy was transformed to the ‘act east’ policy in 2014. The objective of the policy is to promote economic cooperation, cultural ties and develop strategic relationship with countries in the Asia-Pacific region through continuous engagement at bilateral, regional and multilateral levels thereby providing enhanced connectivity to the states of India’s North-eastern region.
The year 2017 has marked the 25th year of dialogue partnership and 15th year of summit level partnership between ASEAN and India. ASEAN and India have been cooperating with each other, over the years, by way of implementation of various projects in the fields of agriculture, science & technology, space, environment & climate change, human resource development, capacity building, new and renewable energy, tourism, people-to-people contacts and connectivity, among others.
Asean-India’s bilateral trade and investment
The trade and investment linkages between India and ASEAN witnessed rapid expansion owing to the increasing intensity of economic engagements between India and ASEAN. The ASEAN-India Framework Agreement on Comprehensive Economic Cooperation (CECA), with a twin-objective of facilitating investment and trade in goods & services, forms the basis for ASEAN-India Free Trade Area (AIFTA). Although the CECA, aimed at institutionalising a framework for future economic cooperation, was signed between India and ASEAN in 2003, the AIFTA became fully functional from July 1, 2015.
The continued efforts to enhance the bilateral trade relations have resulted in positioning India as ASEAN’s 11th largest trading partner (as per 2016 data). Over the past decade, India’s bilateral trade with ASEAN has increased by nearly two-folds from $34.9 bn in 2007 to $64.6 bn in 2016. Both exports and imports too almost doubled over the period, from $14 bn and $21 bn respectively in 2007, to $26 bn and $38 bn respectively in 2016. However, during the past five years, India’s total trade with the ASEAN has witnessed a moderation, essentially due to declining commodity prices amidst a general slowing down of the global economy. India’s trade deficit has widened, over the past decade, from $7.2 bn in 2007 to $15.1 bn in 2015, before slightly moderating to $11.8 bn in 2016.
It is also noteworthy that India’s investments relations with ASEAN have also strengthened, with ASEAN countries receiving strong investment interest from India in the recent years, mainly due to their high-growth markets, low wage labour and natural resource reserves. The share of ASEAN in India’s total approved FDI inflows over the past two decades has increased multi-fold from 2 per cent in 1996 to about 17.4 per cent during 2016, while ASEAN’s share in India’s FDI outflows have also burgeoned by more than 20 times to reach 22.9 percent in 2016 up from 0.16 per cent in 1996 .
FDI flows to India have primarily been in real estate sector, followed by coal, oil and natural gas sector, while a major portion of India’s outward FDI to ASEAN is directed towards coal, oil and natural gas sector and metals sector, followed by services sectors such as software and IT services, financial services as well as business services.
(The writer is chief general manager, Export-Import Bank of India)