Model Answer
0 min readIntroduction
India and Southeast Asia share a long history of cultural and commercial interactions. The ‘Look East Policy’ (1991) and its successor, the ‘Act East Policy’ (2014), have significantly boosted India’s engagement with the region. Southeast Asia, comprising the ten member states of the Association of Southeast Asian Nations (ASEAN), is a crucial economic partner for India. India’s trade with ASEAN has grown substantially over the decades, driven by increasing economic integration and regional connectivity. Analyzing this trade pattern reveals a complex interplay of economic, political, and strategic factors.
Overview of India-ASEAN Trade
ASEAN collectively represents India’s 4th largest trading partner, accounting for approximately 10.14% of India’s total trade in FY23 (as per Ministry of Commerce & Industry data). Bilateral trade reached $111.46 billion in FY23, a significant increase from previous years. The trade relationship is characterized by a growing volume of both exports and imports, with a slight trade deficit favoring ASEAN.
Composition of Trade
India’s Exports to ASEAN
- Key Export Items: Petroleum products, gems and jewellery, machinery, pharmaceuticals, chemicals, iron and steel, and agricultural products (rice, cotton).
- Destination Countries: Singapore, Vietnam, Indonesia, Thailand, and Malaysia are major destinations for Indian exports.
- Trends: Exports of engineering goods and chemicals have shown consistent growth. There's a growing demand for Indian generic pharmaceuticals in the region.
India’s Imports from ASEAN
- Key Import Items: Electrical machinery and equipment, chemicals, plastics, rubber, mineral fuels, palm oil, and processed foods.
- Source Countries: Indonesia, Thailand, Malaysia, and Singapore are primary sources of Indian imports.
- Trends: India’s imports of palm oil from Indonesia and Malaysia are substantial. Imports of electronic components are also increasing due to the growth of India’s electronics manufacturing sector.
Pattern Analysis & Key Influencing Factors
Geographical Patterns
Trade is not evenly distributed across ASEAN. Singapore serves as a major transshipment hub, inflating its trade figures with India. Vietnam has emerged as a key manufacturing destination and a rapidly growing trade partner, benefiting from investments and supply chain diversification. Indonesia and Malaysia are significant suppliers of raw materials and agricultural products.
Trade Agreements & Connectivity
- India-ASEAN Free Trade Agreement (FTA): Signed in 2009, the FTA has reduced tariffs and facilitated trade. However, non-tariff barriers remain a challenge.
- India-Myanmar-Thailand Trilateral Highway: This project aims to improve connectivity and facilitate trade between India, Myanmar, and Thailand, and potentially extend to other ASEAN countries.
- Kaladan Multi-Modal Transit Transport Project: Connects India’s Northeast with Sittwe port in Myanmar, providing an alternative route to Southeast Asia.
Recent Developments & Trends
- Supply Chain Diversification: The COVID-19 pandemic and geopolitical tensions have prompted companies to diversify their supply chains, leading to increased investment and trade between India and ASEAN.
- Digital Trade: Growing e-commerce and digital services are creating new opportunities for trade.
- Regional Comprehensive Economic Partnership (RCEP): While India is not a signatory to RCEP, the agreement impacts trade dynamics in the region, potentially affecting India’s competitiveness.
Challenges
- Trade Imbalance: India consistently faces a trade deficit with ASEAN.
- Non-Tariff Barriers: Complex customs procedures, sanitary and phytosanitary regulations, and other non-tariff barriers hinder trade.
- Connectivity Issues: Infrastructure gaps and logistical challenges limit trade flows.
| Country | India's Export (FY23 - USD Billion) | India's Import (FY23 - USD Billion) |
|---|---|---|
| Singapore | 16.27 | 26.84 |
| Indonesia | 6.41 | 8.94 |
| Vietnam | 8.37 | 6.78 |
| Malaysia | 7.08 | 7.47 |
| Thailand | 6.13 | 5.41 |
Conclusion
India’s trade with Southeast Asia is poised for further growth, driven by the Act East Policy, increasing regional integration, and supply chain diversification. Addressing existing challenges like trade imbalances, non-tariff barriers, and connectivity issues is crucial to unlock the full potential of this relationship. Strengthening infrastructure, promoting digital trade, and actively engaging in regional forums will be key to fostering a more balanced and mutually beneficial trade partnership with ASEAN nations.
Answer Length
This is a comprehensive model answer for learning purposes and may exceed the word limit. In the exam, always adhere to the prescribed word count.