Can India rebalance China in the region through economics?

Sathish Govind

With China’s continual muscle flexing in the region, another power comes into play, India. New Delhi cannot be any more important to Southeast Asia than it is now.

70th Republic Day marked in Bangalore, India - Xinhua | 70th Republic Day marked in Bangalore, India

With China’s continual muscle flexing in the region, another power comes into play, India. New Delhi cannot be any more important to Southeast Asia than it is now.

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China’s perceived obtrusive behaviour in South China Sea, its economic might assertion and military aid to individual Asean countries have put Asean centrality under siege.

India has declared that it aims to keep Asean centrality intact and hopes to extend help in a way that keeps the collective interest of individual Asean countries together.

India started the “Look East” policy in the 1990s in the cold war aftermath under Narasimha Rao’s government. Present Prime Minister Narendra Modi pushed the agenda further through the “Act East” policy which seeks to forge closer ties with Asean.

While Asean has greater economic relations with China, surely its member countries do not want to depend on a sole country. Thus, India provides a healthy alternative to trade and investment perspectives to China.

India’s global trade is stuck at 1.8 percent (2011 figures) and China’s global trade is close to 12 percent. For India to catch up with China, it needs to grow at 30 percent annually to reach half of China’s global trade potential. Forging close relations with Asean is one of the solutions for India.

Between 2008 and 2016, India’s trade with Asean increased faster than two of its largest trading partners, the European Union and US.

The two-way trade between India and Asean has moved to $71.6 billion in 2016 to 2017 from $65.1 billion in 2015 to 2016. However, this figure is meagre compared to China’s $452.3 billion in 2016.

Over the last 15 years, China has emerged as the first or second largest trading partner with almost all countries in Southeast Asia. Where China succeeded and India failed is about building connectivity and institutional linkages with the Asean counterpart.

However, India is important to Asean at least from the perspective of economics and that it would be in the interest of India to forge greater relations with Asean countries.

Firstly, India’s foreign direct investment can venture into Cambodia, Laos, Myanmar and Vietnam (CLMV) where skilled labour is available at a lesser cost. Secondly, investing in these countries would assure India a bigger market for its products. In addition, moving their operations in Asean countries would ensure these industries can improvise their products to meet local needs.

The combined GDP of Asean countries is $2.7 trillion. India can also evade protectionist measures that are targets of the US if India exports from Asean countries.

Investing in the CLMV, for example, will also ease some of India’s energy requirements as it would help India get valuable minerals, oil and energy from Cambodia, Myanmar, and Vietnam.

Lastly, it would also provide employment to people in India. In addition, slightly better off Asean countries such as Brunei, Malaysia, Thailand and Singapore could also tap into India’s cheap labour.

This comes in the wake of labour cost in China that has increased on the back of the appreciation of the yuan. Wages in China’s manufacturing sector have surpassed that of Brazil and Mexico and is now fast catching up with Greece and Portugal. In comparison, India’s manufacturing wages have flattened since 2011.

Aside from this, there are other complements that India can gain such as hydroelectric power from the Mekong river that can fuel the Indian economy. Similarly, electrical power generations in India are coal-based and Indonesia possesses the largest and most accessible coal reserves in the Asean region.

Indian companies have many joint ventures with Indonesian and Singaporean counterparts. For example, Bajaj Auto Ltd has joint ventures for the assembly and production of three and two-wheelers. Tata Motors Ltd has a manufacturing facility in Thailand and with 16 companies, it designated Singapore as its regional hub.

With greater India-Asean joint venture collaboration, it would allow Asean countries to tap into skilled labour in India, particularly in information technology and business services such as insurance and banking, putting Asean countries’ innovation and technology on a growth trajectory.

India can rebalance China’s economic dominance in the region through FDIs and tapping of resources within the region that allows for a win-win situation for both Asean and India.

Sathish Govind
Contributing Writer, Capital Cambodia

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