Event ReportsPublished on Mar 06, 2020
Act east to act Indo-Pacific: India’s expanding neighbourhood

The ‘Indo-Pacific’ as a region has gained significant global attention in geo-economic terms. This multipolar-region contributes to about more than half of the world’s GDP and population. Initiating a discussion on the direction of India’s expanding neighbourhood, at ORF on 27 February 2020, Dr. Prabir De, Professor at the Research and Information System for Developing Countries (RIS) highlighted several key features of India’s economic relations and the challenges faced by it in the aftermath of its Act-East Policy. He offered an economist’s insight that provided guidelines for improved international co-operation.

In 1991, India framed its ‘Look-East’ policy with the view to develop economic integration, political associations and security cooperation with South-East Asian countries. More recently, with a view to foster greater economic integration with South-East, South and East Asian nations, India expanded the horizon of its Look East policy to ‘Act East Policy’ (AEP). Set to emerge as a dollar five trillion economy, it is becoming increasingly important for India to provide stability to the Indo-Pacific. The AEP, thus, by a natural extension, transitions to an ‘Act Indo-Pacific’ policy. The main catalyst for the ‘Indo-Pacific’ construct, according to Dr. De, was the growing strategic convergence between India and Japan on global issues. Moreover, countries such as India, Indonesia, Singapore and Sri Lanka are primarily maritime nations with a history of maritime trade. They occupy critical strategic positions in the Indian Ocean. India believes in an Indo-Pacific that is open and inclusive, as well as founded upon a cooperative and collaborative order. India’s holistic ‘SAGAR’ (Security and Growth for All in the Region) policy envisioned by Prime Minster Narendra Modi aims to pursue and promote India’s geo-political, strategic and economic interests on the seas, particularly in the Indian Ocean. The Prime Minister has emphasised India’s policy perspective on the Indo-Pacific, which is based on the principles of “inclusiveness”, “openness” and the concept of “ASEAN centrality”.

The attributes of the Indo-Pacific region are also highly critical for India, Dr. De remarked. It accounts for 62 percent of the world’s GDP and 46 percent of its merchandise trade. The trade of all Indo-Pacific countries amounts to about $ 19 trillion. The Indo-Pacific has all the ingredients to generate regional trade and investment opportunities, thereby benefitting the people globally. The Indo-Pacific has been the world’s leading Foreign Direct Investment source as well as destination. FDI promotes production networks through locating different stages of a production processes across countries. Therefore, it makes sense for the region to forge wide regional cooperation frameworks to ensure smooth FDI flows. Due to Indo-Pacific’s maritime connectivity, development of the port infrastructure has also been a growing priority. Several Indo-Pacific countries are currently building new port facilities. India has taken an ambitious port-led development project, Sagarmala, which offers an important example for the Indo-Pacific region.

In the first seven five-year plans, trade in India was influenced by an inward-looking trade strategy. This strategy also came to be known as the import-substitution policy. It aimed to boost domestic production and protect domestic products from international competition. Post 1991, although, India opened its economy to boost international trade, it continues to face challenges from international competition. Several emerging economies like Bangladesh are replacing the Indian market with superior quality products that meet the global standards. India’s historical stance of having a benign foreign policy gave its neighbours a first-mover advantage. In terms of trade, this has often posed a challenge for Indian entrepreneurs. The SME sector finds it increasingly difficult to enhance their exports as they circumnavigate trade barriers in the United States, ASEAN region and the neighbourhood. In spite of being members of the World Trade Organisation, certain countries continue to target Indian exports with barriers. As India aims to reach $ one trillion of global exports in 2024 from $ 323 billion in 2020, it cannot merely depend on trade and customs reforms.

India therefore needs to incorporate a forward-looking international policy embedded with strategy, economics and security. Dr. De noted that the US, China and the UAE have continued to remain India’s top-three trading partners for the past two decades. To further expand India’s international market share, it is important for it to perceive China as an opportunity rather than a threat. India stands to benefit in the coming future as it will continue to reap benefits of its young demography, compared to an aging population in China. Although, the trade between the countries has increased, a large part of India’s exports remain unrealised. Dr. De observed that the Indian exports to China stood at $ 9 billion in 2016 as opposed to its potential of $ 34 billion.

The Indo-Pacific region is also highly heterogeneous in terms of economic size and level of development. There are significant differences in security establishments and resources. More than tariff barriers, the non-tariff measures (NTMs) act as a major impediment to trade in this region. Strengthening of India’s relationship with ASEAN also implies strengthening of the foundation of Indo-Pacific. However, certain factors impede such regional cooperation. The informal trade witnessed by India on its North-East borders also complicates the matter. It amounts to killing the market share of the local entrepreneurs. Further, poor infrastructure connectivity also multiplies the problem for India.

Concluding the discussion, Professor De highlighted that the ASEAN centrality would be a major driving force for speeding up cooperation within the Indo-Pacific. India will continue to play a key role in stabilising and fostering co-operation in the region. The Indo-Pacific would not only strengthen economic relations, but would, also enhance regional capacities while dealing with the region’s complex security challenges.

This report is prepared by Shruti Jain, research intern, Observer Research Foundation, Mumbai

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