The India-ASEAN Partnership & beyond
It is a great pleasure to be here among eminent business representatives from ASEAN, East Asia and India. Icongratulate the organizers of this first ASEAN Business and Investment Summit. Events like these providevaluable opportunities for interaction among business and industry of our countries and for exchange ofperspectives between Governments and industry.
While the 20th century economy was driven by capital accumulation, manufacturing technologies and labourpower, the 21st century is defined by knowledge and human capital. It is this that gives strength to the Asianidentity. There is an emerging perception that this will be the century of Asia’s pre-eminence. The brainpower of Asian scientists and engineers, the dynamism of our businessmen and industrialists, our intellectualand human resource capital – all these support this perception. The growing economic weight of Asia isstrengthened by favourable demographic trends, and is no longer constrained by Cold War divisions.
India, ASEAN and the countries of East Asia are a part of this trend. ASEAN is already in an advanced stageof economic integration. With each of China, Japan and Korea also, ASEAN has a well-developed and diverseeconomic relationship. India has lagged behind, for a variety of political and economic reasons, which are nowhistory. However, this situation is changing rapidly, and it is the exciting potential of the future India-ASEANpartnership that I propose to put before you today.
Over the last 12 years, the Indian economy has maintained an average annual growth of over 6%, which is betterthan that of most other countries. Our interest rates are falling, inflation has been kept down, and foreignexchange reserves are growing rapidly. India remained unaffected by the Asian financial crisis a few yearsago. We have targeted an 8% growth over the next five years. As our economic base is large, there isconsiderable untapped potential for India’s continued – and even accelerated – economic growth.
India of the 21st century
Perceptions shape decisions. Often they are flawed. Sometimes, they are incomplete. The rich culturaldiversity and spiritual traditions of India are well known, but they constitute only one aspect of India.There is another India, the India of the 21st century, which is still not so well known, with its manystrengths:
- One, an inherently strong economy driven primarily by indigenous skills and domestic enterprise.
- Two, a growing and accessible domestic market, with import and investment barriers falling away. To takejust one random example of the growth of the market: in the last few months, it has been absorbing about 2million mobile phones a month. Import duties are moving towards ASEAN levels, and sectoral caps on foreigninvestment are rising.
- Three, a rich pool of human resources – English speaking, with R&D skills, technological trainingand managerial capabilities.
- Four, some special capabilities in state-of-the-art technologies. India is one of only three countries –the others are USA and Japan – to have indigenously designed and manufactured supercomputers. It is one ofonly 6 countries, which can build and launch its own satellites.
- Five, global leadership in technologies of the Knowledge Economy. India’s pre-eminent position in IT andIT-enabled services has led global companies to set up captives in India or to outsource their operations toquality Indian service providers.
- Six, a sound and transparent financial system, with well-managed banking and insurance sectors, andvibrant capital markets. Our paperless, computer-driven National Stock Exchange is the third largest in theworld, in terms of number of annual transactions.
A country on the move
India is today a country on the move. We are experiencing many revolutions simultaneously. There is, ofcourse, the IT revolution. This in turn has unleashed a socio-cultural revolution, which has empoweredhundreds of millions of our citizens, strengthening our democracy and stimulating our creativity. We areexperiencing a demographic revolution, where the numbers of young people are increasing. Already, 54% of ourpopulation is below 25 years of age. This has created a revolution of expectations, where a powerful new forceof young people, full of optimism and ambition, fired by boundless energy, is actively seeking opportunitiesfor wealth, success and prosperity. The combined effect of these has been a psychological revolution, in whicha defensive, introverted approach has given way to an outward-looking, self-confident attitude, willing toaccept challenges and take risks, rejecting fear and shunning fatalism.
It is this India that seeks to partner ASEAN in this era of globalization. India’s trade and economicinteraction with the ASEAN countries has been steadily growing, but not fast enough. A year ago at the FirstIndia-ASEAN Business Summit, I had said that the India-ASEAN trade of less than 10 billion dollars does not dojustice to our combined population of one and a half billion people, producing a trillion and a half dollarsworth of goods and services annually. Our trade has since grown by about 25%, but my comment remains valid.
We have recognized this fact in the India-ASEAN Framework Agreement for Comprehensive Economic Cooperation,which we have been negotiating over the past year. We are working on eliminating trade and investment barriersto facilitate business.
At the same time, India is conscious of the concerns of the new ASEAN members. We are offering unilateraltariff concessions on items of export interest to the CLMV countries. We are also seeking to incorporate anEarly Harvest scheme to provide the incentive for a long-term engagement. If we proceed along this course, wecan target a trade turnover of US$ 30 billion by 2007 and a Free Trade Area within 10 years.
A study, commissioned by our apex commerce & industry organizations, has highlighted five main areas withmaximum promise for growth:
- 1. Indian IT enabled services create multiple opportunities for collaboration in embedded software orjoint development of industry specific solutions. ASEAN countries can outsource their operations to qualityIndian service providers at competitive prices. Today, South East Asian countries import most of their ITproducts from the West. The irony is that most of these products are actually created by Indiansub-contractors. The result is a double disadvantage: you pay much more, and India gets much less.
- 2. The Indian financial services industry is growing rapidly, driven by deregulation of insurance andinvestment in the banking sector by private companies and foreign banks. ASEAN investors will find attractiveopportunities in personal financial services, insurance and corporate banking. India is poised to emerge as anadditional global hub for financial transactions.
- 3. The Indian pharmaceutical industry has achieved global recognition. The strength of this industry islow cost, high quality generics. Branded and patented medicines are also beginning to emerge as an importantsegment of the industry. ASEAN can source its imports of low cost generics from India, or shift manufacturingbase to India.
- 4. Indian entertainment business has benefited from deregulation and export opportunities. Joint venturesfor TV content production and animation software exports present attractive opportunities for India and ASEAN.
- 5. India has placed special emphasis on infrastructural development to stimulate rapid economic growth.This includes de-regulation of all segments of our telecom industry and upgradation of highways, bridges,ports, airports and convention centres. Many ASEAN companies are already present in these and other sectors.There are many other opportunities here for Asian business.
For free trade and open economic interaction, we must review, improve and harmonise our travel-relatedregulations and restrictions, including visa regimes. We have to upgrade our air, sea, road and rail links incapacity and quality, to meet new demands. To improve the profitability of business activities and touristventures, we should develop cross-regional links of tourist centres to enhance the synergy of Asiandestinations.
Investment Regime
I will say a brief word about India’s investment regime. It is liberal and transparent, as befits ademocracy like ours. We may occasionally have some problems, because of the difficulties in reconcilingcompeting interests and concerns. This is normal in an open, democratic set-up. We are constantly trying torefine our regulations and procedures. All the same, if you analyse the experience of our foreign investors,returns on investments in India are generally higher. Repatriation of profits is also much easier than in manyother countries.
Investors have to understand that India’s continental size and diversity are unique. Marketing or investmentstrategies that may have worked well elsewhere may need to be tailored differently for India. Those whounderstand this do well. Companies that have taken the trouble of finding the right keys to unlock the doorsof the Indian consumer’s mind have done well for themselves. People tell me that successful investors oftenpaint a deliberately pessimistic picture to discourage competitors from entering a lucrative market!
In spite of the stalemate at the Cancun Ministerial Conference, a rule-based and fair multi-lateral tradingsystem should remain our goal. But while we search for this ideal, regional trading arrangements offerimmediate advantages, particularly for geographically contiguous regions. They can provide our domesticindustry and agriculture with a valuable learning period, before being exposed to the far greater competitionof global free trade.
Non-Asians view Asia as the principal market of the future. But it will also emerge as a manufacturing hub anda global provider of services. In the next 50 years, as the population of the developed world ages, a youngerand better-educated work force will emerge in Asia to fill the breach. This generation will drive the futuregrowth of the global economy. Asian countries should work towards strengthening their mutual synergies, sothat they are strategically placed to derive maximum benefit from the emerging opportunities. The India-ASEANpartnership should energise this process to move us closer to our shared goal of making this truly the Asiancentury.
