INDIA AND ASEAN TRADE: AN OVERVIEW

Transcription

1 INDIA AND ASEAN TRADE: AN OVERVIEW MRS. SARIKA CHOUDHARY HEAD & ASSISTANT PROFESSOR (ECONOMICS) DYAL SINGH COLLEGE, KARNAL (HARYANA) ABSTRACT Regional integration arrangements are popular phenomenon of the present global economic order and this feature is now an acknowledged future of the international scene. Regionalism has existed for so many years in various parts of the world, but it has never risen as rapidly as in the last two decades. Presently, practically all countries are members of at least one regional bloc. Currently, there are several sub regional groupings in Asia that have regional economic cooperation initiatives for e.g. SAARC (1985), APEC (1989), SAFTA etc. Some members of these sub regional groupings have bilateral RTAs with other countries within and outside Asia. In south-east Asia, ASEAN (1967) is one of the oldest and dynamic regional groups. ASEAN (Association of South East Asian Nations) is today a dynamic, rapidly growing regional group that strives to effectively manage both its diversity and growth. Trade is a major priority and an important engine for growth in the region. ASEAN economies have the highest trade to GDP ratio in the developing world. From 1990 to 2009, ASEAN trade experienced a per annum growth rate of over 10 percent. Similar to ASEAN economy, India has also attained a place of prominence at the global stage. In 2009, India s GDP was valued at US$1.846trillion, making it the 9th largest economy in the world or fourth largest by purchasing power adjusted exchange rates. India s growth rate, which has averaged 8.5 percent a year in recent years, is expected to double the average per capita income within a decade. Therefore, the two regional markets can be combined to yield a market of huge potential for growth and investment by both domestic and international investors. In this context, the present study is an attempt to understand the trends of India and ASEAN trade for the period The objective of this paper is to analyze the growth and direction of Indo-ASEAN trade and it is an attempt to explore the reasons of changing direction of India s trade with ASEAN. KEYWORDS: ASEAN, Trends, Direction, SITC-2, UNCOMTRADE. INTRODUCTION India s growing profile has attracted countries of South-East Asia to foster closer engagement at regional and multilateral level. India and ASEAN set up various institutions mechanisms like India- ASEAN Business Council, India ASEAN Business Summit, India ASEAN Negotiation Committee etc. to overcome the barriers in deepening interactions. India-ASEAN Trade in Goods (TIG) Agreement came into force since January, 2010 has been another landmark development in greater integration of Indian 82

2 economy with that of ASEAN. The growing realization that both regions are complementary rather than competitive, has given a further boost to trade and economic engagements. As a result, in the last four years, the bilateral trade has increased by more than 90 percent from US $ 23 b in 2005 to US $ 44 b by Therefore, it is necessary and useful to analyze the trends and direction of Indo-ASEAN trade for the period To analyze, Indo-ASEAN trade at aggregate level, and to explore the importance of Indo-ASEAN trade, the share of India in ASEAN trade as well as share of ASEAN in India s trade has been analyzed. To know the direction of India s trade with ASEAN, it is essential to look into the country- wise share and growth in trade overtime. DATA SOURCES AND METHODOLOGY: The data has been collected from UN-COMTRADE Statistics Division at 1 digit SITC (Standard International Trade Classification) Rev. 2 for the period Alternative sources of data are : IMF Foreign Trade Statistics yearbook and ASEAN Merchandise Trade Statistics Database. The data comprises exports and imports of India and ASEAN (10 countries i.e. Brunei, Darussalam, Cambodia, Indonesia, Lao PDR, Malaysia, Myanmar, The Philippines, Singapore, Thailand and Vietnam). For calculating the share of ASEAN in the India s Exports and Imports and India s share in ASEAN trade, percentage method is used. To calculate growth trends, Test of significance with regression coefficients has been implied. RESULTS AND DISCUSSION: EXPORTS AND IMPORTS OF INDIA AND ASEAN: The present section provides an overview of India s share in ASEAN trade as well as ASEAN share in India s trade. Further, to explore the growth of trade between the two regions, growth rate of India s trade with ASEAN on the whole and ASEAN countries has been calculated: 83

3 TABLE: I SHARE OF INDIA S EXPORTS IN ASEAN IMPORTS: Years ASEAN Imports(m$) India s Exports to ASEAN(m$) Share of India in ASEAN Imports (in %) Source: Author's calculation using UNCOMTRADE database, United Nations Statistical Division An analytical study of share of India s Exports in ASEAN Imports reveals that share of India in ASEAN Imports has ranged from 0.39 percent to 2.5 percent over the study period. Overall, the share trend is rising except in the years and Due to Asian financial crisis, India exports share showed a decline in 1998, but after that it has risen sharply and touched a high of 2.5 percent even in the period of world recession. The increase in India s Exports to the region is a clear indication of the inherent potential and the need to further examine the gains made in building the economic relationship between the two. It should be noted that India did not emerge on the global landscape until it began to seriously engage with ASEAN and the other East Asian countries, for which the India-ASEAN summits provided a most useful opportunity. India-ASEAN engagements at the summit level and all the subsequent developments have helped India to become a credible interlocutor with the major powers of the world. 84

4 TABLE-II SHARE OF INDIA S IMPORTS IN ASEAN EXPORTS: Years ASEAN Imports(m$) India s Exports to ASEAN(m$) Share of India in ASEAN Imports (in %) Source: Author's calculation using UNCOMTRADE database, United Nations Statistical Division Table II presents merchandise Imports of India from ASEAN and its relative share in ASEAN s Exports. It is observed from the table that India s share in ASEAN Exports is showing significantly a rising trend and it is also important to note that in 1997, exports share has shown a decline but imports share does not affected by it. Imports share of India is rapidly rising after 1994 and it ranges from 0.69 percent to 3.03 percent during the study period. As ASEAN s economic significance has been representing an impressive increase, similarly India s sustained economic growth has attracted ASEAN to foster economic ties with it. India s natural environment, nature of industries, expertise, demands and supply conditions have made positive environment for ASEAN. Therefore, India s merchandise Imports have shown rising trend. 85

5 TABLE-III GROWTH OF INDIA S EXPORTS AND IMPORTS WITH ASEAN: Variable Time period b 0 b 1 CAGR R 2 F-value name India s Exports to ASEAN India s Imports from ASEAN (8.361)* (9.416)* (24.722)* (4.232)* (13.023)* (13.754)* * * * * * * t* - significant at 5% level of significance F*- significant at 5% level of significance Source: Author's calculation using UNCOMTRADE database, United Nations Statistical Division The growth of bilateral trade of India and ASEAN has been shown in the Table- III. The table shows that growth of India s Exports to ASEAN is 41.9 percent during the study period which shows high growth potential for Indo-ASEAN trade. Similarly, it is also observed that in subperiod growth of Exports and Imports is very high i.e. approximately 49 percent. During this period, WTO was established to provide institutional framework for trade in goods and services between countries. Most of the countries have liberalized their trade multilaterally, regionally or bilaterally. Another stepping stone between India and ASEAN has been placed at second ASEAN- India summit held in October, 2003 i.e. signing of FTA between these two regions. In this agreement, India committed to design its peak tariffs and India has upgraded its trade relations with each country of ASEAN. However, in the first sub-period ( ) growth 86

6 of India Imports from ASEAN is comparatively very low (14.7 percent) than growth of India s Exports (43.2 percent) to ASEAN. The values including t-statistics, ANOVA (F-value) and coefficient of determination (R 2 ) for India s Exports and Imports confirm that the growth rate is statistically significant. On the whole, Exports growth is higher than Imports growth over the period. After analyzing India s share and growth with ASEAN trade, it is essential to examine ASEAN share in total Exports and Imports of India. The table depicts the ASEAN share in India s total Exports and Imports for the period : TABLE-IV SHARE OF ASEAN IN INDIA S TOTAL EXPORTS: Years India s Exports to World India s Exports to ASEAN(m$) Share of ASEAN in India s Exports (in %) Source: Author's calculation using UNCOMTRADE database, United Nations Statistical Division 87

7 TABLE-V SHARE OF ASEAN IN INDIA S TOTAL IMPORTS: Years India s Total Imports(m$) India s Imports from ASEAN(m$) Share of ASEAN in India s Imports (in %) Source: Author's calculation using UNCOMTRADE database, United Nations Statistical Division 88

8 The table IV & V show that the share of ASEAN in India's total Exports has increased significantly from 3.34 percent in 1980 to per cent in 2009.However, it shows an uneven trend. It has marginally declined in the years , 1988, 1998 and 2007 and touched the low of 2.38 percent in 1985.The demarcations of the study period into two sub-periods reveals that in the first sub-period by following fluctuating trend, the share of ASEAN has almost doubled from 3.34 percent in 1980 to 7 percent in 1994.During the second sub-period it has touched the peak of percent in Similarly by analyzing ASEAN share in India s total Imports, it is clear from table that ASEAN share has ranged from 3.11 percent to percent by registering almost three times increase during the period under study. Mandal (2009) study highlights that India has penetrated ASEAN markets to a greater extent than ASEAN has been able to do for Indian markets. One reason for this might be the fact that India is more protectionist than ASEAN and India s degree of openness is growing more rapidly. Therefore, it can be said that ASEAN as a region has attained a status of significant trade partner of India during the study period. India s Trade with the member Countries of ASEAN: : An analysis of India s trade with ASEAN member nations is important as this kind of analysis will enable us to understand the relative significance of member countries of ASEAN in India s trade and explore the possibilities of future growth. Therefore, in the present section, share and growth of India s trade with ASEAN member countries has been analyzed individually. In 1967, ASEAN was established by the five original Member Countries, namely, Indonesia, Malaysia, Philippines, Singapore, and Thailand. Brunei Darussalam joined on 8 January 1984, Vietnam on 28 July 1995, Lao PDR and Myanmar on 23 July 1997, and Cambodia on 30 April As the present study has been confined from 1980 to 2009 period, so trade of each country of ASEAN has been analyzed when it had joined ASEAN. To explore growth of Indo-ASEAN trade, initially six countries trade has been taken into consideration. After the joining of Vietnam in 1995, ASEAN -7 and in 1997, ASEAN has become ASEAN 9 and now ASEAN has ten member nations. Therefore, from 1999, India s trade with ASEAN-10 has been analyzed. The following table analyzes the share of every country in India exports and imports. 89

9 Years Brunei (1) Indonesia (2) TABLE VI : DIRECTION OF INDIA S EXPORTS TO ASEAN: Malaysia (3) Philippines (4) Singapore (5) Thailand (6) Vietnam (7) Myanmar (8) Source: Author's calculation using UNCOMTRADE database, United Nations Statistical Division Lao PDR (9) Cambodia (10) 90

10 Table VI outlines the share of individual member countries of ASEAN in India s Exports to ASEAN for the period under study. It is clear that since 1980, India s major Export destinations have been Singapore, Malaysia, Indonesia and Thailand. In 1980, the share of these four countries in total Exports of India to ASEAN was percent registered a significant decline and become percent in However, there have been many fluctuations in the intermittent years with. Singapore s share has significantly increased to 55 percent from and has registered double decline and settled at percent in After that the share of Singapore has continuously shown rising trend except 2009 due to global economic meltdown. This structural change in the pattern of Singapore s total trade since 2001 could well be attributed to its open and liberal attitude during the post period. This change in attitude is clearly evident from the fact that all its trade agreements have entered into force only after Thus, Singapore is the largest market for Indian Exports within ASEAN. Presently, Singapore absorbs almost half of India s total Exports to ASEAN. Malaysia is India s second most important trading partner amongst the ASEAN countries. Although, the share of Malaysia has marginally fallen from percent to percent during the study period, yet it has emerged as India s second largest trading partner in the ASEAN after Singapore. Spectacular progress of the Malaysian economy since the late eighties, the new selfconfidence of Malaysian entrepreneurs, and the liberalization of the Indian economy since 1991 have triggered new dimensions in bilateral commercial and economic relations. India and Malaysia are now mutually important economic partners. Similarly in case of Indonesia, share has hovered around 17 percent to 18 percent. In 1980, the share of Indonesia in India exports was percent and percent in 2009.As a member of ASEAN, Indonesia has emerged as a third largest Export market for India. Thailand s share has varied from 7.85 percent to percent. Further, its share has declined secularly after 2000 and come down to 9.56 percent. Though many bilateral visits have been taken place during this period and even FTA initiative with Thailand was started in 1997 and took its real shape in 2001, yet share of Thailand s in India s Exports has declined could be attributed to FTA which generally offer greater scope for enhancing exports but India-Thai FTA has more political significance rather than economic. Besides this, Thailand economy faced strong competition from China, Indonesia and Vietnam where cheap labour was available. It reduces the competitiveness of Thailand s labour intensive industries. Declined share of Malaysia and Thailand has compensated by increment in the share of other ASEAN countries particularly Vietnam. In case of Vietnam, the share in India s Exports to ASEAN has significantly increased from 4.6 percent in 1995 to percent in Now, Vietnam becomes a rising star for Indian Export market. Therefore, to some extent, India has diversified its destination of Exports to ASEAN overtime. Other countries which join ASEAN in 1997, 1999 like Lao PDR, Myanmar and Cambodia constitute only less than 2 percent share of India s total exports. Relatively lower demand, lack of contact between various business organizations and higher shipping costs may be the reasons for comparatively lower share of these countries in India s Exports. 91

11 Years Brunei (1) Indonesia (2) TABLE VII : DIRECTION OF INDIA S IMPORTS FROM ASEAN: Malaysia (3) Philippines (4) Singapore (5) Thailand (6) Vietnam (7) Myanmar (8) Lao PDR (9) Source: Author's calculation using UNCOMTRADE database, United Nations Statistical Division Cambodia (10) 92

12 During the period , the relative importance of ASEAN s countries in India s Imports has changed considerably (Table VII). In the 1980, Malaysia s share was percent and 89 percent imports of India come from only two countries of ASEAN i.e. Malaysia and Singapore. At the end of this sub-period, Malaysia s share dropped to only 29 percent. Correspondingly, Singapore s share increased from 17 percent to 42 percent; and Indonesia from 5 percent to 19 percent. In the second sub-period, initially Indonesia s share was the highest i.e. 37 percent, but in 2009 it comes down to 21 percent; whereas Malaysia s share increased from 19 percent to 31 percent. But Singapore s share declined from 42 percent to 26 percent. Overall, it is observed that in the year 2009, India s major Import destinations in ASEAN region are Indonesia, Singapore, Malaysia, and Thailand. Other countries of ASEAN like Myanmar, Philippines Brunei, Vietnam, and Cambodia only comprise 10 percent share of India s Imports. TABLE: VIII : GROWTH OF INDIA S TRADE WITH ASEAN COUNTRIES( ) Sr.No. Country Time Period CAGR of Exports (%) CAGR of Imports (%) 1. Indonesia Malaysia Singapore Philippines Thailand Brunei Vietnam Myanmar Lao PDR Cambodia Source: Author's calculation using UNCOMTRADE database, United Nations Statistical Division 93

13 International Journal of Social Science & Interdisciplinary Research ISSN Table VIII reveals that seven out of ten countries have high exports growth during the whole study period. Malaysia, Singapore, Philippines, Thailand, Vietnam, Lao PDR, Cambodia have high exports potential whereas Brunei, Indonesia, Myanmar have more Imports potential. CAGR of new joining countries is very high as it depicts that CLMV countries potential is still untapped and there is lot of scope for future trade of India with these countries of ASEAN. CONCLUSION: An aggregate analysis of Indo-ASEAN trade exhibits the importance of ASEAN in India s trade. It is observed that ASEAN s importance has been increasing since ASEAN as a region has displayed great dynamism. It is a noticeable fact that in comparison to ASEAN exports, India s exports have become 70 times in 2009 compared to This indicates that with India s sustained economic growth and increased unilateral liberalization, there is a large untapped potential for expansion of ASEAN-India merchandise trade from the present levels. By analyzing the share of each country of ASEAN in India Exports and Imports, it is concluded that four countries of ASEAN namely Singapore, Malaysia, Indonesia and Thailand constitute more than 80 percent share of India s Exports and major Import destinations of India are Indonesia, Singapore, Malaysia and Thailand. Thus, the direction of India s trade in ASEAN region has been changing overtime. These results are confirmed by Exports and Imports growth of India with each country of ASEAN. The empirical analysis of growth of trade of ASEAN countries shows that after 1995, Vietnam has also emerged as significant trade partner of India in ASEAN region. The growth of Exports and imports of Cambodia, Lao and Myanmar also confirm that ASEAN on the whole has great trade potential and Indo-ASEAN trade has a lot of scope for future. REFERENCES ASEAN Secretariat (2006), Studies unit Brief, Paper No. 9. ASEAN Secretariat (2006), Studies unit Brief, Paper No. 10. ASEAN Secretariat (2009), Road Map for an ASEAN community ( ), Jakarta. ASEAN Web (2010), ASEAN-India Dialogue Relations. Asian Development Bank (2008), Emerging Asian Regionalism, Manila. Batra Amita (2006): Asian Economic Integration ASEAN+3+1 or ASEAN+1s,ICIER working paper no.186, pg-11. Gaur, Seema (2003): ASEAN-India Ties Entering a New Phase, Business Times, October 8, Ghate, J.P. and Parkash Satya (1993) : India and ASEAN trade and Economic cooperation : a perspective. India and ASEAN: Partners in progress, MVIRDC World Trade Centre, BOMBAY. Nambiar Shankaran (2004) : India Engagement with ASEAN: Beyond Trade in Goods, ISAS working paper no.129, 26 August, Prashanth Parameswaran (2010), Strengthening ASEAN-India Relations in the 21st Century The project 2049 institute. Tai Hui (2010), ASEAN Discovers India, Wall Street Journal. 94