The Duck of Minerva

India: The “Dispensable Nation” in Southeast Asia?

20 November 2011

I remember once when I was exploring the Indian hill station of Shillong in Meghalaya, I read a random factoid in a guide book which said the town was geographically closer to Hanoi than Delhi.  It was not actually very difficult to believe that in the remote states of Northeast India, the gravitational pull begins to shift towards Southeast Asia. I also knew that India’s Nicobar Islands were less than 100 miles from the coast of Indonesia. Myanmar and Singapore were once part of British India. Etc., etc… Those random factoids make it seem that regional integration between India and some of the dynamic countries of ASEAN is both natural and inevitable. In reality, however, due to protracted insurgency in India’s northeast, a relatively closed regime in Myanmar, and a general focus on trade with Europe and America, the prospects for regional integration have seemed unrealistic for decades.  Nevertheless, with the adoption of India’s “Look East” policy in 1991, there have been some efforts to enhance ties between India and ASEAN over the years which are beginning to bear fruit — the real question is whether India will shift its posture to exploit these opportunities to shape the architecture of Southeast Asian regional integration.

The main goal of the 9th India-ASEAN Summit this year was to prioritize a services and investment pact set to be completed by March 2012, which would pave the way for an India-ASEAN Comprehensive Economic Cooperation Agreement.  The 2009 India-ASEAN Free Trade Agreement in goods has already come into effect; current trade between India and ASEAN is about $50 billion and rising very fast. Visa on arrival facilities in India for ASEAN nationals has also been established. Of course, as even intra-ASEAN trade is riddled with non-tariff barriers and financial investment impediments, these kinds of trade agreements may not be sufficient to open up markets until there is genuine support for free trade by states in the region. But from a long term perspective these kinds of agreements are essential to at least begin the process of integration. The 2005 Comprehensive Economic Cooperation Agreement between Singapore and India, for example, has led to an exponential increase in investment and trade.
From a political perspective, there is increasing warmth between India and its ASEAN neighbors. It may be worth noting that India invited Susilo Bambang Yudhyono to be the guest of honor at India’s Republic Day parade this year. Some commentators believe that strong bi-lateral relationships with countries like Indonesia and Singapore may be benchmarks for India’s ability to engage with ASEAN states more broadly.
The reasons for India’s interest in these emerging markets and resource rich countries like Indonesia is perhaps obvious at a time when the West is in recession and the competition for access to energy is intense.  Indian energy firms and even some manufacturers are already heavily invested in ASEAN members like Indonesia and Singapore.
However, ASEAN members’ interest in India appears to mainly be driven by a desire to purchase additional insurance against China’s growing influence particularly in the South China Sea. India has a dog in the fight with China because Indian and Vietnamese firms have signed agreements for oil and gas exploration off the coast of Vietnam. There has even been tension in recent years between the PLAN and Indian Navy off the coast of Vietnam. But, of course, the real balancing occurred simply by inviting the US to participate in the East Asia Summit (EAS).  The US quickly helped to foreground security issues that highlight tensions between ASEAN states and China. India by contrast continues to appear indecisive as it remains concerned about being dragged into a confrontational American containment strategy directed against China. India’s fear about being used as a pawn in an American game are valid, but India needs to clearly decide the role that it wants to play in Southeast Asia. If ASEAN is vital to India as a source for energy and a market for Indian goods, then a more robust posture is required. While China will rightfully defend its own interests, it is quite sensitive to the limits of its power and has already demonstrated that it does not wish to trigger a hard containment strategy by alarming all of its neighbors (see Goldstein, Rising to the Challenge, 2005).
Of course, some ASEAN members also see India as a lucrative market. Singaporean firms, for example, have invested in India’s technology parks, telecommunications, and manage some of India’s infrastructure, including major seaports and airports.  Singapore is the second largest source of FDI in India with a cumulative investment of around $18 billion and it is India’s 8th largest trading partner.  India is Singapore’s 10th largest trading partner, and with $16 billion invested in Singapore, India is the second largest Asian investor after Japan (Business Times Singapore, 11/19/11). But Singapore’s relations with India remain exceptional for the most part.
Even with some progress on liberalizing trade with Pakistan in recent weeks, India future lies as much in the East as within South Asia given the lack luster integration within the Subcontinent so far. India needs to make its markets more attractive to a broader range of ASEAN members if it hopes to be able to have much influence in shaping the regional architecture. This is will probably require, at the very least, simplifying licensing requirements which act as Non-Tariff Barriers. Politically, India can free ride on America’s willingness to confront China for now, but a stronger level of leadership will be needed as the US declines. 
India remains “the dispensable nation” in Southeast Asia, but it probably cannot afford to be so.

[Cross-posted from Humayun]