Despite FTA, Indo-Thai economic ties need a boost

Written by Prabir De | Updated: Jun 19 2008, 01:06am hrs
The year 2008 celebrates the sixtieth anniversary of Indo-Thai relations. The contemporary Indo-Thai economic relations are intertwined in a growing exchange of trade, investment, technology and human resources. In conventional terms, India and Thailand are not adjacent, but are sharing a maritime border. Contrary to popular belief, Indias Andaman and Nicobar Islands are much closer to Thailands coast than to the Indian mainland. So to say, Indias Port Blair and Thailands Phuket are the twin cities, an agreement for which was signed on June 29, 2005. Going with the tide, both of them occupy central place in each others extended neighbourhood. Thailands Look West Policy and Indias Look East Policy have been supplementing each other in enlarging market size and business opportunities.

How the economic relations have been then growing between the two countries Lets look at trade and investment aspects. Bilateral trade between the two countries has grown from less than $300 million in 1991 to over $4 billion in 2007. India was having a favourable balance of payment with Thailand till 2004. The scenario changed from 2005 onwards. Indias imports from Thailand almost doubled in 2006, amounting to $2.04 billion, compared to 2005. Another noticeable change is Indias exports to Thailand, which have grown much faster than Indias exports to the world in last three years. Given the trade potentials that the countries are having, the present bilateral trade profile is nonetheless very unsatisfactory.

Indias trade with Thailand is relatively diversified, and carried mostly intermediate and industrial products feeding domestic production. Indias exports to Thailand which have grown over time are chemical, medicinal and pharmaceutical products, iron and steel products, machinery and parts, yarn and fibres, vehicle parts and accessories, whereas, Indias imports from Thailand are sourced for industries in sectors like electronics and electrical, polymers, automobile, telecom and office equipment and home appliances, among others. The present trade pattern between the two countries shows some sort of complementarities and provides opportunities for trade creation, provided barriers are eliminated.

In order to expand the trade between the two countries, a framework agreement for establishing Free Trade Area (FTA) was signed in 2003 starting with trade liberalisation through an early harvest scheme (EHS) on 82 products. Since September 2006, the import duties on EHS items have become zero. The full FTA covering trade in goods is to be established by 2010. The EHS has increased trade between Thailand and India (Thailands imports from India increased by 63% the following year) and has generated new investments in manufacturing and services in Thailand.

At present, both the countries are engaged in elevating the FTA into a comprehensive agreement by covering services and investments. Discussions are going on to make it as a perfect FTA by solving some critical issues like rules of origin, safeguard measures and dispute settlement mechanism, among others. If the rising pace of bilateral trade between the two countries has any indication to offer, Indo-Thai FTA is nonetheless helping the trade and investment to grow further and has also been cementing the India-Asean partnership.

Rising trade has been reflected in growing FDI between the two countries. Thailand holds the second highest concentration of Indian enterprises, next to the UK. Thailand was one of the first countries to have Indian investments as early as 1969 when the first Indian joint venture was established by the Aditya Birla Group. During 1991-2007, Indian investments in Thailand were about $315 million, whereas, Thai investments in India were about $78 million. From August 1991 to March 2007, there were about 41 technical pacts between India and Thailand. Compared with India, Thailands investment in China was four times higher in the same period.

Realising the investment potentials, both the countries signed the Agreement for the Avoidance of Double Taxation in 1986 and Bilateral Investment Promotion and Protection Agreement in July 2000. Thai entrepreneurs in the construction and automotive industries stand a good chance of investing more in India. However, given the size of the Indian economy, and the spirit of Indo-Thai FTA, Thailands actual FDI in India is very low, uneven, and disappointing too.

Due to the location of Thailand and its bilateral and regional FTAs, Indian enterprises enjoy relatively a bigger market in Southeast Asia in general and Mekong region in particular. A growing number of Indian companies have opened branches in Thailand, notably are Aditya Birla Group, Tata Motors, Tata Steel, Dabur Pharma, Usha Martin, Ranbaxy, Lupin Laboratories, Indo-Rama, 3iInfotech, Infosys, Satyam Computers and NIIT. The latest FDI from India was by the Tata Steel when it took over Thailand-based Millennium Steel with an investment of $130 million in 2006.

In 2005, Tata Motors entered a joint venture with Thonburi Automotive Assembly Plant to produce a pick-up truck to export it to Asean and China using the privilege of the tariff reduction under the Asean-China FTA. In last one-and-a-half year, as many as 30 private sector investors visited Indias north-east for investment purposes.

Meanwhile, the cooperation in science and technology is worth mentioning. Apart from trade and investment, India and Thailand are engaged in a series of projects in science and technology. A Programme of Cooperation (POC) in Science & Technology (S&T) was signed in February 2006. The S&T cooperation projects were undertaken between Indias Council of Scientific and Industrial Research and Thailands Thailand Institute of Scientific and Technological Research, and between The Energy Research Institute (TERI) and the National Brain Research Centre (NBRC), to mention a few. An Electronics Design Laboratory (EDL) was set-up at the Chulalongkorn University with the Government of India assistance.

A programme of cooperation in biotechnology was signed in 2003 between the two countries to promote, develop and facilitate cooperative activities in the field of biotechnology. India and Thailand are engaged in space research and information technology. A MoU was signed between the National Informatics Centre and the Kasetsart University, Bangkok in April 2006, for cooperation in the field of rural informatics.

India-Thailand cooperation in education is also deep rooted. India has been offering about 60-65 fellowships to Thai nationals under the Indian Technical Cooperation (ITEC) programme every year. Finally, air connectivity between the two countries is something that needs attention. In 2006, nearly half-a-million Indians visited Thailand and over 33,000 Thais travelled to India. At present, there are more than a hundred flights a week between the two countries, but we need more.

No one knows why the twin cities Port Blair and Phuket are not yet connected by direct flights, even though they are closely located in a tourist hot spot. Guwahati in the north-east is connected with Bangkok by a flight, which is highly irregular. Given the immense opportunities in the tourism sector in south-east Asia and eastern and northeastern part of India, there should be more direct flights between the two countries. Globalisation without proper regionalisation is an empty slogan. A vibrant Indo-Thai partnership would then not only strengthen Asian integration but would also reinforce the globalisation process.

The author is fellow at Research and Information System for Developing Countries (RIS), New Delhi. These are his personal views