The last 20 years have witnessed a gradual but perceptible shift in India?s trade equations. The shift has resulted in India trading much more with Asia nowadays than it was in the early 1990s. Asia now accounts for more than 50% of India?s total exports and 60% of India?s imports. With India?s trade basket getting increasingly dominated by exchanges with Asia, there are interesting implications of such domination for India?s long-term economic policies.
India is usually referred to as a ?late starter? in international growth and development literature. There are several dimensions to the reference. One of the more obvious ones is India?s inability to shake off the ?mixed economy? model for several years despite other major world economies shifting to different development strategies much earlier. The year 1991 is normally referred to as the time when India broke free of the mixed economy. The reality, however, is that some segments of the mixed economy continue to perpetuate even today. Foremost among these are inward-looking tendencies that tend to obstruct progress in seeking solutions to greater market access. As a result, India?s external links continue to remain underdeveloped vis-?-vis those of its counterparts. The latter does not only include the rest of the BRICs?Brazil, Russia and China?but also other major economies of Asia, Mexico and South Africa.
On account of being a hesitant globaliser, and also because of careful distancing from East and Southeast Asia due to compulsions stemming from Cold War alignments, India was left out of East and Southeast Asia?s remarkable growth story. The exclusion meant India?s non-access to Asia?s production networks that have acquired dense proportions over time. A considerable part of Asia?s trade is intra-regional trade; and bulk of such trade is intra-industry trade. Due to limited trade with the region, India never got the opportunity to figure in these networks. This is where India?s trade suffered on account of its inward outlook. A more progressive trade policy followed during the time would have had Indian firms featuring far more exhaustively in regional networks.
Nonetheless, India?s foray into regional markets over the last few decades have produced gainful economic outcomes. There is, however, a need to cautiously interpret these results. From a regional perspective, trade with West Asia is the largest chunk of India?s trade with Asia. This is essentially oil trade with crude oil flowing into India from West Asia and refined petroleum products moving out from India. Trade with East and Southeast Asia, on the other hand, has more variety in its patterns as far as product composition is concerned. Indeed, India?s trade with these regions has helped it in scaling different layers of production networks by gaining, albeit limited, access into the region?s intra-industry trade in machinery parts and components.
This is where the economic aspect of India?s ?Look East? policy acquires significance. For nearly two decades now, the policy has guided India?s engagement with its eastern neighbours. The economic benefits of the policy are visible. Not only has India?s trade with Asean and Northeast Asia increased significantly over time, but India has also been able to strike major trade deals. The most important of these are the goods FTA with Asean and the bilateral trade deals with Singapore and Korea. Once concluded, trade deals with Japan, Malaysia, Australia and New Zealand should increase India?s economic engagement with the Asia-Pacific in a far greater manner.
India?s current trade pattern with a striking dominance of Asia coupled with the growth trends in the world economy underlining a greater concentration of robust economic activity in the Asian region in the medium term, points to a distinct priority for India in its trade negotiations. As India negotiates with various countries with an eye to maximising potential gains, it needs to take a call on efficient deployment of its negotiation efforts. It is not possible, and also not advisable, to emphasise with equal vigour on multilateral as well as regional trade talks. There is a need to discriminate between partners and forums in future trade talks. If Asia is turning out to be a more gainful trade ally, then why shouldn?t more energies and emphasis be given to trade negotiations with Asia? A multilateral trade regime offering equal access and opportunities to all is ideally the best solution for global trade. But WTO talks are unlikely to make much progress in foreseeable future. Rather than wasting efforts on defensive postures at the WTO, India can gain more by putting additional efforts in talks with the East. And that may help in further reducing the disadvantages of being a late starter.
?The author is a visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore. These are his personal views