As India prises open trade relations with Myanmar, this two-lane road will play a critical role in that story. It is already a major talking point for the military junta that runs the country, as a sign of weakening of international sanctions against them.
For India, too, a lot rides on this connection. Myanmar is located on the tri-junction of east Asia, south-east Asia and south Asia, so its essential to any pan-Asian dialogue, especially for India. Most importantly, its strategic location as an oil and gas reserve between India and China tells New Delhi that building connectivity with it is vital.
The opportunity has come calling after the suspension of a $3.6-billion China-backed hydroelectric project in Myanmar. The suspension has hit Myanmars trade ties with China, which India hopes to profit from, overriding huge political differences.
In April 2008, India and Myanmar signed a Double Taxation Avoidance Agreement, which enables both nations to prevent tax evasion. It also ensures that business profits are taxed only in the country where the company has a permanent establishment. This will also help attract more FDI between the two countries.
A more recent initiative was when Myanmar President Thein Sein visited India in July this year and Prime Minister Manmohan Singh offered the country a line of credit of $500 million for infrastructure projects.
But much more needs to be done to tap this opportunity. A Confederation of Indian Industry (CII) report on bilateral trade between India and Myanmar outlines the lacunae and the areas that need more thrust. For instance, the CII report points out that the Kaladan Multimodal Transit Transport Project, which is expected to be completed in 2013 and progress on which has been rather unsatisfactory so far, would open a direct trade corridor between Myanmar and Indian ports on the eastern coast. It would include river transport and road links to Indias north-eastern states and transform trade in the region.
Sanjay Kirloskar, chairman, Kirloskar Brothers, and leader of a recent CII delegation to Myanmar, told FE, During our visit to Myanmar, we expressed to the leaders there that we are serious in our effort to partner with them in their development work. I feel it is time we work for a close and strategic relationship with Myanmar. Not only will it help us develop and enrich our own north-east, giving them a stake in Indias development, but also help create favourable conditions with Myanmar.
He points out that India can help Myanmar in the development of manufacturing and services sectors by encouraging Indian companies to invest in Myanmar. There is a need to expand the list of tradeable goods and simplify export-import procedures at borders to regularise unofficial trade, he says, adding that both countries should work toward better banking and financial services across borders. He also suggests that a CEOs forum might be constituted between the two countries to work out ways and means to enhance bilateral trade.
The CII report says lack of infrastructure along the 1,643 km of common border that Indias four states of Mizoram, Manipur, Nagaland and Arunachal Pradesh share with Myanmar, along with security concerns, is a hindrance to trade through the land route. Keeping in mind that Sino-Myanmar and Thai-Myanmar trade through the land borders is more intense, there is a clear need to open more points between the two countries, says the report. The Manipur-Kalewa road is planned to be extended to Mandalay, the second largest town of Myanmar. India hopes one day it will be a part of a pan-Asian highway.
On his part, Myanmar commerce minister U Khin Maung Lay says their government is on the fast track to liberalise economic policies through reforms to make it trade and investment friendly. He has asked the enterprises of the two countries to avail the opportunities to set up business linkages for mutual benefit.
In Myanmar, developed countries like the UK, the US, Netherlands, France are major sources of FDI. Among Asian countries, Singapore remains the main source of FDI going to Myanmar. Since 2000-01, cumulative FDI from Myanmar to India has totalled $8.69 million, as India imports large amounts of vegetables and wood from Myanmar. The trade between the two countries is growing, with a target of doubling the bilateral trade to $3 billion by 2015.
Indias exports to Myanmar stand at $334.4 million, while it imports goods worth over $1 billion from Myanmar. Bilateral trade has more than doubled from over $0.5 billion in 2004 to $1.3 billion in 2010.
While the main exports to Myanmar currently are pharma products, iron, steel, electrical machinery and equipment, sectors for future collaboration identified by the CII include agro-tech and forest-based products, metals, oil and gas exploration, infrastructure, communications and IT training.
VS Seshadri, Indian ambassador to Myanmar, highlights that the recent high-level visitations from both countries and Myanmar moving towards a market economy are creating an environment for greater engagement between India and Myanmar. He says Myanmar is a close neighbour of India and a growing economy with a large market can be a gateway for India to ASEAN and east Asia. The CII report suggests that creation of infrastructural support for trade will find many takers and may be treated as a commercially viable investment. Secondly, industry-led initiatives through the investment route will optimally engage the Myanmar market and economy with that of India and will see to rapid growth in bilateral trade.
According to the World Investment Report 2011, even though FDI outflows from India are huge, inflows of FDI into India have seen a decline of 31% from 2009 to 2010 due to macroeconomic concerns. In 2010, around $15 billion were invested by Indian investors abroad. In 2010, FDI inflow into India was to the tune of $25 billion, lower than what it was in 2009 at $36 billion.