Thailand’s invitation to leading Indian automakers Tata Motors and Mahindra & Mahindra to set up factories comes at a time when India is reviewing its free trade agreement with the 10-member Association of Southeast Asian Nations (Asean) that was inked 14 years ago as part of its Look East policy. Despite a two-fold rise in trade in goods since then to $131.6 billion in FY 23, India has deep misgivings over this deal as it resulted in a nine-fold increase in its trade deficit with Asean to $43.6 billion.
To kick-start greater trading volumes, India Inc must invest more in Asean, especially in manufacturing and services, more than it is currently doing. Asean receives more foreign investments as a share of GDP than any other region. The member-states are also investing in one another in a big way. In sharp contrast, India has a receding FDI imprint with inflows of only $680 million in 2022 from $4.4 billion in 2010 according to Asean’s data portal. India’s FDI in manufacturing is also negligible at $49 million.
Thailand’s invitation to Tata Motors interestingly comes when the company has exited from its manufacturing presence in that region. In fact, the biggest bets in Asean have been made by the Tata Group when it took over NatSteel in Singapore in 2004 and two years later Millennium Steel in Thailand. To sell its pick-up trucks in the region, Tata Motors chose Thailand for its entry point in 2008. Seventeen years later, the Tatas had sold their stake in NatSteel while retaining the wire business.
In July 2018, Tata decided to stop assembly operations in Thailand as the business was sub-scale and unsustainable. It has now partnered with a leading automotive distributor, Inchcape Plc, to distribute its vehicles in the region. According to a report in FE, Thailand’s trade representative said that Tata Motors could use the country’s eastern economic corridor to set up an export hub for its electric vehicles and batteries. The Group has so far not commented on this invitation. M&M, for its part, plans to sell tractors, but will set up a plant in Thailand only if its sales targets are met.
Although the business environment in Asean is challenging, Tata Motors and others must engage more with the region like the Aditya Birla Group did in the late 1960s and 1970s when it made its pioneering forays into Thailand with the setting up of Indo Thai Synthetics Company. Analysts consider this as part of a first wave of investments by Indian industry in Asean during the pre- liberalisation period. Investments create interdependencies which translate into greater two-way trade volumes. India Inc’s FDI inflows in Asean are declining just when Japan and the US are ramping up their investments manifold and benefitting with booming trade.
India Inc’s most formidable rival in the region is the Chinese diaspora. To seize the bustling business opportunities in Asean, India Inc must better understand the competitive implications arising from this dominance by overseas Chinese businessmen whose entrenched presence provide a strategic advantage to the mainland. China is Asean’s largest trading partner. Asean is the region where global supply chains are relocating especially to member states like Vietnam and Thailand due to Sino-US tensions. There is no alternative to investing more for a substantial uptick and less imbalanced two-way trade with Asean.