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Keynote address by Secretary (East) in the ASEAN Ambassadors Interactive Roundtable Fourm in New Delhi (September 18, 2014)

September 18, 2014

Mr. Anupam Shah, Chairman of EEPC India,

Representatives of the Indian Industry,

Ambassadors and diplomats from ASEAN countries based in Delhi,

Ladies and Gentlemen,

It is my pleasure to participate in the round table organised by EEPC with ASEAN Ambassadors, on the subject of "Building Partnerships with Indian Engineering & Manufacturing Sector”. As India moves into the third decade of its partnership with ASEAN and prepares for the next ASEAN-India Summit meeting in November, this is a timely and important discussion.

In recent times, the Indian economy has seen a rapid transformation and moved from an agriculture based economy to one in which the services sector contributes 57% of our GDP. Although the manufacturing sector contributes only 16% of our GDP, it has been steadily growing. According to a recent study by McKinsey and Company, India's manufacturing sector could reach $1 trillion by 2025. Rising costs in other manufacturing hubs have motivated foreign companies and multinational companies to establish production plants in India ranging from mobile phones to automobiles, and luxury brands, among others. Deloitte’s global index for 38 nations in 2013 ranked India the 4th largest competitive manufacturing nation.

The government has focused on enhancing manufacturing output and quality and announced in 2011 a new National Manufacturing Policy, which aims to enhance within the next decade the share of manufacturing in GDP from 16% at present to 25% and creating 100 million jobs.

Our engineering sector is among the top two contributors to the total Indian export basket with total shipments of US$ 56.7 billion in 2012-13. Our engineering exports to our Free Trade Agreement (FTA) partners including the ASEAN have witnessed robust growth.

With India boasting of a large coastline of more than 7500 km, we are strategically located as a hub for exporting to countries in both Europe and Africa we are making our major ports more competitive through capacity augmentation, mechanization, capital dredging and corporatization. We are upgrading and expanding our shipping industry, having awarded 30 projects entailing an investment of over US$ 3.32 billion in 2013-14 alone. Special attention is being given to development of private ports on the Eastern Coast of India, which will significantly contribute to the growth of India’s external trade especially with ASEAN countries.

This makes India, an ideal choice and location, for ASEAN countries both for co-locating manufacturing plants, and for becoming an export hub. This was encapsulated in our Prime Minister’s recent call for ‘Make in India’ about which we will hear further details in coming weeks.

Our Foreign Direct Investment policy is widely reckoned to be among the most liberal in the emerging economies, allowing upto 100% FDI under the automatic route in several sectors and activities. ASEAN countries which are located in India’s neighbourhood and periphery can explore business potential through trade, investments, and partnerships in both traditional fields such as infrastructure, manufacturing, pharma, automobiles, and also new sectors such as telecom & IT, medicine, tourism etc where our complementarities can be of mutual benefit.

Relations with the ASEAN have become one of the cornerstones of our foreign policy, given the growing economic clout of countries in this region and the changing geo-political scenario. In recent years our interaction with ASEAN has become multifaceted, spanning trade and investment, science and technology, culture and many other sectors. India-ASEAN commercial ties are substantial with nearly US$76 bln of bilateral trade, and a combined market size of 1.8 billion people. In 2009 we signed an FTA for trade in goods. Between 2009 to 2013 India’s exports to ASEAN showed a compound aggregated growth rate of 16% per annum. Nevertheless, India’s trade with ASEAN is just 3% of total ASEAN trade – and there is immense untapped potential.

ASEAN-India Agreements for Trade in Services and Investments are currently being signed by circulation. The Agreement on services is based on GATS and follows a positive list of modalities for scheduling. It will also facilitate of movement of professionals; and provides business certainties to service providers from India and ASEAN countries.

The Agreement on investments will create a liberal, facilitative and competitive investment regime among the participating countries. The Agreement is comprehensive - encompassing principles such as promotion, facilitation, liberalization and protection of investments. Once these two agreements are in place, EEPC and other business chambers can hold workshops which can give practical guidance to our industry on using these frameworks to enhance business with ASEAN.

India is also negotiating a Regional Comprehensive Economic Partnership (RCEP) which aims to be the largest free-trade bloc in the world, comprising all 10 ASEAN nations and 6 other countries with which the group has free-trade agreements —including India. The RCEP bloc represents 49 % of the world’s population, 29 % of world trade and 26 % of world FDI inflows. We have common objectives such as enhancing our production and manufacturing networks, strengthening our financial systems, sustainable development, food security etc. We will also need to devise a mechanism where RCEP principles can be given early substance by making it easier for businessmen to travel between the countries.

We need to work together to meet the target of US$100 bln for India-ASEAN trade by 2015, which was set by our respective leaders. However there are some challenges which need to be addressed. Currently, connectivity with ASEAN on land and sea routes remains poor and this in turn increases the cost of moving goods.

Realising the importance of greater connectivity with ASEAN countries, India is contributing to the road infrastructure especially the India, Myanmar and Thailand trilateral highway. India has built 160 kms of the highway, and is committed to another 120 kms and upgradation of 71 old bridges on the Trilateral Highway. The completion of the Trilateral Highway would open up India's landlocked northeast to Southeast Asia and allow freight and container trucks to move across the borders from India to Myanmar and Thailand. I am happy to announce that from early October, Shipping Corporation of India is starting on a trial basis, direct fortnightly shipping services from India’s Eastern coast to Yangon, which would cut down shipping time by one third.

Maritime connectivity could also receive a boost with Dawei deep-sea port in Myanmar that would provide a much shorter sea route to the Southeast Asian region as compared to the Strait of Malacca. Partnership with ports located in Myanmar, including Dawei will make Indian ports in the eastern seaboard, key gateways for connectivity with ASEAN countries. To cater to India's increasing trade with East Asia, new container and multi cargo terminals are under construction on the eastern coast of India.

The Kaladan Multimodal Project, expected to be completed soon will connect Kolkata and other ports on East Coast of India with Sittwe port in Myanmar and link Sittwe to Mizoram via river and road transport. This project will reduce distance from Kolkata to Sittwee by approximately 1300 km.

To enhance air linkages with ASEAN and facilitate movement of people we offered to air carriers in ASEAN countries, 18 destinations in India’s Tier II and Tier III cities, some years ago. We call upon the air carriers in ASEAN to utilize this offer at the earliest, as tier II and III cities in India are much larger than Tier cities elsewhere, and are on a growth path. Singapore, Malaysia and Thailand are already operating on some of these routes. We have also offered the ASEAN an Open Sky Policy on Cargo on quid pro quo basis.

While we are working on these physical connectivity projects, we need to enhance mobility of our businessmen and professionals, by granting them long duration and multiple entry business visas.

With geographic connectivity between India-Myanmar-Thailand a distinct possibility, communication and financial linkages with ASEAN should also be strengthened. It is important to create a facilitative environment, by upgrading our Land Customs Stations; immigration, customs, and phyto-sanitary facilities all along our border with ASEAN countries, especially Myanmar. We have, therefore, proposed that India-Myanmar-Thailand begin negotiations on a Transit Transport Agreement for the Trilateral Highway.

To connect geographic corridors with economic corridors, creation of infrastructure, soft infrastructure and integration of economic activity in the north-east and eastern coast of India must be taken up simultaneously, and not sequentially. We need to establish economic activity and clusters along this corridor through SEZs, sustainable production networks, backend linkages in India’s North eastern states so that our economic ties with South east Asia will become economically sustainable. We invite India’s corporate sector and ASEAN countries to establish programs for building skills and capacity of youth in our north Eastern states to absorb these upcoming economic opportunities. We need to also focus on development of the SME sector which can become a supplier for the Indian industry’s exports to the ASEAN region. The Indian industry can also combine their collective strengths through partnerships and enhance their presence and activities in the ASEAN region.

On conclusion I would like to emphasise that greater connectivity with ASEAN will provide more development opportunities for less developed states in North East India and also less developed ASEAN countries. There are also differentiated levels of economic development in the ASEAN region, due to which some countries will need financial assistance to address connectivity issues. We need to work together to find creative mechanisms and financing vehicles and international financial institutions.

As you can see, building partnerships with ASEAN necessitates a holistic and multi-sectoral approach that needs active participation of several stakeholders and entities including multilateral and international organisations. I am glad to see that organisations such as EEPC are taking the lead and highlighting the opportunities and potential of India-ASEAN ties. With these thoughts, I would like to conclude and thank EEPC for giving us the opportunity to engage in this brainstorming exercise.

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