In August 2014 Prime Minister Narendra Modi made “Act East” a cornerstone of his government’s foreign policy. Since then, India has had a more focused engagement with the region, with several high profile bilateral visits and a particular focus on completing infrastructure projects. But the “Act East” Policy sorely lacks a strategic fulcrum and an end result to work towards. It is such clarity of strategic intents and end goals that makes the U.S. “pivot to Asia” and China’s “One Belt One Road (OBOR)” such powerful foreign policy tools, while India’s “Act East” suffers from suspicions of being the old “Look East” wine put in a new bottle. In other words, regional actors continue to see India as a relatively peripheral player in the region compared to the United States, China, and even Japan. India is seen as a reactive agenda taker and not a proactive agenda setter with a firm political and economic commitment
India needs an ambitious geostrategic and economic goal, and the desire to develop an institutional framework around it. Potentially, the goal should be to create a framework for the economic integration of the wider Southern Asia region, linking India (and Bangladesh, Bhutan, and Nepal) with the ASEAN economies. Such economic integration would go far beyond traditional trade agreements and encompass time-bound connectivity infrastructure projects (like China’s OBOR), production network linkages facilitated by FDI, and the integration of energy and electricity infrastructures.
There are challenges to be surmounted. Bilateral relations between Myanmar and Bangladesh suffer from acrimony due to the Rohingya issue in Rakhine state. India would itself need to be proactive and resolve the Teesta river water sharing issue with Bangladesh. Difficulties remain in the Thai-Myanmar and Thai-Malaysia relations due regional conflicts at the border areas. But the existence of challenges in itself cannot be considered to be a reason for India to not articulate and work toward a strategic goal of economic integration and greater connectivity that would be largely beneficial for the wider region, and would provide ASEAN states the means to gradually move away from their over-dependence on China. Both Japan and the United States have been quietly lobbying for a more proactive Indian role in the region, and would be strategically aligned to such an objective.
Strategic Goal for Acting East: Creating a Southern Asian Multi-Sectoral Regional Agreement (SAMRA)
India’s relationships with Bangladesh, Nepal, and Bhutan have their own legacy of problems. However, none of them represent an overwhelming barrier to substantial gains in the future. The Bangladesh Bhutan India Nepal (BBIN) Motor Vehicle Agreement (MVA) is a classic example where the exclusion of Pakistan led to progress. The implementation of the BBIN agreement is in progress and represents a significant break-through in connectivity by enabling seamless movement of vehicles across regional borders.
Having made a start with the BBIN MVA, regionalism should be much more ambitious. Southern Asia, which comprises the Indian sub-continent and ASEAN member states, has historically seen India play a major role in its economy, polity, and culture. Starting in the 1990s, India’s Look East Policy led to proactive engagement with the Southeast Asian region, especially on the trade front. India has comprehensive economic agreements covering trade in goods, services, and investment with Singapore and Malaysia. It is negotiating similar comprehensive agreements with the other two major economies of the region, Indonesia and Thailand. It also has a free trade agreements in good with the bloc as a whole (the India-ASEAN FTA), and the services component of the India-ASEAN FTA is currently under negotiation.
In the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), India has a forum that provides an existing bridge between BBIN countries and Southeast Asia (Thailand and Myanmar). While BIMSTEC has largely been stagnant in terms of tangible policy achievements, it has an ambitious agenda on regionalism that goes beyond just trade in goods, services, and investments. It has working groups dealing with issues of trans-regional transportation and trade facilitation, energy cooperation, and education, among other key areas. These bilateral and regional agreements provide India the basic building blocks for a more comprehensive goal of integration for a larger region that includes BBIN countries plus ASEAN member states.
The fulcrum for the Act East Policy could be this very ambitious target of creating an integrated Southern Asian market, and the institutional means to get there could be an overarching mechanism which for the sake of this article I will call the Southern Asian Multi-Sectoral Regional Agreement (SAMRA). As the name suggests, SAMRA would be a series of multi-sectoral agreements going beyond just trade issues. The focus would be on intra-regional integration of transport, electricity grids, energy distribution, and the movement of people. The BBIN Motor Vehicles Agreement already provides a good template for an issue-specific and focused approach to regional economic integration.
While all of this might sound too idealistic, there are good strategic and economic reasons for India to take the lead in this initiative and for other countries in the larger Southern Asian region to consider such a proposal. Let us take a broader overview of some of factors that makes an institutional mechanism like SAMRA a very good alternative for India and rest of the region.
Markets and Competitiveness
A united Southern Asia would represent an economic powerhouse. The proposed SAMRA member states had a combined GDP of almost $16 trillion USD (measured in PPP) in 2014, accounting for 14 percent of the global economy. As a region Southern Asia is one of the world’s fastest growing. Southern Asia’s GDP more than doubled between 2001 and 2014, while world GDP grew by just around 40 percent in the same period. If current trends continue Southern Asia will account for about 20 percent of global GDP by 2020.
Even more tellingly, household consumption in Southern Asia has grown by about 215 percent between 2001 and 2013, much faster than the overall global figure of 85 percent. A rising middle class and rapid urbanization is fast changing the region into a major engine of consumption. In 2001, the region as a whole had 180 million urban citizens; today it has over 250 million. In just a decade the region has added more than the entire population of France as new urban citizens, highlighting the rapid pace of growth.
With a population of over 2 trillion, it is home to almost 30 percent of humanity, and would account for almost 40 percent of the world’s working population in 2020. With the right investments in skills and integrated markets that allow it to leverage its economies of scale, Southern Asia would be a global economic leader, and one of most important engines of global growth.
The first steps toward the economic integration of India with ASEAN have already taken place with the several bilateral agreements already mentioned earlier. Next steps would need to deepen this process, and extend these agreements to include regulatory harmonization, and greater integration in areas such as services trade, bilateral investment regimes, and the movement of people.
India has been struggling with its energy security policy. India spends more than $400 million each day on oil imports, which account for 70 percent of its oil consumption. For a country facing such high dependence on outside sources so early in its growth trajectory, one would expect securing reliable and long-term supplies would be at the forefront of the development and foreign policy agenda. However, the alternatives on India’s western borders, such as the Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India pipeline, are uncertain prospects at best. Moreover, India will always remain vulnerable to the Pakistani political situation in ensuring the safety of these pipelines. The politics of the Middle East, and U.S. perspectives on such politics will also make India’s dependence on West Asian oil and gas resources uncertain.
As India looks for alternative oil, gas, and other energy resources, Southern Asia offers a great opportunity. Myanmar is emerging as major natural gas producer. Bangladesh has significant resources, and new resources have come to light in recent times. Indonesia’s Natuna fields can emerge as one of the richest sources of gas globally in the coming years. Malaysia, Vietnam, and the Philippines all have ambitious on-shore and off-shore oil and gas field development plans. Indonesia is today the world’s largest exporter of coal, and Indian firms have already a significant presence in the Indonesian coal sector. The Trans-ASEAN energy pipeline being developed in partnership by ASEAN member states envisages a grid of pipelines connecting the region. Then-Foreign Secretary Rajan Mathai’s statements during Prime Minister Manmohan Singh’s visit to Myanmar in May 2012 seemed to indicate that India is considering pipeline connectivity with Myanmar in the near future. Thus, the prospect for a trans-Southern Asian pipeline grid is not beyond the realm of possibility. In fact, it should be a strategic priority for Indian government, and a public-private sector consortium should be formed to consider the feasibility and investment prospects of such a project.
But it is not just about pipeline connectivity and trade in oil and gas across Southern Asia. An ambitious electricity grid linking regime can facilitate trade in electricity across several countries. This would allow electricity surplus countries like Nepal, Bhutan, Laos (with hydro-electricity resources) to export to Southern Asian countries with electricity deficits. It would also allow countries with significant oil, gas, and coal resources to jointly develop large scale power plants and then distribute that production across the greater Southern Asian region.
Southern Asia is becoming increasingly important in terms of geostrategic competition. On one hand there is tension in the South China Sea at the eastern periphery of this region, as China and ASEAN member states like Vietnam and the Philippines come into conflict over important hydrocarbon resources and control of strategic choke points along sea routes. On the other, U.S., Chinese, and other interests are muddying the waters in the Bay of Bengal region.
A united Southern Asia, leveraging the combined strategic and military might of India, and the larger ASEAN states like Indonesia, Thailand, Myanmar and Vietnam, would be able to resist any outside manipulation of this region. Unlike China, India is not perceived to have any hegemonic designs by ASEAN member states. It is true that South Asian neighbors of India are more prone to see India in a different light. However, that is one area which Indian diplomacy needs to urgently address.
The most important point is that despite some irritants, such as low-intensity conflicts between Cambodia and Thailand, Thailand and Myanmar, and disagreements between India and Bangladesh, the strategic interests of the countries in the region are essentially in harmony. Together, these countries can counter radicalism and separatism in their countries, ensure the safety of sea and overland routes, and combat common challenges of narcotics and terrorism.
So what next?
The critical next step is connectivity. In that light, Prime Minister Modi set the ball rolling in the right direction by announcing a major road development project during his visit to Myanmar that would connect India to Thailand via Myanmar, and making a commitment to a time-bound completion. India also needs to ramp up its participation in rail, ports, and other logistics sector development with the overall goal of trans-Southern Asian connectivity in mind. India should also focus on promoting connectivity projects in the energy sector, including pipelines and integrated energy grids.
When it comes to trade, India should create a proactive mechanism to integrate the mandates of the various trade agreements already in place between India and ASEAN. These include India’s bilaterals with Singapore, Malaysia, Thailand, Indonesia, and the regional agreement with ASEAN. It also includes multi-sector initiatives like BIMSTEC, that need to be reinvigorated with a sense of purpose, specific projects, and firm deadlines in areas like energy grid integration, transport and trade facilitation, and education (people to people linkages).This would serve as the institutional platform for the development of SAMRA. India can take the lead by Allowing complete market access to its market for its South Asian neighbors, i.e. Bangladesh, Bhutan, and Nepal, to instill confidence in India’s role as an engine of growth and demand for the wider region.
An important step in this direction would be to actually launch a Southern Asian Regional Forum with the goal of complete economic integration of Southern Asian countries by 2025, i.e. the first step toward actualizing something like SAMRA. This forum would have two specific focus areas. The first would focus on mechanisms to turn the India-ASEAN FTA, and comprehensive agreements with major ASEAN member economies, into a single comprehensive agreement between India and ASEAN by 2020. The second focus would to integrate the other South Asian economies (Bangladesh, Nepal, Sri Lanka, and Bhutan) with India and ASEAN through a series of agreements related to financial, services, and goods market integration. This would require India to seriously address its overly defensive position on market access in both goods and services. In light of mega-regionals, including the TPP, that cover some of the ASEAN member states, India can ill afford to have a static and defensive trade policy with the ancient instruments of tariff protection at its core.
On the security front, India could offer military training to all ASEAN member states, and launch a joint Southern Asian military exercise that brings together the militaries of India, Bangladesh, Sri Lanka, Nepal and all of the ASEAN member states.
India will also need to encourage Southern Asian states to resolve all outstanding irritants in bilateral relations, starting with its own issues. A priority would be to address issues like the Teesta water sharing agreement with Bangladesh, and working to heal the rift in India-Nepal relations. India could also offer to proactively mediate between Myanmar and Bangladesh on the Rohingya refugee issue
Northeast Asia (i.e. China, Japan, and Korea) is already integrated economically, and it is only a matter of time before these countries start cementing their existing economic ties into more formal institutional mechanisms such as FTAs. Southern Asia has always been a culturally and economically integrated region, and India has always played a key role as a regional economic and cultural hub. Unlike the Chinese, India’s leadership in this region has historically been through economic and cultural roles and not through political and military might. It is time to revive that historical role, and take the lead in turning Southern Asia into the world’s most dynamic economic region. The time for Southern Asian integration has arrived.
Pritam Banerjee is currently Senior Director for Corporate Public Policy in South Asia for Deutsche-Post DHL. The views expressed in this column are personal and do not in any way reflect the position of DPDHL group.