NEW DELHI - Is India really a part of
Asia? Economically speaking, the answer would be
"no". But, after decades of isolated development,
the country's savings and investment rates are
moving towards levels prevalent in East and
Southeast Asia.
India's Finance Minister
Palaniappan Chidambaram, while presenting the
annual budget for the financial year starting
April 1, observed that the country's savings and
investment rates had touched record heights of
around 30% of gross domestic product (GDP). "There
is an investment boom in the country; it appears
that
India is catching up with the high investment
rates of East Asia and China," he told the Lok
Sabha, or the lower house of parliament.
In his February 28 budget speech,
Chidambaram announced that the peak customs tariff
for non-agricultural products was being brought
down from 15% to 12.5%. "I believe that we are now
only a short distance away from East Asian rates,"
he said.
Until 1991, when the Indian
government initiated economic liberalization, the
peak customs duty rate used to be as high as 150%.
The entire structure of customs duties was such
that inefficient local industries were protected
from international competition. The government
justified protectionism on the grounds that the
country was acutely short of hard currency at that
time. Thus, high customs tariffs assured domestic
industrialists comfortable profits while consumers
were deprived of cheap imported goods.
"Since the early 1990s, customs duties in
India have been slashed drastically and
dramatically," Nagesh Kumar, director general,
Research and Information System for Developing
Countries (RIS), a government-supported New Delhi
based think tank, told Inter Press Service. "In
the next few years, India's peak customs tariffs
should match Asian levels," he anticipates.
Peak customs tariffs in countries
belonging to the 10-nation Association of
Southeast Asian Nations (ASEAN) vary between 8%
and 10%. The bloc includes Singapore, Malaysia,
Thailand, Cambodia, Laos, Vietnam, Myanmar, the
Philippines, Brunei and Indonesia.
Not
everyone is satisfied with the pace at which
customs duty rates have been coming down in India.
"We should have, by now, brought down our peak
customs rate to 8%, as we have been talking about
bringing our peak customs rate to ASEAN levels for
umpteen years," S S Mehta, former director of the
Indian Institute of Foreign Trade, told IPS.
At 30% of GDP, India's savings and
investment rates are also moving towards Asian
levels - these rates are roughly 35% in countries
like Thailand and Malaysia and over 40% in China.
As far as foreign trade is concerned, the
Asia-Pacific region currently accounts for 40% of
India's exports and imports and nearly half of
cumulative inflows of foreign direct investment
since 1991. Companies from the region are actively
seeking investment opportunities in India,
particularly in the construction of highways,
ports, power projects and hotels, besides
telecommunications and aviation ventures.
Singapore has established an information
technology park and Australia is keen on
developing mines and ports. Japanese and South
Korean investors are participating in India's
consumer goods, electronics and automotive
industries, apart from being involved in
infrastructure projects.
Indian
businesspersons, too, have set up over 200 joint
ventures and wholly-owned subsidiaries in the
Asia-Pacific to manufacture a range of products
such as paper, chemicals, petrochemicals and
pharmaceuticals.
India shares a 1,600
kilometer land boundary with ASEAN countries and
participated in the launch of the Indian Ocean Rim
Association for Regional Cooperation and the
Bangladesh, India, Myanmar, Sri Lanka, and
Thailand Economic Cooperation (BIMSTEC) grouping
(earlier known as the Bay of Bengal Initiative for
Multi-Sectoral Technical Cooperation) when it was
set up in June 1997.
ASEAN and its
dialogue partners have recognized India's
membership in the ASEAN Regional Forum and the
fact that the country is in the geographical
footprint of the Asia-Pacific region. A study
conducted during the 1990s by the Asian
Development Bank entitled "Emerging Asia"
concluded that the next wave of Asian growth over
the next three decades would come from countries
in South Asia, including India.
India
hopes to be able to join a free trade and
investment regime in the Asia-Pacific region by
2010-2020, the deadline set by the Asia-Pacific
Economic Cooperation (APEC) initiative. APEC
claims to be the only inter-governmental grouping
in the world that operates on non-binding
commitments, open dialogue and equal respect for
the views of all participants.
India has a
billion-plus people, like China. The two countries
account for around 40% of the population of the
planet. But there are major differences in the
political and economic systems of the two Asian
giants. India prides itself as being the world's
largest democracy. But its economy is smaller and
growing at a slower pace in comparison to that of
China.
In 2004, foreign direct investment
poured into China at record levels totaling more
than US$153 billion in new agreements, up by a
third over 2003. By way of contrast, over the past
years, cumulative inflows of FDI to India have
totaled $37 billion.
These figures are,
however, not strictly comparable. A study
conducted by the International Monetary Fund
concluded that if India and China defined FDI in
an identical manner, the differences in the FDI
inflows claimed by the governments of the two
countries would narrow considerably and if FDI as
a proportion of GDP is compared, the difference
would be negligible - 2% in the case of China
against 1.7% for India.
A major difference
between the two economies is that, whereas China
is a manufacturing powerhouse, India has emerged
as an important provider of a range of services,
especially those related to computer software and
information technology.
Labor laws are
another area where the two countries are
different. It is far easier for employers to hire
and fire workers in China than in India. While the
minimum wage in China is in the region of $85-90
per month, the figure is at half this level in
India. Permanent workers in India earn more than
four times the wages of contract workers.
China continues to have serious problems
with intellectual property protection - unlike
India where the legal system is more developed,
transparent and with more predictable outcomes.
Nevertheless, the Indian legal system is slow in
resolving commercial disputes.
US and
European companies investing in China can and do
generally establish a wholly-owned subsidiary with
no requirement for local participation in
ownership. In India, on the other hand, certain
sectors of the economy are still not open to
foreign investors, while in others there are
restrictions on ownership. Safety rules and
pollution control norms tend to be less
restrictive in China than in India where civil
society organizations are more active.
Kumar says China should emerge as India's
largest trading partner, overtaking the US within
a year or so, with the value of two-way trade
exceeding $30 billion in 2007. He points out that
successive Indian governments have been following
a "Look East" policy over the past decade whereas,
in the past, India had failed to engage with the
rest of Asia.
"India's historical links
with East and Southeast Asia are thousands of
years old from the days of the Silk Route and the
Spice Route," said Kumar, adding that they were
unlike, say, Japan's links with Korea and China,
which remain troubled.
"India's historical
engagement with the rest of Asia was rather
benign," said Kumar, adding that he was optimistic
that India was on a path that would "retrace" and
"rediscover" its ancient links with Asia.
