Given India’s competitive advantage in services—a Deloitte study puts India’s revealed comparative advantage index in all services at between 1.5 and 2 as compared to a number between 0.5 and 1 for Asean nations and China—the successful conclusion of an Indo-Asean dialogue to include a pact in services as well as investments is a very big positive. The exact details are not known as yet since the formal signing has not taken place, but Indian officials announced that a deal had been reached on Thursday. India’s long-held position, in both multilateral and bilateral talks, has been that the opening up of Indian markets would be contingent upon it getting access to global services markets including through the movement of Indian professionals. Of course, this goes both ways and India cannot stop, say, Singapore lawyers from practising in Indian courts while wanting Singapore to allow India’s IT professionals to be allowed to work in Singapore. Asean is a big importer of services and, in 2011, imported $262 billion of services as compared to its services exports of $253 billion.
In the medium term, Indian manufacturing will have to get quite competitive. As per the agreement, when the FTA gets fully functional in 2016, tariffs will be eliminated on 80% of traded items in a phased manner, tariffs on 10% of items (sensitive items) will not be touched and the tariffs on the rest will be brought down to 5%. While India can be more competitive in chemicals and pharmaceuticals and mineral fuels, Asean scores in machinery and electrical equipment—in automobiles, the picture is not so clear-cut as both have their own competitive advantages. Apart from the onus this puts on India’s manufacturing sector, this means the government will have to do its bit as well since, more often than not, lack of land, rigid labour laws, unavailability of world-class infrastructure and general bureaucratic lethargy are what prevent firms from acquiring global quality. While India stands to gain from the greater access to Asean markets, the bigger gains will undoubtedly arise when the Asean+6 agreement gets formalised.
At the end of the day, while global trade is slowing—India’s exports have been falling steadily for seven months—intra-regional trade offers better potential, especially since it is clear multilateral talks are not going to succeed till the global economy starts picking up. While intra-regional trade is a significant part of both European and the Americas global trade—it