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India in Spotlight

                                                                                                                  INDIA IN ASEAN

Identifying Prospects and Challenges for Indian Businesses Looking Asean

In this issue, Asean Affairs looks at the economy of India and her relationship with Asean. India is the world’s 11th ranking economy in terms of gross domestic product in 2009, but is expected to crack the top 10 this year. Her close proximity to Asean countries through already established cultural and commercial ties seems to be a “natural fit” with Asean. Exclusive Asean Affairs interviews with business leaders and economic observers of the Indian scene and foreign companies doing business in India offer readers an in-depth look at one of the world’s fastest developing economies.

When the India-Asean Free Trade Agreement (FTA) was signed on Aug. 12, 2009 , it was widely recognized in the world business press that this was India’s last-ditch effort to counter China’s growing dominance in the region.

China’s original trade agreement with Asean was signed in November 2002 and came into full effect in January 2010. A glance at these two charts shows the disparity between China and Indian trade with Asean.

China as ASEAN Trade Partner
Value - Yr. 2008: in US$ million
Exports 106,976.6
Imports 85,556.5
Share to Total ASEAN
Trade - Yr. 2008:
Share in percent
Exports 12.2
Imports 10.3
India as ASEAN Trade Partner
Value - Yr. 2008: in US$ million
Exports 17,329.1
Imports 30,082.8
Share to Total ASEAN
Trade - Yr. 2008:
Share in percent
Exports 2.0
Imports 3.6
Source: ASEAN Free Trade Area (AFTA), ASEAN Merchandise Trade Statistics Database Table:
Source: ASEAN Free Trade Area (AFTA), ASEAN Merchandise Trade Statistics
Database Table:

India had fallen behind China, which began talks with Asean along with India in 2003. China signed a goods agreement in 2004 and signed an investment agreement with Asean on the same day that Delhi signed the trade of goods agreement.

This puts India at a disadvantage in reducing its Asean trade imbalance because it is the world’s 10th largest exporter of services, while Asean is a net importer of services, although there is an agreement to fast-track an India –Asean services treaty.

The laggard performance of India is not unexpected. India heads the list of about 100 developing countries that stalled the stalled Doha round of talks of the World Trade Organization India has often viewed foreign trade as an import onslaught against its poor, agrarian rural population.

After strong lobbying by India’s farm sector, the terms of the FTA let India exclude 489 products, mostly commodities including rubber, from tariff cuts. Tariffs on a much smaller list of ‘’highly sensitive’’ products, including palm oil and coffee, would be reduced over about 10 years, but only modestly.......

Interviews with two of India’s leading companies who have successfully set up operations in Thailand and Asean.

O.P. Modi is a Thai national of Indian origin
residing in Bangkok and an executive of
India’s Aditya Birla Group. He has resided in
Thailand since 1978 and devotes some of his
time to philanthropic activities.
Ajit Venkataraman is the CEO of Tata Motors,
Thailand. Earlier, he was the Strategic
Planning Director – Commercial Vehicle
Business Unit of Tata Motors, India. Prior to
joining Tata Motors Ltd. in 2004, he was a
consultant, at A. T. Ke

Aditya Birla Group is a US$28 billion corporation active in 25 countries producing aluminum, copper, fiber, cement and fertilizer. More than 50 percent of its revenues come from operations outside India. In India it is strong in fiber production, telecommunications, insurance and operates a supermarket chain.
How does the closer relationship
between India and Asean – in trade and investment – readjust the way Indian companies doing business in the region?
Ajit Venkataraman: Culturally, people in India and ASEAN share a lot in common. Increase in trade relations normally acts as a catalyst to further improve the relationship between people in the region. This can clearly be seen in the number of tourists that arrive from India into the region.

O.P. Modi:The fact that Asean is India’s fourth-largest trading partner after the EU, U.S. and China poses tremendous opportunities as well as challenges to Indian companies. Doing business with Asean countries challenges Indian companies to be swift and steadfast in their movements. While India’s trade with Asean nations consists of roughly 10 percent of its global trade, the Asean-Indian bilateral trade is expected to reach US$ 50billion this year. Under the Asean-India goods Free Trade Agreement (FTA), Asean member countries and India will lift import tariffs on more than 80 percent of traded products between 2013 and 2016 as well as a tariff reduction of 5 percent on certain goods by 2016.The change in government and its fiscal policies towards tariff liberalization as well as the lifting of caps on foreign direct investment opens up tremendous opportunities for Indian exporters to gain additional market access into Asean markets. Indian manufacturers will be able to source intermediate products at competitive prices from the Asean markets for further reprocessing and export. In short, doing business with Asean countries has opened lot of doors that were earlier closed.

Tata Motors (Thailand) Limited commenced operations in Thailand in early 2008 with the introduction of the Xenon 2.2L VTT DICOR common-rail diesel pickup followed by the Tata Xenon Super CNG ,Thailand’s first pickup truck with a factory-installed 100 percent CNG system.
Asean is about to launch an integrated market in 2015. Does that mean better prospects for Indian companies – both those already there in Asean and those considering entering Asean, why?
Ajit Venkataraman: The GDP of the ASEAN countries is equivalent to that of India. An integrated market offers large opportunities for companies in the region and Indian companies. Most of the economies in the region are in the rapid growth phase similar to India. The needs and the aspirations of the people will be a lot similar.

O.P. Modi: Yes. For example, the energy sector companies from Asean and India could cooperate with each other in oil and gas exploration and in downstream processing activities. As an example, India’s national oil company is already involved in a joint venture to explore oil and natural gas in Vietnam. More specifically, India faces persistent shortages of cooking oil,while Malaysia and Indonesia are major palm oil producers,

creating opportunities for mutually beneficial cooperation. India is a major importer of forest products, while Indonesia and Myanmar are major exporters of these products. This indicates another potential area of expansion of bilateral trade. Similarly, Thailand’s expertise in food processing industry, particularly in deep-sea fishing and other marine related activities represents another area wherein cooperation is likely to be fruitful. In addition, Most of the Asean countries are heavily dependent on imported drugs and health care equipment. Indian pharmaceutical companies are internationally competitive in certain areas, particularly in generic drugs that are much cheaper than branded drugs.



What are the key factors an Indian company should take into account before deciding on making an investment in Asean?

Ajit Venkataraman:It is critical for Indian companies to understand the people of the region and their culture. Although, the countries in the region share a long history, fundamentally, the nature of people is very different. Without understanding this, it will be very difficult to operate.Companies should have a long term view for the region. This is one of the fundamental ways to win the confidence of the people.
Most of the Indian brands are unknown in the region. Brand building takes time and investment and should not be ignored.

O.P. Modi: Political and economic structure, banking and finance, foreign investment incentives and restrictions, free trade agreements, taxes, labour environment, government policy and transfer pricing


What do think are the pros and cons of doing business in Asean considering the members’ different levels of development?

Ajit Venkataraman: The different levels of development in various countries is an opportunity. The more advanced countries offer us an opportunity to accelerate our learning and the less advanced countries offer us an opportunity to improve the quality of life in those countries faster.

O.P. Modi: Pros:
a) Benefits from increased exports and imports, b) Wider access to more markets. Cons: a) more countries must reach agreement in each subsequent round of negotiations b) prolonged decision making/ agreements.

Assuming that you have decided to open a business in Asean, where would you set up your headquarters, why?

Ajit Venkataraman:We are currently evaluating our options.

O.P. Modi:
Singapore. First and foremost, there are no language barriers. It has traditionally had a dynamic economy, with strong service and manufacturing sectors, and one of the highest per capita gross domestic products (GDP) in the world. Its airport, port and road systems are among the best in the world.
Singapore’s economy has always depended on international trade and on the sale of services.

Its major industries include electronics, financial services, oil drilling equipment, petroleum refining, pharmaceutical manufacturing, processed food and beverages, rubber products and ship repair. In recent years, the government has moved to reduce reliance on the manufacture and export of electronics by developing its services sector, as well as its biotechnology, chemical and petrochemical industries.

Singapore’s small population and dependence on external markets and suppliers has pushed it towards economic openness, free trade and free markets. This, as well as government policies that foster economic development, have been key factors in Singapore’s historically strong economic performance.

The government has continued to pursue an outward-looking, export-oriented economic policy that encourages two-way flows of trade and investment which makes Singapore one of the most attractive places to do business.

Companies and Building World-Class ASEAN Companie
Companies and Building World-Class ASEAN Companies
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