Indian Ocean as the Sea of Opportunities: Reinforced Regional Interdependence via Trade and Development

This article presents the evolving policy of regional trade agreements in the Indian Ocean region with India at the helm of affairs. Besides the existing arrangements such as Association of Southeast Asian Nations and South Asian Association for Regional Cooperation, new partnerships are on the horizon including the recently concluded Regional Comprehensive Economic Partnership, Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation, the Indian Ocean Rim Association, and the Asia-Africa Growth Corridor. In the process, the Indian Ocean region looks at advancing South–South cooperation. The challenge remains to prioritise collective steps toward trade and development while envisaging people-friendly international trade governance.

Foreign trade is known to the Indian Ocean region for thousands of years. Lothal served as the principal dock during the Harappan–Indus valley civilisation (circa 2600–1700 BC) while dispensing trade links with Mesopotamia and other territories including present-day Iran, Oman and beyond (Avari 2007: 38–57). The trans-Eurasian silk route furthered trade links with China and other regions in central Asia (Liu 1988: 1–22). Within the Indian Ocean region, India’s age-old economic and cultural links are not limited to Sri Lanka and a handful of countries in South East Asia. Sanjiv Sanyal, in his book The Ocean of Churn: How the Indian Ocean Shaped Human History, has chronicled India’s ties since antiquity with countries in the expanses of Asia, Africa, and Oceania. Sanyal called the Indian Ocean as an ocean of churn whereby millennia of “give and take” shaped present cultures of the whole region, particularly Indic influences in the history and culture of South East Asia, Mauritius, the Caribbean and beyond (Sanyal 2016). For instance, the annual fair in Cuttack, Orissa, called Bali Yatra (literally meaning “the journey to Bali”) is reminiscent of the maritime links between India and Indonesia (Sanyal 2016: 85). The Ramayana and the Mahabharata, two great epics of India, are immensely popular in South East Asia, including Thailand and Indonesia. Trade was an important element of these ties. The Indian Ocean saw an exchange of goods and commodities across the region for a multitude of centuries much before the Europeans set sail to India via the Atlantic Ocean from the 15th century onwards. Indeed, the Indian rupee remained a legal tender in Oman, Qatar, Bahrain and the United Arab Emirates (UAE) till not long ago. As noted by Sanyal, these countries discontinued the practice and came up with their own currencies in the 1960s when the Indian rupee faced an acute devaluation (Sanyal 2016: 47). 

Trade Linkages Within South Asia

In the modern period, a series of preferential trade agreements (in addition to the General Agreement on Tariffs and Trade [GATT]/World Trade Organization [WTO] regime) have advanced multilateralism and international trade. India has acceded to an array of regional agreements that have accelerated trade linkages and reduced existing trade barriers.1 For instance, the South Asian Association for Regional Cooperation (SAARC) came about in the 1980s as a regional intergovernmental association of South Asian countries (Kaul 2017). The idea to bring together countries with similar sociocultural and historical background and with a large section of their population living under poverty was a noble one. Its arrangements, first in the form of South Asian Preferential Trading Arrangement or SAPTA and later through Agreement on South Asian Free Trade Area (SAFTA) have envisaged stipulated preferential measures to the least developed members in the association and gradual reduction of tariffs (by way of Trade Liberalisation Programme or TLP) and other barriers to trade via mechanisms of harmonising and simplifying standards of customs clearance, transit facilities for efficient intra-regional trade, and banking procedure for import financing and business visas. Adopted in 2010, SAARC Agreement on Trade in Services (SATIS) endorses the liberalisation agenda of trade in services.   

Notwithstanding the efforts to raise trade, South Asia remains one of the least integrated areas of the world.3 The under 6% intra-regional trade figure within the region remains feeble especially when regional trade agreements contribute to more than 50% of world trade (Kathuria 2015). Some of the sore points include high trade costs, limited transport connectivity, burdensome logistics and regulatory restrictions, relative asymmetry in the size of the member countries and mistrust and historical political tensions (Chand 2017). Besides this, a variety of other possible areas of expansion require to be appraised. A focus on integrating with the global value chains may help unlock trade prospects in intermediate goods and services and that add up to 70% of the total trade figures (Mukherji et al 2016: 14–20). Foreign investment is another undermined aspect of intra-regional trade growth considering the ambit of production and market access in South Asia. Besides setting up the SAARC arbitration council and the subgroup on investment and arbitration, other desirable mechanisms are favourable investment policy and reducing horizontal barriers to foreign investment.

While progression in SAARC is not as fast-paced, bilateral agreements amongst the neighbouring countries within the region have accelerated the trade liberalisation stride. For instance, India–Sri Lanka FTA (free trade agreement) from 2000 to 2006 impelled an annual growth of 34.5% for India’s exports to Sri Lanka and 132% for Sri Lanka’s exports to India (Singh 2017: 29–30). Other examples are India–Bhutan FTA and Pakistan–Sri Lanka FTA. The negotiation of a new arrangement called the Economic and Technological Cooperation (ETCA) to upgrade the existing Sri Lanka–India FTA has been doing the rounds for a while (Gamanayake 2016). Besides India being Sri Lanka’s largest trade partner and largest tourist contributor, the proposed ETCA’s overall benefits entail increased cooperation and boost in Sri Lanka’s informational technology and tourism sectors (Senanayake 2020). Such engagements further trade discourses in the region given that the incessant conundrums surrounding India–Pakistan relations have inter alia stymied SAARC’s ambit and converted it into a “hapless prisoner of the partition syndrome” (Karim 2017) and a “jammed vehicle” (Chakma 2018: 195).  Indeed, Bangladesh has proposed a “subregion” model within SAARC as a way to curb or minimise any adverse effect of this discord to spread across the board and, consequently, replicate models in other subregions upon their success. The model involves three categories: “eastern subregion” for Bangladesh, Bhutan, India and Nepal; “southern subregion” comprising India, Maldives, and Sri Lanka and; “western subregion” that includes Afghanistan, India and Pakistan (Karim 2017). Nonetheless, trade diversion between India and Pakistan requires severe correction as 32% of  Pakistan’s exports bound toward India reach the destination via a third country. Similarly, India’s exports worth $15 billion reach Pakistan via a third country (Singh 2017: 28). Thus, inadequate trade linkages in addition to sensitive lists make the export commodities more expensive for their end-users in either country. 

Trade Linkages Between South Asia and South East Asia

One notes other experiments to link trade linkages within South Asia and between South Asia and South East Asia. A collective framework amongst Bangladesh, China, India, and Myanmar or the BCIM strives to improve connectivity and economic relations. Further, the Asian Development Bank (ADB) in 2000 launched the South Asia Subregional Economic Cooperation (SASEC) to inter alia strengthen trade relations amongst Bangladesh, Bhutan, India, Maldives, Myanmar, and Sri Lanka (Asian Development Bank 2017). A cross-regional framework, the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC)4 presents another model of economic regionalism. The BIMSTEC comprises Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka, and Thailand. Like SAARC, a strong political will and collective resolve are required for BIMSTEC to succeed. Otherwise, it may also result in another specimen of a jammed vehicle (Bhattacharjee 2018). These activities correspond with India’s Act East policy of extending regional connectivity to nations south-east of it (Rej 2017: 148). Post Prime Minister Narendra Modi’s re-election in 2019, the invitation to the heads of states of BIMSTEC countries for swearing-in ceremony shows a renewed and reinforced stand for BIMSTEC by India’s incumbent government (Business Standard 2019). Some of the promising actions include enhancing transparency and inter-sectoral linkages, offsetting trade barriers and quantitative restrictions by way of harmonising customs, banking, insurance, shorter time frames for dispute settlement mechanisms, arbitration procedures, strengthening roads, railways, shipping and air linkages, and taking stricter measures to check trade diversion.

Since Modi’s inauguration in 2014, “neighbourhood first” has been an important facet of his foreign policy (Kaura 2018). It is an audacious initiative not only for regional engagement but asserts India’s optimism for South–South cooperation (Alam 2017). India’s “Act East” and “Extended Neighbourhood” approaches also find consonance with its effort to bridge the gaps with nations of South East Asia and Africa and further boost trade relations with them (Rajagopalan 2018; Scott 2009). India’s geostrategic position plays to its advantage. Modi invited the leaders of the Association of Southeast Asian Nations (ASEAN 2016) as guests of honour on India’s Republic day parade in 2018. Modi’s second term reinforces “neighbourhood first” policy as he chose to make his first visits to the neighbouring countries of  Maldives and Sri Lanka with an objective of renewing bilateral agendas with them including developmental projects and maritime security in the Indian Ocean region (Times of India 2019). Since the unveiling of India’s Look East policy in 1991–92, India’s ties with ASEAN nations have witnessed a consistent rise which is outlined in three phases (Bhogal 2018). The first phase starting in the 1990s registered an increase in trade and investment relations. The second phase (the 2000s) marked greater institutionalised linkages in the direction of expanding the cooperation agenda. Modi’s Act East policy charts the third phase which aims at reinvigorating ties with ASEAN, with an action-oriented focus on security, connectivity and regional integration, and development. At present, ASEAN bloc is India’s fourth largest trading partner. Bilateral trade between ASEAN and India is gradually rising. The trade figure in 2016–17 figure stood at $71.6 billion. Between 2007 and 2015, foreign direct investment (FDI) inflows from ASEAN to India rose to $68.91 billion while FDI outflows from India to ASEAN countries were worth $38.672 billion (MEA 2018; Kalita 2018; Gupta 2018). 

Since 2012, India–ASEAN ties have transformed into a strategic partnership not only limited to economic cooperation but also security, sociocultural ties, enhanced connectivity, and reducing the development gap (Chapman 2018). Some other instances of India–ASEAN engagements are India–Myanmar–Thailand trilateral highway (enhancing connectivity) and Mekong–Ganga cooperation (fostering tourism, education, and transport linkages). At the same time, India’s preferential regime is considered to be of limited coverage while its primary focus lays on border barriers. 

Trade Reforms and Agriculture

Canadian political economy expert John Ravenhill finds fault with India’s disinclination to liberalise its agricultural and manufacturing sectors (Ravenhill 2016: 1083–88). No doubt, reform oriented liberalisation has a positive effect on production increase, resource efficiency, and economic growth. However, one may argue that owing to the failure of WTO’s Doha Round coupled with countries struggling with food crisis, financial and economic crises, developing countries would be indisposed to extensive trade reforms (Singh 2017: 268–70; Narlikar 2021). As noted by Ishita Singh, agricultural trade in the past few years has not adequately tackled food security; development assistance, public distribution scheme and preferential trade have alleviated the extrinsic impact of protectionist policies (Singh 2017: 269; Ping Chan 2019). Singh, comparing the global and Indian indicators with respect to undernourished population since 1990, contrasted a global decline in the segment of undernourished people by one-fifth to a rise in the undernourished people in India by 26% (Singh 2017: 269). Despite India’s steps towards combating malnutrition and ensuring food and nutrition security, India shares a quarter of the global hunger burden with 195 million undernourished people.

Therefore, while ushering trade reforms, it is important for developing countries to consider the questions of food security, financial health, tackling inequalities, and reconciling between winners and losers, particularly the adverse impact on incomes and livelihoods of the indigent and subaltern members of the society (Singh 2017; Shah and Roy 2012). For instance, regional arrangements, while enhancing trade connectivity, can also have a positive effect on food security. Fifty per cent of Asia’s agricultural produce exportation takes place within Asia. Besides Asia, in many African countries, where trade in agricultural commodities is predominantly informal and restrained by lack of physical infrastructure and logistics and high transport costs, could greatly benefit from regional trade agreements which may confront these non-tariff barriers, contribute to mitigating price and production volatilities, and increase access and provide a broader market to small and marginal farmers (Singh 2017: 277–91; Sunge and Ngepah 2019). 

Recent FTAs

Commentators have discerned an implausibility of an ASEAN–SAARC FTA so far (Ratna and Sharma 2016). However, imports between SAARC and ASEAN groups rose from 11.9% to 22.8% from 1996 to 2012 (consider this in contrast to the increase of intra-SAARC imports from 0.6% to 1.7% between 1996 and 2012) (Ratna and Sharma 2016: 182). An integration of these two blocs may help elevate the demand for labour, both skilled and unskilled, and reduce production costs with the help of imported intermediate goods, and eventually may result in better market access and high welfare gains for both the groupings (Pant and Deb 2017: 4). Indeed, aligning with ASEAN could as well be the external stimulus that SAARC may need in order to roll the jammed vehicle (Kumari et al 2016). This may be an alternate possibility considering India’s withdrawal from the Regional Comprehensive Economic Partnership (RCEP), an FTA steered by several ASEAN countries along with Australia, China, and New Zealand. 

Stipulated to be the world’s largest trading bloc, RCEP is another preferential framework to reckon with.  It was first proposed by ASEAN leaders in 2011 as a region-wide platform for economic integration between ASEAN and 16 other countries in North East and South East Asia, Oceania and South Asia as well as for streamlining ASEAN’s already existing agreements such as ASEAN–China FTA, ASEAN–Korea FTA, ASEAN–Japan Comprehensive Economic Partnership Agreement, ASEAN–Australia–New Zealand FTA and ASEAN–India FTA (ASEAN 2016). Labelled as a comprehensive, high quality and modern 21st-century mega regional agreement, RCEP strives inter alia to enhance economic linkages via trade and investment, strengthen technical cooperation, dispute settlement, and the narrow developmental gap among the state parties. The megabloc in the making represents almost half of the global population and boasts a contribution of 30% to world gross domestic product (GDP) (ASEAN). Home to some of the largest and dynamic economies in the world, RCEP promises an elevated flow of intra-regional trade, investment, labour and skill mobility within the region and to simplify the crisscrossing spaghetti bowl effect of various FTAs and their differing rules on rules of origin and tariffs and other measures (Hsieh 2017).

Before announcing its decision in 2019 to part ways with RCEP, India had earlier participated in its negotiations for a number of years since it was proposed in 2011. Besides India, other candidate countries such as Japan and South Korea have a sensitive agricultural sector and, within the region, may face fierce competition from other agricultural exporters like Australia, China, and New Zealand (Chia 2016; Ravenhill 2016: 1089). Similarly, the area of liberalisation of services (one of India’s core strengths and which account for around 55% of the GDP) was a vexation particularly when it came to touch upon the matters of government procurement with state-owned enterprises (and state subsidies) being an important element, the conflicting regimes of intellectual property rights, and labour (including free movement of skilled professionals) and environmental standards (Ravenhill 2016: 1089; Wignaraja 2018: 12; Chandran 2018; Yu 2017). Not to mention, India’s $105 billion burgeoning trade deficit with RCEP countries, counting around $50 billion trade deficit with China when India is pushing for its manufacturing industry through the Make in India campaign, and a stiff resistance to regional trade liberalisation by several constituencies including farmers and civil society groups within India who ostensibly link FTAs to de-industrialisation (Oba 2019; Nedumpara 2021).

Some of India’s concerns entailed apprehensions about inadequate safeguards against import surges, possible circumvention of rules of origin, the basis to ascertain a commodity’s nationality or place of origin, which could result in dumping of products by channeling them through countries enjoying lower tariffs. India had proposed to include some trade remedy mechanisms such as an auto-trigger mechanism that would lapse back the preferential custom duty to most favoured nation (MFN) rate after imports met a certain benchmark (Nedumpara 2021). The investment chapter had some provisions which would have placed India in an awkward situation, particularly regarding MFN obligations and extending corresponding benefits to candidate countries it is involved in border disputes with, defence being one such sensitive sector. India was not convinced about RCEP materialising tangible market access in some candidate countries and eliminating non-tariff barriers there for Indian corporations (Raghavan 2020). Since the agreement does not undertake commitments exceeding the WTO, India does not seem to gain much in the services sector; RCEP by and large is goods-oriented (Nedumpara 2021).             

India should not be averse to negotiate entry into RCEP at a later stage while it may resolve standing issues bilaterally with its members including the matter of trade deficit. Nonetheless, RCEP envisages an overall beneficial welfare effect for its member countries. RCEP also aims to play a gap-filling role in preferential trade, particularly for members who do not have pre-existing FTAs with each other such as China and Japan, on the one hand, and Korea and Japan on the other hand. 

Organisation of other FTAs under the auspices of BRICS, the association of five major emerging national economies Brazil, China, India, Russia and South Africa, and Shanghai Cooperation Organisation (SCO), a Eurasian intergovernmental alliance, is also doing the rounds. Furthermore, the Indian Ocean Rim Association (IORA) has been established as an intergovernmental association among the countries of South Asia, South East Asia, West Asia, Eastern and Southern Africa and Oceania. Originally launched in 1997 and headquartered in Mauritius, IORA promotes collaborations in the areas of trade and investment facilitation, maritime safety and security, fisheries management, disaster risk management, tourism promotion and cultural exchanges, and academic, science and technology.6 A positive intra-trade potential within the Indian Ocean Rim is depicted by a 10% rise (from 20% to 30%) in the past few years (Khurana 2018). 

Conclusions

Regional arrangements such as RCEP, IORA, and the emerging South–South FTAs are emblematic of a normative foundation in international economic law by the global South. This envisions the Asian approach to international economic law and rule-making promising to leave a positive impact on global norms (Hsieh 2017). It is stressed that Modi’s Act East policy bolsters India’s stand vis-à-vis Asian regionalism while the policy espouses an action-based strategy to fortify defense and economic links with other Asian trade partners (Hsieh 2017). This also corresponds with India’s integrated Indian Ocean strategy as well as maritime interests (Miklian 2016). The policy also showcases the Indian Ocean region in a rejuvenated geopolitical stretch in consonance with the rise in India’s footprint from a South Asian domain to consolidated pan-Asia and Asia–Pacific realms. The footprints extend to the western expanses too. The Asia–Africa Growth Corridor (AAGC)—Partnership for Sustainable and Innovative Development is one such initiative proposed jointly by India and Japan in 2017 to link Asia and Africa with a commitment of $200 billion to develop the proposed corridor and to complement each other’s development and growth (Prakash 2018). The corridor aims to overcome the “connectivity void” between Asian and Africa, prioritise sustainable development with projects in health and pharmaceuticals, agriculture and agro-processing, disaster management and skill enhancement, free mobility of people, trade and investment, energy, and partnership for infrastructure (Khurana 2018). AAGC is supplemented by SAGAR (an acronym which signifies the “sea” in Hindi, India’s official language) or Security and Growth for All in the Region, a geo-strategic and maritime security venture envisioned by Modi (Padmaja 2015; Pant 2018).

Besides these novelties, India’s engagement with Africa has grown considerably. In 2014-15, India–Africa trade figures stood at $72 billion with India being Africa’s fourth largest trading partner (Alam 2017: 283). India’s collaboration with Africa operates at three levels, that is, at the pan-African level (African Union or the AU), regional level (that is, the South African Development Community or the SADC and the Economic Community of the West African States or the ECOWAS), and at the bilateral level with agreements with South Africa, Egypt and Kenya. Over the past few years, India extended the Duty-free Tariff Preference Scheme (DFTPS) to various least developed countries (LDCs). Until July 2016, 31 LDCs have been notified as beneficiaries, with the majority of them from Africa (UNCTAD 2017). Under the scheme, duty-free imports provide for around 98.2% of tariff lines (at the Harmonised System 6-digit level7) and only 1.8% of tariff lines have been retained in the exclusion list for the same. The cooperation extends to the areas of economic development, human resources development, capacity building, and skills transfer, infrastructure development, and maritime security under the auspices of the India–Africa Forum Summit8 (MEA 2015).              

The Indian Ocean region offers immense trade opportunities. Prospects vary from subregional to regional and intra-regional to interregional spaces with India having to play a central role therein. Hence, Prime Minister Modi’s emphasis on “Neighbourhood First” and “Extended Neighbourhood” marks an important policy decision for India which can no longer overly rely on trade schemes for developed countries such as the United States, that recently indicated its intention to withdraw trade preferences under Generalised System of Preference (GSP) (Sarma 2019). The logjam in the WTO dispute settlement and asymmetries between the developing and developed countries over the line of next reforms prompt nations such as India to tilt more towards regional collectives (Asian Age 2019). 

Instruments of economic cooperation such as RCEP, ASEAN and SAARC present the Indian Ocean as a region of abundant resources, shared history, and crucial geopolitics. While recognising the increasing reliance on the seas for economic development, the 21st century is often times characterised as the “century of the seas” (Khurana 2018). Maritime realms account for transit of more than 90% of India’s overall trade by volume and 77% by value, and these total upwards of 40% of India’s GDP (Bajpaee 2017: 359). Furthermore, the rim of the Indian Ocean is deemed as a strategically important region which accounts for half of the world’s container ships via sea transport, one-third of the world’s bulk cargo traffic, and two-thirds of the world’s oil shipments.9 Home to around 2.7 billion people, with shared cultural and historical bonds and a large extent of concerted economic, strategic, and developmental possibilities, the Indian Ocean presents a much-desired pivot for multilateral cooperation with trade being an important stimulant thereof. In other words, the multilateral cooperation envisages greater economic connectivity and synchronised development of countries across the Indian Ocean region.

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