The economic relationship between India and ASEAN began in 1992 as both regions recognized each other’s trade capabilities. The relationship has since strengthened with India’s growing manufacturing capacity and the rise of ASEAN’s services sector exports, namely travel, transport, and business services.
The two regions share similarities in their levels of economic development; they are home to rapidly expanding markets and aim to address infrastructure challenges. These similarities offer space for continued and more diversified trade in goods and services as well as business-to-business engagement between India and ASEAN – tapping into the investment requirements of modernizing industries and domestic consumption trends in each other’s markets.
Economic engagement in terms of the free movement of goods, services, and capital, thus, offers mutual benefits for India and ASEAN. This was the rationale that propelled the signing of the ASEAN-India Free Trade Agreement (AIFTA) in 2009. The trade treaty has definitely boosted bilateral trade.
According to a November 2019 report by the Ph.D. Chamber of Commerce and Industry, India’s merchandise exports to ASEAN increased from US$23 billion in 2010 to US$36 billion in 2018 at a compound annual growth rate (CAGR) of about five percent, while its merchandise imports from the 10-member bloc increased from US$30 billion in 2010 to US$57 billion in 2018, at a CAGR of about eight percent. India’s exports to ASEAN in 2019-20 were worth US$31.49 billion while its imports from the bloc reached US$55.37 billion.
In its trade with ASEAN, India has moved to eliminate tariffs on up to 75 percent of 12,000 tariff lines. A report from the National Institution for Transforming India (NITI Aayog) found that this had led to the trade balance worsening in 13 out of 21 sectors, including textiles, leather, and minerals. India’s trade deficit with ASEAN countries is currently around US$24 billion and is why New Delhi remains keen to renegotiate the terms of the ASEAN-India FTA to ensure a more level playing field for Indian exports to ASEAN.
In this article, we break down key export-oriented industries that offer most value in terms of catering to ASEAN’s market needs, trade advantages available to India in the ASEAN region, and finally investment opportunities in India for ASEAN-based businesses.
India’s top export-oriented industries
In 2019, 47.8 percent of India’s exports by value were delivered to fellow Asian countries; 19.3 percent were sold to European importers and 18.8 percent worth of goods were shipped to North America.
Among India’s top 15 trading partners in 2019, Singapore came in fifth (US$10.7 billion or 3.3 percent), Malaysia twelfth (US$6.14 billion or 1.9 percent), and Vietnam fourteenth (US$5.49 billion or 1.7 percent). That year, India’s top 10 exported goods accounted for three-fifths (60.2 percent) of the overall value of its global shipments.
- Mineral fuels including oil: US$44.1 billion (13.7 percent of total exports)
- Gems and precious metals: US$36.7 billion (11.4 percent of total exports)
- Machinery including computers: US$21.2 billion (6.6 percent of total exports)
- Organic chemicals: US$18.3 billion (5.7 percent of total exports)
- Vehicles: US$17.2 billion (5.3 percent of total exports)
- Pharmaceuticals: US$16.1 billion (5 percent of total exports)
- Electrical machinery and equipment: US$14.7 billion (4.5 percent of total exports)
- Iron and steel: US$9.7 billion (3 percent of total exports)
- Clothing and accessories (not knitted or crocheted): US$8.6 billion (2.7 percent of total exports)
- Knitted or crocheted clothing and accessories: US$7.9 billion (2.5 percent of total exports)
Next, we briefly spotlight three industries – the jewelry, pharmaceutical, and agricultural industries – whose exports feature in the top 10 for India.
Gems and jewelry industry
India’s gems and jewelry industry contributes about seven percent to the country’s GDP and 15 percent to its total merchandise export. India has permitted 100 percent foreign direct investment (FDI) in the sector under the automatic route. Cumulative FDI inflows in diamond and gold ornaments was around US$1.18 billion between April 2000 and September 2020. The industry employs more than 4.64 million people, which is expected to near double by 2022. India’s gems and jewelry market size is projected to grow by US$103.06 billion between 2019 and 2023.
The sector is labor intensive…
Read More: A Brief Look at India-ASEAN Trade and Investment Prospects
