UNIT 16 SAARC AND ASEAN

Structure
16.0 Objectives
16.1 Introduction
16.2 Evolution of SAARC
16.3 Economic Characteristics of SAARC
16.4 Trade Pattern with India
16.5 Challenges and Opportunities
16.6 Association of South East Association Nations
16.7 Evolution of ASEAN
16.8 Economic Characteristics of ASEAN
16.9 India’s Trade with ASEN
16.10 India’s Prospects with SAARC and ASEAN
16.11 Challenges and Opportunities
16.12 Let Us Sum Up
16.13 Answers to Check Your Progress
16.14 Terminal Questions
References

16.0 OBJECTIVES

After studying this Unit, you should be able to:

• Discuss the basic economic structure of major countries of SAARC and ASEAN.
• Analyse the trends in trade of India with SAARC and ASEAN.
• Describe the prospects of India- SAARC and ASEAN.
16.1 INTRODUCTION

South Asia is characterized by some of the most economically underdeveloped countries such
as Afghanistan and Bhutan. However it accounts for over twenty percent of the world’s
population and has emerged as one of the fastest growing regions in Asia in the recent years.
South Asia as a bloc is highly relevant both from a growth and population perspective.
Association of South East Asian Nations has been making effort for the acceleration of
economic development of the region. In this Unit, you will learn, the evolution of SAARC,
trade pattern with India and challenges and opportunities. You will further learn the evolution
of ASEAN, trade pattern with India and India’s trade prospects with SAARC and India.

16.2 SOUTH EAST ASSOCIATION OF REGIONAL COOPERATION (SAARC)

Regional cooperation in the region began with the establishment of SAARC (South Asian
Association for Regional Cooperation), a political consultation entity formed in 1985, by all
South Asian economies, except Afghanistan. In 2005, Afghanistan requested its accession to
SAARC and joined as the 8th member in 2007. SAARC comprises 8 member states namely,
Bangladesh, Bhutan, Nepal, Pakistan, Sri Lanka, India, Maldives, and Afghanistan and 9
observer states namely, Australia, China, European Union, Iran, Japan, Mauritius, United
States, Myanmar, and Republic of Korea. SAARC is the world’s most densely populated
region and one of the most fertile areas. It comprises 3% of the world’s area, 23% of the
world’s population and 3.8% (US$2.9 trillion) of the global economy.

The eight countries in the region have diverse economic features with India and Pakistan
being the two largest economies in terms of the regional GDP and population. India’s
dominance in nearly all respects is a vital and noteworthy feature of the region which could
have a positive as well as a negative connotation in the context of endorsing enhanced
economic cooperation. India has nearly 77.8 % of the region’s GDP, accounts for 40.3 % of
its trade and 75.8 % of incoming foreign direct investment (FDI). It is the only country in
South Asia that has common borders with all others. On the whole, India is undeniably
central to the region.

Accordingly, historically, this region has been referred to as the Indian sub-continent, which
invited some level of apprehension in the smaller countries about their ability to retain their
individual identity in the post SAARC context. Hence, the adoption of a more common use of
“South Asia” for describing the region.

Comprising mainly on four phases of evolution- “Conception (1977-80), the Meeting of

Foreign Secretaries (1981-83), the Meeting of Foreign Secretaries (1983-85), and the
Summits (1985-2016)” -the foremost proposal for the establishment of a framework for
regional cooperation was put forward by the then President of Bangladesh, Zia ur Rahman,
on May 2, 1980. He visited Nepal, India, Pakistan, and Sri Lanka during 1977-78 to explore
the possibilities of regional economic cooperation among the SAARC Countries. He
proposed for the collective self- reliance in a common quest for peace and development of all
these countries. In May 1980, he issued a formal call for SAARC Regional Cooperation,
which received a positive response from all the SAARC nations. There were numerous
developments which led to President Zia ur Rahman’s determination for the constitution of a
Framework for regional cooperation. Some of these factors were that President Zia urRahman
required support to defend his coup d’état regime, adversities stemming from the balance of
payments crisis across South Asia on account of the oil crisis of 1979, increased
protectionism by developed countries. The Committee on Studies for Cooperation in
Development in South Asia (CSCD) also recommended cooperation in its report, among
others. In this scenario, the establishment of a regional organization, such as SAARC,
emerged as a platform to deliberate on matters of common interest.

The first meeting of the foreign secretaries of the seven countries, viz., Bangladesh, Bhutan,
India, Maldives, Nepal, Pakistan and Sri Lanka was held in Colombo, Sri Lanka in April
1981 for regional cooperation. Herein, telecommunications, agriculture, health and
population activities, rural development and meteorology, were identified as the key areas for
regional cooperation.

India’s interest and commitment to regional cooperation was quite evident post her
independence from colonial rule. The idea was to seek solution to shared problems, political,
economic, or cultural. On 7th September, 1946 in his very first ever broadcast to the nation,
Jawaharlal Nehru said, “We are of Asia and the people of Asia are nearer and closer to us
than other. India is so situated that she is pivot of Western, Southern and South-East Asia”.
On another occasion, Nehru reiterated the same “When we talk of Asia, remember that India,
not because of any ambition of hers, but because of the force of circumstances, because of
geography, because of history and because of many other things, inevitably has to play a very
important part in Asia. Even if you think in terms of regional organizations in Asia… you
have to keep in touch with the other regions. And whatever regions you may in mind, the
importance of India cannot be ignored.”

The first SAARC summit meeting of South Asian leaders was convened at Dhaka from
December 7-8, 1985. Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka
became its founding members. Eventually, Australia, China, the European Union, Iran, Japan,
South Korea, Mauritius, Myanmar and the United States (US) joined SAARC as observers
between 2005 and 2008. Then, Afghanistan joined SAARC as a member at the New Delhi
Summit in 2007 while Myanmar applied for membership in 2008 in the wake of the Colombo
Summit.

As a first step towards constitution of SAFTA (South Asian Free Trade Area), a SAARC
Preferential Agreement (SAPTA) was brought to effect in 1995. SAFTA was aimed at
eliminating tariff and non-tariff barriers to trade, in order to facilitate unhindered movement of
goods across borders of the member countries, paving the way for South Asian Economic
Union along the lines of EU in future. Apart from SAFTA, several cross-country and a few
sub-regional agreements have been formulated and executed in the region.

Avoidance of Double Taxation and Mutual Administrative Assistance in Tax Matters 2005,
formation of South Asian Regional Standards Organization (SARSO), SAARC Framework
Agreement for Energy Cooperation, Mutual Administrative Assistance in Custom Matters,
are some of the successful initiatives of SAARC. However, a notable feature of almost all
these agreements is that they represent a low level of integration, and are often labelled as
traditional or shallow Regional Trade Agreements because these are broadly aimed at removing
only trade barriers on goods, to the exclusion of several crucial elements such as services,
investment, intellectual property, and competition.

Hence, when we look at South Asia in terms of levels of Regional Economic Integration, it
appears to be on the second level, Free Trade Area, only gradually making progress towards the
third level, Customs Union. Nonetheless, SAARC countries synergize their actions as they
have common tradition, dress, food and culture, and political aspects. The SAARC nations
have problems and solutions to the problems in common such as poverty, illiteracy,
malnutrition, natural disasters, internal conflicts, industrial and technological backwardness,
low GDP, and poor socio-economic condition. These nations could uplift their living
standards by creating common areas of development.
SAARC is a game-changer for India’s Act East Policy. It links South Asian economies with
Southeast Asian that will further boost economic integration and prosperity to India mainly in
the services sector. Moreover, nations of SAARC help in the creation of mutual trust and
peace within the region thus promoting stability. SAARC can engage Nepal, Bhutan, the
Maldives, and Sri Lanka in economic cooperation and development process to counter China.
Overall, SAARC offers a platform to India to showcase its leadership in the region by taking
up extra responsibilities. In a region increasingly targeted by Chinese investment and loans,
SAARC could be a common platform to demand more sustainable alternatives for
development, or to oppose trade tariffs together, or to demand better terms for South Asian
labour around the world.

Intra-regional trade in South Asia (Afghanistan, Bangladesh, Bhutan, Maldives, Myanmar,

Nepal, Pakistan, and Sri Lanka) is among the lowest in the world at 5.6 %. India’s trade with
its neighbourhood has ranged between 1.7% and 3.8% of its global trade. India’s largest
export market in the region is Bangladesh, followed by Sri Lanka and Nepal, whereas the
largest imports by value come from Myanmar, Sri Lanka and Bangladesh. All countries in the
neighbourhood have a trade deficit with India, the highest being Bangladesh, followed by
Nepal.

16.3 ECONOMIC CHARACTERISTICS OF SAARC

Through a set of five variables, we look at the economic characteristics of SAARC. The list
of variables is given in Table 1 along with their short symbols for the sake of brevity.

Table 1 refers to Current GDP (GDP) in US$s, GDP growth per annum in per centage terms
(GDPG), total population, in numbers, Export of goods and services in US$s, and Imports of
goods and services in US$s. The relevant years as per available data are 2000, 2005, 2010,
2015, and 2020. The growth Index has been obtained with the help of the following formula:

Index = [((GDP (2020)/GDP (2000)) *100) -100)]

This gives net growth during the 20-year period. Similarly, indices have been made for
population, exports, and imports. The economic characteristics of the region have been put
together in Table 2.

Table 1- Description of Economic Variables

 Series Name Symbol
GDP (current US$) GDP
GDP growth (annual %) GDPG
Population, total Pop
Exports of goods and services (current
US$) Exp
Imports of goods and services (current
US$) Imp

Source: World Development Indicators, World Bank

Table 2- Economic Characteristics of SAARC

Symbol 2000 2005 2010 2015 2020 Growth

GDP 630429061929 1050585317864 2060781299768 2699434735087 3482474115841 452
GDPG 4.107459783 7.518348986 7.465781838 7.368698348 -5.23983299
Pop 1390946065 1518861546 1638792927 1749417067 1856882402 33
Exp 85854849792 198952669563 434451766274 503492657693 584921095250 581
Imp 96997882721 236566590876 541876678072 604632025302 664151316250 585

The economic characteristics show that SAARC as a region has had a growth of GDP to the
tune of 452 percent over a 20 year period. This is quite remarkable. This is a growth rate of
over 20%. If we ignore the Covid year 2020 then the growth rate has also almost doubled.
Therefore, this region has immense potential for trade. Bangladesh, Sri Lanka, Maldives, etc.,
are very fast-growing economies. The population growth is an average of around 1.5 %. Both
these fact put together lead to dynamic conditions in South Asia that are ideally suited for
growth in trade. At present intra-SAARC trade is not very vibrant but it holds potential which
deserves to be exploited. Both exports and imports in the region have also done exceedingly
well and have shown a growth of almost 600% in 20 years. It is a simple average growth of
30%. The growth in both is very even this also points towards very equable growth in trade
across the region.
16.4 TRADE PATTERN WITH INDIA

The broad trade pattern of South Asia with India is given in Table 3 in terms of export,
import and trade balance (exports less imports) for the years 2000, 2005, 2010, 2015 and
2020. Data have been sourced from WITS (World Integrated Trade Solution), developed by
the World Bank in collaboration with the United Nations Conference on Trade and
Development (UNCTAD) and in consultation with organizations such as International Trade
Centre, United Nations Statistical Division (UNSD) and the World Trade Organization
(WTO).

Table 3- India South Asia Trade

TRADE
NATURE
Year EXPORTS IMPORTS BALANCE
OF TB
(TB)
2000 1719206.4 501119.71 1218086.69 Positive
2005 5399782.66 1379696.5 4020086.17 Positive
2010 11114203.5 2063704.5 9050499 Positive
2015 17257456.7 2952402.5 14305054.25 Positive
2020 18948429.9 3056681.7 15891748.22 Positive
 India's trade with SAARC
20000000

18000000

16000000

14000000

12000000

10000000

8000000

6000000

4000000

2000000

0
2000 2005 2010 2015 2020

EXPORTS IMPORTS

Figure 1- India's Trade with SAARC

The table and graph both clearly establish a very health growth in South Asian trade. The
export curve rises sharply at 2005 and continues undeterred through the Global Financial
Crisis (2005-2010) period. Exports flatten out after 2015. In 2016 there was demonetization
and in more recent years COVID. Imports have mildly risen. But Imports have also flattened
out after 2015. This means Indian trade has taken a beating after demonetization. Even
though after 2015 the two – imports and exports have slowed down, the trade gap has yet
been a widening gap. India has had an unassailable position in South Asia.

Trade Analysis with SAARC

The following trade analysis is laid out in US $. All three trade entities – Export, Import and
Trade balance refer to the year 2020. All SAARC countries have been ranked in terms of
Export, Import and Trade balance with respect to trade with India (Table 4, 5 and 6).

An index has been to be formed to make the understanding of these ranks more comparable.

𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝐸𝑥𝑝𝑜𝑟𝑡
= [(𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑥𝑝𝑜𝑟𝑡 𝑜𝑓 𝑅𝑎𝑛𝑘 𝑖)/(𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑜𝑓 𝑅𝑎𝑛𝑘 1)] ∗ 100

Similarly for imports and for trade balance. The symbol “i” refers to each country. That is the
“ith” country. Hence, the index compares the value of any variable like Export with that of
the number one country in rank. This ratio is multiplied by 100 to make it converted into
percentage terms. For example, in the case of Exports Bangladesh’s rank is 1. We take the
value of exports of Nepal and divide it by the value of exports of Bangladesh and we arrive at
the index 73.989 %. This means that Nepal’s value of exports is about three quarters of that
of Bangladesh which has the best performance in Exports.

Table 4 – India SAARC Exports

Rank Country 2020 Index

BANGLADES 7912820.5
1 H 5 100
NEPAL 5854597.3
2 6 73.989
5 BHUTAN 623079.42 7.874
7 MALDIVES 196173.89 2.479
SRI LANKA 3224131.5
3 1 40.746
AFGHANIST
4 AN 855243.6 10.808
6 PAKISTAN 282383.56 3.569

Total 18948429.89

Thus, in terms of value of exports Bangladesh is best. It is followed by Nepal, Sri Lanka,
Afghanistan, Bhutan, Pakistan and finally Maldives, which stands last in that order. Other
major trading partners are Nepal and Sri Lanka. The trade with Pakistan is low because of
poor political ties.

Table 5- India SAARC Imports

Rank Country 2020 Index

BANGLADES 1024443.
1 H 83 100
 NEPAL 629958.3
3 6 61.493
BHUTAN 184247.1
5 2 17.985
6 MALDIVES 17735.63 1.731
SRI LANKA 686318.1
2 9 66.994
AFGHANIST 511431.4
4 AN 3 49.923
7 PAKISTAN 2547.09 0.249

Total 3056681.65

In terms of value of imports, Bangladesh is again the best. It is followed by Sri Lanka, Nepal,
Afghanistan, Bhutan, Maldives and finally Pakistan, which stands last in that order. In the
case of imports apart from Nepal and Sri Lanka Afghanistan is also a sizeable partner.

Table 6- India-SAARC Trade Balance

Rank Country 2020 Index

BANGLADES 6888376.7
1 H 2 100
NEPAL 5224639.0
2 0 75.847
4 BHUTAN 438832.30 6.371
7 MALDIVES 178438.26 2.590
SRI LANKA 2537813.3
3 2 36.842
AFGHANIST
5 AN 343812.17 4.991
6 PAKISTAN 279836.47 4.062
15891748.
Total
24
In terms of trade balance, Bangladesh is again the best. It is followed by Nepal and Sri Lanka,
Bhutan, Afghanistan, Pakistan, and finally Maldives which stands last in that order. In the
case of trade balance apart from Bangladesh, Nepal, and Sri Lanka are also a sizeable partner.

Check Your Progress A.

1. What is SAARC?
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………………….
2. Write economic characteristics of SAARC for the year 2020.
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………………….

3. Write India’s trade with South Asia for the year 2015 and 2020.
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………………….

16.5. CHALLENGES AND OPPORTUNITIES

PM Narendra Modi described SAARC as a “vital instrument to add to the strength of each
member nation and advance collective action for shared prosperity in the region.”

But more than three decades since it was formed, SAARC stands on shaky ground, and has
emerged as one of the most troubled neighbourhoods with majority of its constituent
countries experiencing communal, regional or extremist conflict. Moreover, experts have
touted its achievements as meagre and unconvincing, while adjudging its approach as
lacklustre and disappointing
Economically, the region is one of the least integrated in the world, with very low levels of
intra-regional trade and investment. Intra-regional trade is under 5 percent of total official
trade – less than it was fifty years ago – while intra-regional foreign investments as a
proportion of total investment figures are just as meagre. On the contrary, intra-regional
trade accounts for nearly 35 percent of the total trade in East Asia, 25 percent in Southeast
Asia, and almost 12 percent in Middle East and Africa. The SAFTA (South Asian Free Trade
Agreement) group comprises a region that has tremendous economic potential, but despite
having 23 percent of the world’s population, the region accounts for only 6 percent of
Purchasing Power Parity based global GDP, 2 percent of world goods trade, 3 percent of
global foreign direct investment, but more than 40 percent of the world’s poor.

SAARC has also done little to improve bilateral disagreements and scuffles, and the Regional
Convention on Suppression of Terrorism has failed to combat terrorist activity. Inter-state
conflict is also one of the most significant reasons for the stalling of the SAFTA. The group’s
commitment to the goals of the SAARC Charter for Democracy, have been disappointing
with several member-nations struggling with military coups, unstable governments, rampant
corruption and abuse of power.

While SAARC’s failure to realize its goals may be attributed to several factors – ranging
from terrorism, strained bilateral relations, and the absence of military and strategic
cooperation – India’s own engagement with SAARC has been found wanting, though it has
evolved over the years.

India’s perception of SAARC’s usefulness for its own national interests has undergone a
marked change on account of several reasons.

First, it is now evident to Indian policy makers that SAARC can hardly be used by its smaller
neighbours as a forum for India baiting or even for achieving a better strategic balance vis-à-
vis India. Experience over the past two decades has now demonstrated that coalition
formation by neighbouring countries is not likely to be successful because of the dynamics
between these countries themselves and their inevitable need to deal with India directly given
the geographic and economic realities.

Second, major global powers, except perhaps China, have finally accepted India’s relatively
dominant position in South Asia, specially following the robust economic growth since 1991.
There is consequently no significant on their part to “redress the asymmetry” within the
region by building special relations with India’s neighbours. This has also helped to bring
about a change in India’s perception about the possible threats from a successful SAARC.

Third, China’s growing influence in South Asia is clearly visible and poses a clear challenge
for India to maintain its own interests in the region. More significantly, bilateral trade
volumes between some of the South Asian economies and China are larger than with India.
This is despite China not having any preferential/free trade agreement with these countries as
India has. Of course, China has long pushed for a strategic political-economic relationship
with Pakistan, and finally signed an FTA in 2006 which envisages a multidimensional
economic partnership on energy, communication, agriculture, technical cooperation, joint
investment ventures, etc. (People’s Daily 2006).

This has finally caused the positive response within the Ministry of External Affairs in India
to secure its own interests in South Asia and see SAARC as an instrumentality for bringing
its neighbouring economies within a network of regional production network as China has
successfully achieved with its Southeast Asian neighbours.

Fourth, Delhi seems to have realised that regional cooperation, through SAARC or other
formations like the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic
Cooperation (BIMSTEC), is perhaps an effective instrument for securing India’s territorial
integrity in the peripheral regions and for fighting poverty in its border states. The change in
India’s perception about regional cooperation in South Asia is best seen by the Indian
government’s recent acceptance of a role of multilateral organisations in infrastructure
development and improving connectivity in its border regions.

Fifth, until the Mumbai terrorist attack of 26 November 2008, Indo-Pak relations had shown a
consistent improvement. Given that the political tension between the two countries has
hindered regional cooperation and continues to hold hostage the full implementation of
SAFTA today, this improvement contributed significantly to the prospect of pushing SAARC
forward. Such terrorist actions are perpetrated by fringe extremist elements and their
benefactors who see progress in regional cooperation and economic integration as threatening
their own petty vested interests. It is, therefore, important that actions of religious and
sectarian terrorist groups are not allowed to push the SAARC process backward. Indian
establishment will do well to target these elements on the one hand for punitive action while
promoting greater trade and other economic interaction across South Asian borders on the
other. Successful economic integration will be one of the most effective responses to
sectarian violence as it will contribute to eroding the economic and material base for such
movements.

For all the above reasons, the India’s perception of SAARC and attitude toward regional
cooperation in South Asia has perceptibly changed. This is most clearly visible in India
taking unilateral action of allowing duty free imports from its low income neighbours within
South Asia and permitting multilateral organisations to participate in regional infrastructure
projects, which it had not done in the past. The changing realities of a globalising world have
prompted India to accept countries from outside the region to become observers in SAARC
and also stop treating South Asia as its exclusive backyard in which it would only pursue
bilateral interaction and not brook any regional or multilateral intervention.

The terrorist threat to India and Pakistan is prompting the ruling establishments (with the
notable exception of the ISI in Pakistan which apparently has its own agenda) in the two
countries to improve their relationship and support political dialogue to ensure political
stability and social harmony. Moreover, there is pressure from the growing industrial and
middle classes in emerging South Asian economies to expand business and social contacts
within SAARC, especially to try and take advantage of the burgeoning Indian market. The
changing global context has made it clear to India and other countries like Bangladesh,
Nepal, Sri Lanka, Maldives that they also stand to gain from any forward movement in
SAARC. Pakistan remains a reluctant participant as revealed by its continued denial of Most
Favoured Nation (MFN) status to India. The biggest potential gainer today could be
Afghanistan with better access to Indian investment and other resources and by reclaiming its
historical role as the bridge between Central and South Asia. Thus, the changing realities not
only make SAARC a viable undertaking but one with significant positive outcomes for its
members both in the immediate and the longer term.

It is perhaps for this reason that external members like China, Japan, the US and even the
European Union (EU) have either already acquired or have expressed their desire to achieve
observer status in SAARC.

16.6 ASSOCIATION OF SOUTH EAST ASIAN NATIONS (ASEAN)

Association of Southeast Asian Nations or ASEAN is an organisation formed by the

governments of Malaysia, Indonesia, the Philippines, Thailand, and Singapore in 1967 to
promote economic growth, peace, security, social progress, and cultural development in the
Southeast Asian region. ASEAN was established on 8th August 1967 in Bangkok, Thailand
with the signing of the Bangkok Declaration (a.k.a ASEAN Declaration) by the founding
fathers of the countries of Indonesia, Malaysia, Thailand, Singapore, and the Philippines. The
preceding organisation was the Association of Southeast Asia (ASA) comprising of Thailand,
the Philippines, and Malaysia.

Five other nations joined the ASEAN in subsequent years making the current membership to
ten countries namely Thailand, The Philippines, Malaysia, Singapore, Indonesia, Brunei,
Vietnam, Lao PDR, Myanmar and Cambodia. There are two observer States namely, Papua
New Guinea and Timor Leste (East Timor).

ASEAN displays a remarkable degree of political, cultural, and economic diversity. Being
located at the crossroads between China and India, and straddling the major sea lanes linking
the Pacific and Indian Oceans, Southeast Asia is also exposed to a constant stream of external
influences. Hence, ideas and identities in currency in Southeast Asia tend to be fluid and
contested. Nonetheless, the growth of a long-term and relatively robust form of regionalism
(ASEAN) has created a sense of regional identity alongside the still distinctive national
identities of Southeast Asian countries.

ASEAN has been working towards accelerating economic growth, cultural development, and
social progress in the region by joint initiatives in the spirit of partnership and equality to
cement the foundation for a peaceful and strong community of South East Asian countries. In
addition, it is striving to promote peace and stability in the region by incorporating respect for
justice and the rule of law in the relationships between nations.

Two-way merchandise trade between ASEAN and India reached USD 77.0 billion in 2019,
while total FDI inflows from India amounted to USD 2.0 billion. This placed India as
ASEAN’s sixth largest trading partner and eight largest source of FDI among ASEAN
Dialogue Partners.

The year 2022 has been designated as the ‘ASEAN-India Friendship Year’. This year also
marks the tenth anniversary of India’s strategic cooperation with ASEAN. Trade between
India and the ASEAN region surpassed $78 billion in 2021. The largest portion of this trade
came from Singapore, valued at over 21 billion dollars that year. Of the trade between India
and Singapore, imports into India had a higher value than its exports. In the recent talks, the
leaders batted for greater connectivity and integration with South Asia through the country.
16.7 EVOLUTION OF ASEAN

In 1967, the authorities of Philippines, Indonesia, Singapore, Thailand and Malaysia founded
the Association of Southeast Asian Nations (ASEAN) to strengthen the peace, security, social
progress, economic development and cultural growth of the Southeast Asian territory.
Membership doubled after the changing conditions in the region following the end of the
Vietnam War in 1975 and the Cold War in 1991. Addition of Brunei happened in 1984, while
Vietnam, Laos and Myanmar, and Cambodia joined in 1995, 1997 and 1999 respectively.
The (ASEAN) Summit, its topmost tier of control, defines the tone for the organization's
policies and goals.

The ASEAN Regional Forum (ARF), the East Asia Summit (EAS) and ASEAN Plus
Three are key forums led by ASEAN. Founded in 1997, ASEAN Plus Three is a consultative
body that brings together ASEAN's ten countries, and China, Japan, and South Korea.
Established in 1994, the ASEAN Regional Forum (ARF) is an important platform for
security dialogue in the Indo-Pacific. It is characterised by consensus-based decision-making
and frank dialogue. It comprises 27 members: the 10 ASEAN member states (Brunei,
Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and
Vietnam); 10 ASEAN Dialogue Partners (Australia, Canada, China, the European Union
(EU), India, Japan, New Zealand, the Republic of Korea (ROK), Russia and the United
States); Bangladesh, the Democratic People's Republic of Korea, Mongolia, Pakistan, Sri
Lanka, Papua New Guinea, and Timor-Leste.

The East Asia Summit (EAS) was first convened in 2005 and is normally visited by the
leaders of nations from India, New Zealand, Russia, Australia, the United States, China,
South Korea and Russia. It aims to foster regional cooperation and development.

At the 12th ASEAN Summit in January 2007, the Leaders affirmed their strong commitment
to accelerate the establishment of an ASEAN Community by 2015 and signed the Cebu
Declaration on the Acceleration of the Establishment of an ASEAN Community which
comprises of three pillars, namely, the ASEAN Political-Security Community, ASEAN
Economic Community and ASEAN Socio-Cultural Community.

The major goal of ASEAN has been to hasten economic growth and, as a result, social and
cultural progress. A secondary goal is to foster regional peace and stability based on the rule
of law and the UN charter’s principles. In addition, efforts have been made to secure active
collaboration and mutual assistance on matters of common interest in the economic, social,
cultural, technical, scientific, and administrative fields.

ASEAN wields significantly more power in Asia-Pacific economics, politics, and security
than any of its independent representatives could. By establishing much-needed conventions
and ensuring an impartial atmosphere to handle common concerns, ASEAN has helped to
strengthen stability and peace in the region. It has emerged as the third largest market place
and the world’s fourth favoured investment location. Encompassing the third-largest
population in the world and exhibiting an environment conducive to global trade, the business
and financial relations between ASEAN and the world have been continuously improving.

16.8 ECONOMIC CHARACTERISTICS OF ASEAN

Through a set of six indicators, we look at the economic characteristics of ASEAN. The list
of variables is given in Table 7 along with their short symbols for the sake of brevity.

Table 7 refers to Current GDP (GDP) in US$ billion, GDP growth in percentage terms
(GDPG), GDP per capita (GDPPC) at current prices in US$, total population (Pop), in
million, international merchandise trade, total export (Exp) and import (Imp) in US$ billion.
The relevant years as per available data are 2016 up to 2020.

The growth Index has been obtained with the help of the following formula:

Index = [((GDP (2020)/GDP (2016)) *100) -100)]

This gives net growth during the five-year period. Similarly, indices have been made for
population, exports, and imports. The economic characteristics of the region have been put
together in Table 8.

Table 7- Description of Economic Variables

Series Name Symbol

GDP (current US$ billion) GDP
GDP growth (%) GDPG
GDP per capita (current US$) GDPPC
Population, total (million) Pop
 Exports of goods and services (US$
billion) Exp
Imports of goods and services (US$
billion) Imp

Sources: Statist
Source: Statistics Division – ASEANstats, ASEAN Secretariat

Table 8- Economic Characteristics of ASEAN

Symbol 2016 2017 2018 2019 2020 Growth

GDP 2,597 2,807 2,999 3,170 2,998 15.44
GDPG 5.0 5.4 5.3 4.7 -3.3
GDPPC 4,089 4,370 4,540 4,833 4,533 10.86
Pop 635.3 642.3 648.5 654.9 661.8 4.17
Exp 1,153.6 1,324.8 1,436.0 1,423.8 1,395.9 21
Imp 1,086.3 1,246.5 1,372.1 1,392.6 1,272.1 17.1

ASEAN by comparison to SAARC has shown that there is terribly slow growth in this
region. In the 20-year period plainly speaking the growth of GDP is not even 1% per annum.
The growth rates have been have been very erratic, especially within the last two years –
2019 and 2020. ASEAN has not stabilized after Covid. It has witnessed negative growth.
GDP growth has been level at 4%. Even population growth has been consistently around 4
per cent. This would approximately mean that per capita does not rise. Both export and
import growth is also very conservative. It is nothing compared to SAARC.

16.9 INDIA’S TRADE WITH ASEAN

The broad trade pattern of ASEAN with India is given below in Table 9 in terms of export,
import and trade balance (exports less imports) with respect to India for the years 2003, 2005,
2010, 2015 and 2020. Data have been sourced from ASEAN Secretariat. It represents trade in
goods (IMTS), annually, in US$. Based on IMTS 2010, the term “international merchandise
trade statistics” (IMTS) refers to a specialized multipurpose domain of official statistics
concerned with the provision of data on the movements of goods between countries and
areas.

Table 9- India ASEAN Trade

TRADE
Year EXPORTS IMPORTS NATURE OF TB
BALANCE (TB)

2003 8505678121 4516979242 3988698879 Positive

2005 15078678085 7973422054 7105256031 Positive
2010 37083695326 19642135142 17441560184 Positive
2015 40553430794 19612252663 20941178130 Positive
2020 39398490037 26312622847 13085867191 Positive

India's Trade with ASEAN

4.5E+10
4E+10
3.5E+10
3E+10
2.5E+10
2E+10
1.5E+10
1E+10
5E+09
0
2003 2005 2010 2015 2020

EXPORTS IMPORTS

Figure 2- India's Trade with ASEAN

Value of Indian trade with ASEAN countries in financial year 2021, by country (in million
U.S. dollars). It is good to note that India has a consistently made a rise in exports to ASEAN,
while imports have followed. The first kink is at 2005 in both variables imports and exports.
The second kink at 2010, may be an aftermath of GFC. After 2015 imports pick up while
export begin to decline, slightly. The gap narrows down. Yet there is a substantial gap in
favour of India. By contrast, in the case of South Asia the gap is ever-widening which is to
India’s advantage since it is a positive gap. Essentially, the lesson that India has learnt is to
accelerate trade with South Asia and not to rely too much on ASEAN.

Figure 3- Value of India's Trade with ASEAN

The following trade analysis is laid out in US$. All three trade entities – Export, Import and
Trade balance refer to the year 2020. All ASEAN countries have been ranked in terms of
Export, Import and Trade balance with respect to trade with India (Table 10, 11 and 12).

An index has been to formed to make the understanding of these ranks more comparable.

𝐼𝑛𝑑𝑒𝑥 𝑜𝑓 𝐸𝑥𝑝𝑜𝑟𝑡
= [(𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑥𝑝𝑜𝑟𝑡 𝑜𝑓 𝑅𝑎𝑛𝑘 𝑖)/(𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐸𝑥𝑝𝑜𝑟𝑡𝑠 𝑜𝑓 𝑅𝑎𝑛𝑘 1)] ∗ 100
Similarly for imports and for trade balance. The symbol “i” refers to each country. That is the
“ith” country. Hence, the index compares the value of any variable like Export with that of
the number one country in rank. This ratio is multiplied by 100 to make it converted into
percentage terms. For example, in the case of Exports, Singapore’s rank is 1. We take the
value of exports of Indonesia and divide it by the value of exports of Singapore and we arrive
at the index 52.61%. This means that Indonesia’s value of exports is about half of that of
Singapore which has the best performance in Exports.

Table 10- India-ASEAN Exports

Rank Country 2020 Index

3777064.3
5 Thailand 0 45.53
1416026.2
6 Philippines 7 17.07
6194006.0
2
Malaysia 9 74.67
8295020.1
1 Singapore 7 100
4363741.9
4 Indonesia 0 52.61
9 Brunei 60050.93 0.72
4500548.6
3 Vietnam 8 54.26
10 Lao PDR 27873.50 0.34
7 Myanmar 837624.37 10.10
8 Cambodia 144042.58 1.74

Total 29615998.79

Thus, in terms of value of exports Singapore is best. It is followed by Malaysia, Vietnam,

Indonesia, Thailand, Philippines, Myanmar, Cambodia, Brunei and finally Lao PDR, which
stands last in that order.
Table 11- India-ASEAN Imports

Rank Country 2020 Index

5 Thailand 5223761.79 42.45
7 Philippines 505658.19 4.11
3 Malaysia 7378040.61 59.95
12306746.9
1 Singapore 8 100.00
12020794.5
2 Indonesia 4 97.68
8 Brunei 422894.37 3.44
4 Vietnam 5564634.47 45.22
10 Lao PDR 2074.91 0.02
6 Myanmar 575594.22 4.68
9 Cambodia 38186.46 0.31

Total 44038386.54

In terms of value of imports, Singapore is again the best. It is followed by Indonesia,

Malaysia, Vietnam, Thailand, Myanmar, Philippines, Brunei, Cambodia and finally Lao
PDR, which again stands last in that order.

Table 12- India-ASEAN Trade Balance

Rank Country 2020 Index

8 Thailand -1446697.49 -158.91
1 Philippines 910368.08 100
7 Malaysia -1184034.52 -130.06
9 Singapore -4011726.81 -440.67
10 Indonesia -7657052.64 -841.09
5 Brunei -362843.44 -39.86
 6 Vietnam -1064085.79 -116.89
4 Lao PDR 25798.59 2.83
2 Myanmar 262030.15 28.78
3 Cambodia 105856.12 11.63

Total -14422387.75

16.10 INDIA’S TRADE PROSPECTS WITH SAARC AND ASEAN

India occupies 70% of the SAARC region, both geographically and economically, and the
remaining six nations of the SAARC borders only with India and not with each other.
Although The SAARC region has witnessed the laying down of Preferential Trade
Arrangement (SAPTA), the scope of SAPTA must be sufficiently widened. It is suggested
that the SAARC countries adopt a combined approach for tariff elimination, tariff reduction
and preferential or concessional tariffs.

Economic Cooperation: India-ASEAN trade and investment relations have been growing
steadily, with ASEAN being India's fourth largest trading partner. It has been seen that the
balance of trade has been in favour of the ASEAN member countries all along. Only a few
ASEAN nations like Singapore, Malaysia, and Thailand have emerged as major export
destinations for India.

16.11 CHALLENGES AND OPPORTUNITIES

ASEAN commands far greater influence on Asia-Pacific trade, political, and security issues
than its members could achieve individually. ASEAN accounts for over 8.5 % of the world
population and has emerged as a major global hub for trade and manufacturing. It is seen as
one of the fastest-growing consumer markets in the world and encompasses the third-largest
labour force in the world, behind China and India.

ASEAN is the fourth-largest exporting region in the world, trailing only the European Union,
North America, and China/Hong Kong accounting for over 7% of global exports. ASEAN
has contributed to regional stability by instituting requisite norms and fostering a stable
environment to address shared challenges.
Some of the key challenges facing ASEAN are listed below. Firstly, regional imbalances in
the economic and social status of its individual markets is a persistent challenge.

Secondly, gap between rich and poor ASEAN member states remains very large and they
have a mixed record on income inequality. While Singapore boasts the highest GDP per
capita—nearly $53,000 (2016), Cambodia’s per capita GDP is the lowest at less than $1,300.
Many regional initiatives were not able to be incorporated into national plans, as the less
developed countries faced resource constraints to implement the regional commitments.

Thirdly, the members’ political systems are equally mixed with democracies, communist, and
authoritarian states. While the South China Sea is the main issue exposing the organization’s
rifts, ASEAN has been divided over major issues of human rights.

Fourthly, inability to negotiate a unified approach with regards to China, particularly in

response to its widespread maritime claims in the South China Sea.

Fifthly, inefficient dispute-settlement mechanism in the economic or political spheres.

On the whole, emphasis on consensus has acted as the principal drawback resulting in
avoidance rather confrontation of complex but significant issues. There appears to be a lack
of central mechanism to enforce compliance.

Nonetheless, India needs a close diplomatic relationship with ASEAN nations both for
economic and security reasons. Connectivity with the ASEAN nations can allow India to
improve its presence in the region. These connectivity projects keep Northeast India at the
centre, ensuring the economic growth of the north-eastern states. Improved trade ties with the
ASEAN nations would mean a counter to China’s presence in the region and economic
growth and development for India. ASEAN occupies a centralised position in the security
framework in the Indo-Pacific, which is vital for India since most of its trade is dependent on
maritime security. Moreover, collaboration with the ASEAN nations is necessary to counter
insurgency in the Northeast, combat terrorism, tax evasions etc.

However, with India opting out of the RCEP (Regional Comprehensive Economic
Partnership) deal, India’s limitations in handling diplomatic ties with ASEAN countries have
been further highlighted. RCEP is a free trade agreement (FTA) between the 10 ASEAN
countries (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore,
Thailand & Vietnam) and the 5 countries which ASEAN has existing FTAs – China, Japan,
Australia, South Korea, and New Zealand. India, which took part in the initial negotiations but
eventually decided to opt out, has been invited to join the bloc at any time. The grouping
envisages regional economic integration, resulting in the creation of the largest trading bloc in the
world, accounting for nearly 45% of the world’s population with a combined GDP of $21.3
trillion. Negotiations were launched in 2012 at the Cambodia Summit of ASEAN with the
objective of covering trade in goods and services, investment, economic and technical
cooperation, competition, intellectual property etc. The treaty was formally signed on 15
November 2020 at the virtual ASEAN Summit hosted by Vietnam.

RCEP was expected to harmonize trade-related rules, investment and competition regimes of
India with those other countries in the group and render a considerable boost to Foreign Direct
Investment (FDI) in India. In addition, it would help India in combating challenges of
implementation and overlapping in its current FTAs with ASEAN countries. However, concerns
over a widening trade deficit and exposure of the country’s most vulnerable sectors to global
competition remain key concerns inhibiting India’s joining of RCEP. India’s manufacturing
sector might not be able to withstand the challenges of a free trade regime coupled with the fear
of China penetrating the markets by dumping its products at lower prices, add to India’s
apprehensions.

On the whole, India needs to perceive ties with ASEAN nations as a vital opportunity to prosper
economically and leverage platforms like RCEP to secure reasonable concessions to achieve
enhanced market access for its key sectors such as services.

16.12 LET US SUM UP

In this Unit we have studied India’s trade with ASAEN and SAARC countries. Although
there are differences between ASEAN and SAARC both the country groupings hold great
potential for trade with India. In the South Asia region India has an enviable position because
it shares borders with all but Maldives. But the other members do not have any common
borders. Some countries like Nepal and Bhutan are land locked and must rely on India for her
ports. India is the major trading partner in the region having about 70% of the total trade.

Things are different with ASEAN because the countries do not share any common border.
India is not their major trading partner. India had dropped out of the RCEP deal since the
outstanding issues like India’s major trade deficit with countries in RCEP, lack of assurances
on market access and the other nations’ insistence on keeping 2014 as the base year for tariff
reduction was not addressed.

Check Your Progress B

1. Write three challenges of India ASEAN trade.

…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………………….
2. What is ASEAN?
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………………….
3. Write about India’s trade prospects with ASEAN.
…………………………………………………………………………………………
…………………………………………………………………………………………
………………………………………………………………………………………….

4. Please answer all these questions by reading the relevant sections above. All questions
relate to India – SAARC and India – ASEAN trade.
I. Trade for India with South Asian is good because it has……...
II. In recent years India has had a ………. trade balance with ASEAN.
III. In recent years India has had a ………. trade balance with SAARC.
IV. Which is the largest trading partner with India in the ASEAN group?
V. Which is the largest trading partner with India in the SAARC group in imports?
VI. Which is the largest trading partner with India in the SAARC group in exports?
VII. With which country does India have the maximum positive trade balance within
SAARC?
VIII. When did South Asia face negative growth?

16.13 ANSWERS TO CHECK YOUR PROGRESS

4
I. Common borders with all but one SAARC member states.
II. Positive.
 III. Positive.
IV. Singapore.
V. Bangladesh.
VI. Bangladesh.
VII. Bangladesh.
VIII. 2020.

16.14 TERMINAL QUESTIONS

1. How has SAARC evolved? Describe the economic characteristics of SAARC.

2. How has ASEAN evolved? Describe the economic characteristics of ASEAN.
3. Explain India’s pattern of trade with ASEAN?
4. Explain India’s pattern of trade with SAARC?
5. Discuss the challenges and opportunities for India in the backdrop of SAARC?
6. Discuss challenges and opportunities for India and ASEAN.

Reference
Rajendranath Bharti (2022) All you wanted to know about India’s Foreign Trade and
Economic Zones, Notion Press, New Delhi.

C.S. Nagpal and A.C. Mittal (2014) India’s Foreign Trade, Anmol Publications, New Delhi.