A richer partnership
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Two decades after India famously announced its Look East policy, it has actively expanded its trade and investment ties with many countries in the east and southeast Asian region. One of the primary policies used to further this growing economic relationship has been via the signing and implementation of bilateral trade agreements. While India signed a free-trade agreement (FTA) in goods with the Association of Southeast Asian Nations (ASEAN) in August 2009, the two sides have belatedly concluded an FTA in services and investments. Once implemented, India can claim to finally have a fairly comprehensive economic partnership with the ASEAN.
The India-ASEAN services and investment agreement is expected to provide a fillip to the growing bilateral trade, which currently stands at around $80 billion, up from $40 billion in 2009, prior to the goods FTA being signed, and is expected to touch $100 billion in 2015. The ASEAN is India's fourth-largest trading partner after the EU, the US and China.
The FTA in services and investment assumes significance as intra-regional trade offers better potential, especially at a time when global merchandise trade is slowing. It is well known that the dynamism of services sector has contributed significantly to India's growth story. Also, in recent years, India has not only attracted foreign direct investment, but has also emerged as a significant investor of outward FDI. Given the importance of both services and investment to India's liberalisation strategy, the completion of this FTA is timely and relevant.
India's key interests in services trade has always been in Mode 4, pertaining to the movement of Indian professionals, and the recently concluded FTA is expected to enhance the flow of skilled professionals from India into the region, which aligns with India's economic interests. The ASEAN market also offers significant investment opportunities for India, particularly in areas like information and communications technology, automobiles, engineering and pharmaceuticals. It is, of course, not a one-way street, as ASEAN countries have strengths in construction services, engineering services, shipping and transportation services and the like. With regard to investment flows into the Indian market, prime sectors for the ASEAN include energy, transport and logistics.