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Till recently, India's economic neighbourhood of South Asia had not provided a competitive trading environment for its companies or even the government. Unlike China, which has lived in a highly competitive economic zone, ringed by countries like Japan and South Korea, India has mostly looked far beyond its borders to engage in competitive trade. This is a key reason why manufacturing in India has benefited less from liberalisation than the services sector. The forging of deeper economic relations with ASEAN can change this pattern for good.
The Regional Comprehensive Economic Partnership, negotiations on which have begun this week in Cambodia, could be a turning point in this context. But it will come up against the US inspired Trans-Pacific Partnership, through which Washington is trying to draw the ASEAN into closer ties with the western hemisphere. For the group that succeeds, the prize is huge. The region, as the OECD report released this week shows, is expected to grow at an annual rate of 6.4 per cent for the next five years, higher than any other geographical region. Since some of the countries here are already in the middle income zone, the impact of further rapid growth stands out in a slowing global economy. To give itself a better chance in the economic partnership plan, India has teamed up with China, but this means issues like the exploitation of the South China Sea, where the two countries faced off on drilling for oil, will have to be kept pending.
For any economic cooperation to become meaningful, however, the geographical barrier between India and the region must be erased soon. There is no useful road link from Delhi to Myanmar and beyond, up to Thailand. The road from Moreh in India to Mae Sot in Thailand is expected to come up only by 2016. Even route alignments for the Trilateral Highway and plans for its extension to Vietnam have not been finalised yet. They need to be expedited for the connections to be exploited. In its absence, the Indian government has used, instead, the export of services as a fulcrum for its trade negotiations with the region so far. That strategy has its limitations. Yet, as Thailand and Malaysia have emerged as manufacturing bases in the region for multinational companies, India's domestic manufacturers have eyed any trade deal with suspicion. ASEAN is a window of opportunity, but it will close fast.