This year India is commemorating the tenth anniversary of its Act East Policy, which has given new energy, direction and momentum to the historic relationship between India and the Southeast Asian nations. Southeast Asia consists of eleven countries that reach from eastern India to China, and is generally divided into mainland – Myanmar, Thailand, Laos, Cambodia, and Vietnam, and Island – Malaysia, Singapore, Indonesia, the Philippines, Brunei, and the new nation of East Timor (formerly part of Indonesia), zones. Formed in 1967, the ten-member Association of Southeast Asian Nations (ASEAN) is the premier regional grouping in Southeast Asia. In 2022, ASEAN agreed in principle to admit Timor-Leste as its 11th member and adopted a roadmap for its full membership. ASEAN has been the leading voice on trade and security issues in the Southeast Asia region since the 1990s, starting with the signing of the Free Trade Area Framework Agreement.
India and Southeast Asian countries Indonesia, Vietnam, Laos, Brunei, Thailand, Myanmar, the Philippines, Cambodia, Singapore and Malaysia share both land and maritime borders and are civilizational partners. Together they share 7 percent of the world GDP and 26 percent of the world population. Their combined strength is, therefore, phenomenal. Southeast Asia, through its regional grouping ASEAN, has truly become a global economy, where FTAs have been playing a key role in the integration. Today they have evolved into one of the most dynamic economies in the world, and for the last two consecutive years, ASEAN has been India’s second-largest trading partner.
The India-ASEAN Trade in Goods Agreement, which was signed on August 13, 2009, came into effect on January 1, 2010, after six years of negotiations. Apart from trade in goods, the India-ASEAN Comprehensive Economic Cooperation Agreement (CECA) also covered trade in services and investment, which together form the ASEAN-India Free Trade Area (AIFTA). India’s total trade with ASEAN has grown since the signing of the FTA, from US$ 96.79 billion in 2018-19 and estimated to reach US $ 300 billion by 2025. Post-FTA, India’s exports to ASEAN increased substantially, particularly in Thailand, Cambodia, Vietnam, Malaysia, the Philippines, and the Lao People’s Democratic Republic. Imports into India from Vietnam, followed by the Philippines, Malaysia, Singapore, and Thailand increased even more substantially. The sectors that registered notable increases in exports are apparel, textiles, food products, other crops, wood and wood products, fisheries, mineral products, machinery, beverages and tobacco, and leather and leather products. According to the Asian Development Bank (ADB), Southeast Asia’s growth is expected to be 4.6% in 2024. This is supported by the rising demand for electronics, mechanical equipment, machinery, and vehicles.
ASEAN is a significant component of India’s Act East policy towards the Southeast Asian region. It is through the ASEAN forum that New Delhi seeks to further reinvigorate engagements with the Pacific beyond the Look East policy of the 1990s. India demonstrates its sensitivity towards the dilemma of many countries in Southeast Asia vis-à-vis the need for a practical alternative for economic growth and development, which goes beyond rigid requirements and predatory lending. Economically, Southeast Asian countries have been trying to get out of Chinese economic dependence, taking into consideration its assertiveness. As a result, the role of India as an emerging great power will provide a much-needed middle way for many Southeast Asian countries, which seek to safeguard their growth and security without falling deeper into the US-China power struggle.
India, under the leadership of Prime Minister Narendra Modi, has invested significantly in bolstering India’s Southeast Asia outreach to illustrate its growing role as a responsible development partner and a security provider. Accordingly, what was once a partnership marred by a lack of awareness and understanding is now steadily evolving into a strategic partnership with multi-dimensional goals.
Narendra Modi was the first Indian Prime Minister to deliver a keynote address at the annual Shangri La Dialogue on June 1, 2018. In the November 2018 visit to ASEAN and East Asia Summits, he also became the first head of government to deliver the keynote address at the Singapore Fintech Festival, the world’s largest fintech event. The bilateral trade between them was just US$ 9 when they had the first summit way back in 2002, and now the trade is likely to cross the US$ 150 billion mark by the turn of 2024. The Global value chains (GVC) networks between India and Southeast Asia have grown in the last decade along with the rising gross cumulative investment flows between them, which has exceeded US$ 125 billion during 2000-2023.
The past year has witnessed a very hectic engagement between Southeast Asia and India. Near Rajgir, Bihar PM Modi inaugurated the campus of Nalanda University – rebuilt in partnership with several Southeast and East Asian countries. India’s Defence Minister Rajnath Singh attended the 10thASEAN Defence Ministers’ Meeting-Plus (ADMM-Plus) in November 2023. This was followed by the visit of ASEAN Secretary General, Dr. Kao Kim Hourn to India in February 2024. The purpose was to advance the ASEAN-India Comprehensive Strategic Partnership (CSP) and promote ASEAN diplomacy in India. The following month, the 24th ASEAN-India Joint Cooperation Committee (AIJCC) Meeting was held, and in May 2024, the 26th ASEAN-India Senior Officials’ Meeting (AISOM) took place. India’s External Affairs Minister, Dr Jaishankar attended the ASEAN-India Foreign Ministers’ Meeting and the PMC+1 Meeting in July 2024. Indian Commerce and Industry Minister Piyush Goyal, co-chaired the 21st ASEAN-India Economic Ministers in September 2024.
Manifesting India’s high commitment to relations with Southeast Asia, at Jakarta in 2023 PM Modi announced the 12-point agenda, which covers a wide set of areas crucial for economic engagement. As a result of the 12-point agenda, the Southeast Asian regional grouping has shown interest in India’s UPI and also in India ASEAN’s fast payment systems (FPSs). In June 2024, the Reserve Bank of India (RBI) officially joined “Project Nexus”, marking a milestone in India’s integration with ASEAN’s financial infrastructure. The real-time, cross-border linking of India’s Unified Payments Interface (UPI) and Singapore’s PayNow has been implemented and both sides are planning to expand the operation.
Among the Southeast Asian nations, Singapore is India’s largest trade partner, a leading source of foreign direct investment (FDI) and one of the largest sources of external commercial borrowings and foreign portfolio investment. Between April 2000 and March 2024, cumulative FDI flows from Singapore to India stood at $159.943 billion, accounting for 24 per cent of total FDI inflows into India. In 2023-24 Singapore was the largest source of FDI into India, with equity inflows of US $11.774 billion. The top sectors attracting FDI equity inflows from Singapore are services, computer software and hardware, trading, telecommunications, and drugs and pharmaceuticals. Bilateral trade expanded after the conclusion of the Comprehensive Economic Cooperation Agreement, from $6.7 billion in 2004-05 to $35.6 billion in 2023-24.
Some Southeast Asian states such as Malaysia have agreed to trade in local currency with India. More ASEAN member states are likely to follow suit. ASEAN is a key trading partner for India, being its second largest for two consecutive years. In August 2023, both sides announced the aim to complete the review of the ASEAN-India Trade in Goods Agreement (AITIGA), the existing agreement on goods between the two regions by 2025.
Digital cooperation is the best part of India’s economic engagements with Southeast Asia and it will continue to add further momentum. Cross-border e-commerce and Fintech innovations are key sectors where MSMEs are expected to thrive. There are ample opportunities to collaborate. ASEAN and India are also working together to forge green infrastructure and resilient supply chains.
India has been increasingly expanding its bilateral electricity trade network with a number of Southeast Asian countries. Indications are that India is deeply interested in working with Southeast Asian groups to create a regional policy framework for green energy transition with increasing usage of small modular nuclear reactors. According to Harish Dudani, a Member, of the Central Electricity Regulatory Commission (CERC), the Southeast Asia region provides a lot of opportunities for mutual cooperation to make low-carbon energy transition less disruptive. At the Singapore International Energy Week held from 21-25 October 2024, Dudani said, “ASEAN countries, including India, are showing increasing interest in Small Modular Nuclear Reactors (SMRs) as part of their broader strategy to diversify energy sources and meet growing energy demand while reducing carbon emissions.” Such connections enhance grid resilience, facilitate the efficient imports and exports of renewable energy, and contribute to regional energy security.
Together India and Southeast Asian nations are exploring cooperation on the Single Window platform to enhance trade facilitation and integration and promote the development of MSMEs and start-ups. The areas that offer high prospects are pharmaceuticals, health, digital and e-commerce, financial, and maritime security. Both should collaborate in the areas of emerging technologies such as AI, 5G, quantum computing, cloud computing, Internet of Things among others.
At the recently held 44th ASEAN summit at Vientiane, Laos, India’s Prime Minister Narendra Modi announced a 10-point plan to strengthen India-ASEAN comprehensive partnership and asserted that ties with the regional grouping were critical to guiding Asia’s future. Addressing the 21st India-ASEAN Summit here, Modi noted that India-ASEAN trade had doubled to over USD 130 billion in the past decade and announced a review of the trade-in goods agreement to harness the greater economic potential of the partnership. “I believe that the 21st century – the Asian century – is the century of India and ASEAN nations,” he said while addressing the leaders of the ASEAN nations that include Malaysia, Thailand, Brunei, Cambodia, Indonesia, Myanmar, Philippines, Vietnam, Laos and Singapore.
India – Southeast Asia relations have grown from strength to strength, with rising trade and investment flows, friendshoring, and people-to-people contacts. The ASEAN-India annual summit process has entered into the third decade of partnership and since 2002, India has not missed a single summit. Through the regional grouping mechanism ASEAN, India’s relations with Southeast Asia have been elevated to the Comprehensive Strategic Partnership (CSP) level, which is meaningful, substantive, and mutually beneficial.
Considering Southeast Asia’s proximity to India and the complementarities of their economies there is a huge potential for strengthening two-way trade and development investment. India and the Southeast Asian economies are steadily emerging as preferred alternative investment destinations for several multinational companies.
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