Source: Kompas, 6 December 2010

Enhancing Connectivity for Promoting ASEAN-India Economic

Integration

Siwage Dharma NegaraIndonesian Institute of Sciences (LIPI)

Presented for the ASEAN-India Network of Think Tanks (AINTT) Meeting, New Delhi, August 7-8, 2012

Outline

Why promoting ASEAN – India connectivity is importantThe Challenge of Physical InfrastructureStrategy to Promote Connectivity The Way Forward

Why promoting ASEAN – India connectivity is important

• ASEAN and India trade and economic relations have grown significantly. – Trade between India and ASEAN has increased at an average, annual

rate of 18% between 1993 and 2010 (ASEAN 2010). – ASEAN is India’s 4th-largest trade partner, with a total trade value of

more than $50 billion in 2011. India is also the 6th-largest trade partner for ASEAN in 2011.

– ASEAN-India trade is targeted to reach $100 billion in 2013.• India has been reforming and liberalizing its economy since 1991 after

experiencing a serious balance of payments crisis. The reform has made its economy more competitive and outward looking, opening up great potential from closer economic relations.

• ASEAN-India partnership could be an important building bloc of the emerging broader regional economic cooperation in Asia (JACIK).

Why promoting ASEAN – India connectivity is important

• India ranks second at the top priority list of the host economies for FDI.

Source: UNCTAD 2010, p. 13Note: Number in brackets is the ranking in the previous year.

Why promoting ASEAN – India connectivity is important

• The ASEAN-India FTA will create one of the world’s largest free trade areas with a market of almost 1.8 billion people and a combined GDP of $2.8 trillion

• As economies develop, production becomes more concentrated spatially. Connected countries/regions are favored by producers

• In view of this huge market potential, enhancing ASEAN-India connectivity will be key for tapping the benefits from an enhanced trade and economic relationship.

• Improved connectivity will strengthen economic cooperation, deepen economic integration and narrow development gaps in the region.

• ASEAN-India connectivity will boost growth and competitiveness of the region

• “Asia must be at the center of the new globalism. Asia must lead the way to keep markets and societies open” (Susilo Bambang Yudhoyono, President of Indonesia and Chair of ASEAN, WEF 2011)

The Challenge of Physical Infrastructure

Source: ESCAP 2011, p. 108Notes: •The composite measure of infrastructure development is calculated based on eight physical infrastructure indicators in ESCAP member countries.CN= China; HK= Hong Kong; ID = Indonesia; IN = India; JP = Japan; LA = Lao People’s Democratic Republic; KH = Cambodia; KR = Republic of Korea; MY = Malaysia; RU= Russia; SG = Singapore; TH= Thailand; VN = Vietnam.

The Challenge of Physical Infrastructure

1 2 3 4 5 6 7

Vietnam (123)

Philippines (113)

India (91)

Indonesia (90)

China (72)

Thailand (46)

Malaysia (27)

Quality of infrastructure index (scale 1-7 where 7 is the best)

• There is a large infrastructure disparity among the ASEAN countries. Need to focus on developing stronger infrastructure of CLMV countries.•Physical infrastructure remains the key challenge in India for attracting investors, sustaining economic growth & promoting connectivity.

Note: Brackets indicate global rankingSource: WEF Global Competitiveness Index 2010-2011

The Challenge of Physical Infrastructure• Logistic performance matter for enhancing connectivity

129

109

101

59

53

52

46

45

38

29

26

2

1

-45 5 55 105 155

Myanmar

Lao PDR

Cambodia

Indonesia

Vietnam

Philippines

India

Brazil

Thailand

Malaysia

China

Hong Kong, China

Singapore

Source: Logistic Performance Index, World Bank 2012

0

1

2

3

4

5Customs

Infrastructure

International shipments

Logistics competence

Tracking & tracing

Timeliness

India China IndonesiaScale from 1-5, where 5 is the best

The Challenge of Physical Infrastructure• Need to strengthen multimodal transportation system.

Source: World Bank, cited from ESCAP 2011

The Challenge of Physical Infrastructure• Maritime transport is the most important mode of transportation in

international trade. • Need to strengthen ASEAN -India liner shipping connectivity to be on par

with the global best players.

Source: UNCTAD, cited from ESCAP 2011, p. 122

The Challenge of Physical Infrastructure• More export oriented country tends to use more air transport for freight

Source: World Bank, cited from ESCAP 2011Note: IDN = Indonesia; IND = India

The Challenge of Physical Infrastructure• The key for competitiveness:

Infrastructure• ESCAP study (2011) highlights the

need for regional financial architecture that could provide the much needed development finance.

• ADB (2009) estimated $8 trillion will be needed for infrastructure investment in the next 10 years, of which, about $4.1 trillion will be allocated for energy and $2.5 will be allocated for transport sector.

• McKinsey(2011) estimated about $1 trillion out of $8 trillion of the projected need will be open to private investors under public private partnerships arrangements.

Strategy to Promote Connectivity

• ESCAP (2011) points out the need for strong regional institutions for planning, managing & funding major cross countries initiatives (incl. physical infrastructure, trade, transport and harmonization of rules and regulations).

• ASEAN-India connectivity should be designed based on a multi-modal approach in which all modes of transportation, such as land, maritime, and air, are considered (Kimura and Umezaki 2010), e.g. Mekong India Economic Corridor (MIEC) will expand trade link between ASEAN and India through maritime transport.

• Connectivity should be linked with the production base → transform transport corridor to economic corridor

• Myanmar’s poor infrastructures (railways, roads, ports) should be quickly addressed as it is constraining the connectivity between ASEAN and India.

The Way Forward• ASEAN & India have to build stronger regional cooperation programs to

address infrastructure needs, incl. enabling institutions and policies. • There is a need to build an integrated regional transportation network

between India and ASEAN. • Need to create financial architecture to fund infrastructure development.

The use of a PPP for infrastructure investment is promising…but it will only work if the inherent conflict between public and private sector interests, most notably in price setting, could be effectively negotiated.

• Strong political commitments to execute most of the policies & strategies, which have been agreed by the ASEAN & India, are needed.

Source: Kompas, 6 December 2010

Thank You