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Act East Policy and the CLMV Countries

Gautam Sen is a retired IDAS officer who has served in senior positions at the Centre and in a north-east State Government.
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  • March 29, 2016

    In his budget speech last year, Finance Minister Arun Jaitley had stated that “The ‘Act East’ (ACEP) policy of the Government of India endeavours to cultivate extensive economic and strategic relations in South-East Asia. In order to catalyse investments from the Indian private sector in this region, a Project Development Company will, through separate Special Purpose Vehicles, set up manufacturing hubs in CLMV countries, namely, Cambodia, Myanmar, Laos and Vietnam.” There was, however, no specific mention of progress in this regard, in his recent Union Budget (2015-16) speech or even in the latest Economic Survey. While the earlier `Look East` policy, in its re-incarnated form as ACEP, is under execution, the special economic drive towards CLMV countries is yet to gather adequate momentum as compared to the position prevailing at the end of the last financial year. The impact of ACEP on the north-eastern states has also not been significant on the ground or at operational levels towards generating significant outward flows of commodities and services with or without value added from the region to the CLMV or ASEAN countries.

    Notwithstanding the above, as per official statistics of the Ministry of Commerce, bilateral trade with CLMV countries has been showing an upward trend over the past decade and a half. Bilateral trade was USD 0.46 billion equivalent in 2000, increased to 4.97 billion in 2010 and reached 11.85 billion in 2014. India’s trade with these countries is approximately 16 per cent of its overall trade with ASEAN. However, India’s foreign direct investment (FDI) in the CLMV countries is mainly concentrated in Vietnam, involving more than 90 projects with a total investment of USD 1 billion. This has the potential to expand to diverse areas, including agriculture, agri-processing, agro-chemicals, mining, oil and gas, energy, healthcare, information technology, skill-development and textiles. Till about two years ago, 55 per cent of India’s investment in joint ventures in CLMV countries was in Vietnam. It is thus clear that Indian FDI is not evenly spread in these countries and much remains to be done in relation to the other three CLMV countries, i.e., Cambodia, Laos and Myanmar.

    At the Third India-CLMV Enclave held in January 2016, the Commerce Minister, Nirmala Sitharaman, reiterated the importance of connectivity between India and CLMV countries within the framework of the Initiative for Integration and Narrowing Intra-Asia Development Gap and the Mekong-Ganga Cooperation Process. The Minister also highlighted opportunities in respect of different areas of economic cooperation, viz., capacity-building projects, software development and training, entrepreneurship development, English language-based skill enhancement, telemedicine services, etc. Further, Sitharaman also hinted at India taking up quick-impact projects in Cambodia at first and subsequently in the other three countries, which would be financially supported through lines of credit and Export-Import Bank of India playing a supportive role in the process.

    Though approved recently, a Project Development Fund (for the Project Development Company referred to by the Finance Minister in his budget speech last year) with a corpus of Rs. 500 crore for CLMV countries is still to be operationalised. Unless India moves fast along the trajectory identified by the Finance Minister last year, opportunities in the fast-changing trans-Asian economic environment may not be available for long. The challenge for India may be greater in the wake of 12 Pacific Rim nations (including Vietnam) entering into the Trans-Pacific Partnership Agreement (TPP) in October 2015, since the outcome of TPP may be the setting of higher standards for trade in goods and services. India should therefore endeavour to boost its trade and investment with CLMV countries, which will not only contribute to greater bilateral trade and capital flows but also help it to maintain a suitable share in the overall trade within the CLMV and ASEAN countries, some of whom would also be part of the TPP.

    While pursuing its policies towards CLMV countries with a strategic objective, India has to ensure that the need for emphasis on the geopolitically closest peripheral country sharing a 1643 km long border, i.e., Myanmar, is neither lost sight of nor the benefits accruable to the north-eastern states left out of the reckoning. Moreover, economic cooperation with Myanmar needs to be directed particularly to its western region (Sagaing Division region) and north-western areas, considering the ramifications on the adjoining north-eastern areas of India. Thus, out of sheer compulsions of the national interest, India’s policies towards CLMV countries should necessarily factor in the developmental needs of the north-eastern states. But from existing policy formulations and profiles of implementation, it is not evident that this aspect is being suitably taken care of. To cite an example, while the development of air-links between India and CLMV countries is a part of the government’s initiative, intra-regional air-connectivity in the north-east is still to be put in place. Though the new draft Indian Civil Aviation Policy (unveiled in the third quarter of 2015-16) factors in this intra-north-east regional need, the actual air-routes sanctioned and air-flights launched do not fill the intra-regional void. Thus, air-connectivity with CLMV countries may not concomitantly benefit the north-east. This may be deemed as one of the inherent gaps in the CLMV-oriented policy, which requires tweaking or amendment for appropriate outcomes.

    A lot needs to be done to give a multi-dimensional and wholesome content to India’s policy approach on economic cooperation with CLMV countries as well as in respect of the Act East Policy. As already mentioned, trade and investment policies require more specificity vis-à-vis all the CLMV countries as well as a more strategic need-based focus on Myanmar. The spin-off impact on the north-eastern states as well as greater involvement of north-eastern state governments should be built into the policy formulation process. Unless this is done in a well-conceived and institutionalized manner, the desired strategic objectives of ensuring appropriate levels of development, security and national cohesion in the north-east as well as an adequate level of influence with CLMV countries through mutually beneficial resource flows may not be achievable. The India-Myanmar-Thailand trilateral highway to be completed in 2018-19, linking Moreh in Manipur with Mae-Sot in Thailand through Myanmar, and the Kaladan Multi-Modal transport project enabling sea-transportation from Kolkata port to Myanmar’s Sitwe port in the Bay of Bengal, and further follow-up road connectivity through southern Myanmar up to Lawngtlai in southern Mizoram – are examples of the multifaceted CLMV linkages likely to benefit the north-east also, provided the complementary infrastructural linkages are created in tandem within the north-eastern states.

    While the economic-cum-strategic thrust towards CLMV countries has to be invigorated, a re-look at the Act East Policy is warranted to give it a more north-east development oriented under-pinning. The CLMV initiative and ACEP will logically require connectivity between various resource and facilitation centres in India and these countries. The development process of the north-east states should also be geared up to ensure that it contributes to the trade and investment exchanges with CLMV countries and benefits from the resultant outcomes.

    The author is former Adviser (14th Finance Commission) of Government of Nagaland and presently Adviser to an ex Chief Minister of Nagaland & sitting Member of Public Accounts Committee of Parliament.

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India