India’s Look East Policy Analysis

1329 words (5 pages) Essay in Economics

03/10/17 Economics Reference this

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India’s look east policy is the pivot of India’s effort towards globalisation and a corollary of our economic reform agenda launched in 1991. In the past trade with the monsoon winds was a part of our connection with Asia and the Spice Route was a part of the value-chain that we are trying to revive today. India’s effort to strengthen its connection with Asia like the past was seen during the commemorative celebrations with the ASEAN, where India sent a naval vessel, a sailing ship along the monsoon winds which touched the capital cities of each ASEAN members on an eight month visit.

India’s current economic policy of “look east” and “act east” was in parallel with the global shift of gravity towards Asia. The growth rate of Asia averaged more than the world and this is what makes the shift of gravity possible. The process started with Japan which was later on followed by the Tiger Economies of Asia. Recently china, India as well as the ASEAN countries has joined in for this huge development process. The economies of ASEAN forms the central attraction with regard to the India’s look east policy “because it is central to the economic and political architecture of the region and is the lube of building an open and inclusive architecture of the region based on common understanding”.

India and ASEAN share many things in common between themselves. For example, both of them are rice-based economies, inflicted by common disease like malaria and have the largest bio-diversity in the world. In order to increase the level of co-operation between ASEAN and India we need to increase the level of connectivity not only by road but also by air, by water and through technology. India already has a comprehensive partnership agreement with Japan, one of the fastest growing economies in Asia. During Prime Minister’s visit to Japan last year, Japan promised to support India both financially as well as technically to make Modi’s “Make in India” campaign successful. India also has co-operational connectivity with Korea and in recent times Korean products have become household names in India. For example, in any major sports league event like the IPL, Korean products become the major sponsors. We have co-operation with the ASEAN and other Asian nations through the BIMSTEC summit, through the Mekong-Ganga co-operation, the BCIM corridors, silk routes and the regional comprehensive economic partnership.

In strengthening the ties with the Asian countries we face various kinds of challenges as well as opportunities in the form of food, water, pandemics and climate change which is going to affect economics and trade because economics and trade is the ballast which is going to provide further strengthening of the nation. India’s role in the formation of the “Look East” policy goes back to the 1990’s but in the recent years what India has developed is the “Act East Policy”. So in the present times India is both looking East and Acting East. India’s commercial ties with the Asian region go back to time immerorial but due to India’s internal issues especially the geopolitical issues, India did not integrate well with the Asian region. But in the recent years things have improved drastically in terms of culture, connectivity and co-operation. So the thrust of the government should be to enhance these three C’s and look for a huge amount of opportunities in Asia. The Prime Minister himself said that it is Asia’s century and it becomes important for India to understand that how we can fit ourselves into these global value chains so that Asia itself leverages its unique position so that the demographic dividend that we are proud of does not become a demographic disaster.

Talking about the GVCs we can cite the example of the apple iphone which is produced in China but most of the profit from the sale of the iphone goes to the US and not to china. So when we talk about manufacturing in India or “Make in India” we should not be bogged down by the fact that everything from the scratch should be produced in India because it does not work in this way no matter how efficient and competitive the Indian economy tries to be. So connectivity with our neighbours is not a matter of choice like the yester years but has become a necessary thing. Therefore we need to know that which country can produce which commodity at a least cost. For example China makes a lot of money because they make millions of iphones and other products. They are huge in volume. They have played the volume game and not the margin game. Now if a country like India has to play the volume game they will have to integrate with their neighbours, integrate “look east and act east” and integrate wherever there is a comparative advantage. In this aspect the Exim bank plays a very important role in raising resources and lending them as lines of credit (LOC) to various foreign countries. The foreign countries in turn use these resources to import from India thus giving an opportunity to the Indian companies to showcase their product so that in the future they can build a commercial relation with the countries and become globally operating Indian companies. When India started its development process they were in favour of import substitution and were export pessimist but in the recent times India has become increasingly open and from export pessimist they have increasingly become import optimist. Going by data of the last ten years we find that growth rate of the GDP have increased several times but the rate of growth of the exports have increased more than the increase in imports.

During the last fifteen years the pattern of exports for India has changed drastically. There has been a decisive shift from the west to the east. Previously the major trading partners for india was Europe and North America and today it is the East with which India trades the most. This actually perhaps echoes the observation of the economic historian Angus Maddison, who documented the fact that until the 1950’s the share of china and India in global GDP were almost 50%. India and China together make up almost 40% of the world population. Now if the centre of gravity in terms of investment pattern and trade pattern are shifting east then we are just going back to a historical balance and the world is becoming more equitable because if we have a equitable distribution of income and trade there exists a proportional relationship between population and GDP. We are seeing this in India’s trade patterns. For example the the share of America in our export basket has gone down from 25% to 18%, the share of Europe has gone down from 26% to 19% and Asia as a whole including China has grown from 42% to 50% during the last ten to fifteen years. As a matter of fact india-China economic relationship is one of the fastest growing economic relationships in the world and this relationship has grown at a fantastic CAGR. According to e reprt prepared by the EXIM bank, during the year 2001 India ranked number 19 in the list of countries that China export to but in the recent times India has moved up to number 6, this shows how important india has become as an export destination for china. An peculiar characteristic about the south Asian trade is the fact that about 95% of the trade done by south asian countries is with thw rest of the world and not with each other. This is the only part of the world where this analogy exists. In most part of the world foreign trade takes place within few kilometres. For example in NAFTA most of the trade takes place between Canada and US or between USA and Mexico.

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