Future of Asia: Charting a Course for Asian Economic Integration
Montek Singh Ahluwalia
Deputy Chairman, Planning Commission, Government of India
feel greatly privileged to be invited to speak at this prestigious
international conference on "The Future of Asia". I would
like to compliment the Nihon Keizai Shimbun for regularly bringing
together participants from different parts of Asia to discuss issues
of common interest for our continent.
The theme of
this year's conference is particularly pertinent in view of the
changes which have taken place in the world in the last fifteen
years or so. Asian countries have opened their economies to foreign
trade and investment and have aggressively integrated with the global
economy. They have generally done well in this process and Asia
has the best record of economic development and poverty reduction
compared with any other region. This has given us confidence to
think of deeper economic integration among ourselves. Regional integration
is taking place in Europe and in North America in parallel with
the steps to achieve multi-lateral liberalisation. The concept of
Asian economic integration is therefore a logical development as
a means of promoting the common prosperity and well-being of the
people of Asia.
In other parts
of the world, successful regional integration has been driven by
prior political closeness. Asia is different in this respect because
it includes a much greater diversity of countries at very different
levels of development and also with very different political systems.
However, commonality of economic interests is also a powerful driver
and there are strong economic forces which justify greater integration.
In the case of Asia, unlike Europe, it is possible that economics
will lead in the integration process and politics will follow.
I would like
to use this opportunity to share some thoughts on how India looks
at the prospects.
We, in India
have long admired the remarkable economic performance of many Asian
countries, which led people all over the world to view Asia as a
success story in development. In fact, when India embarked on a
process of economic reforms in the 1980s, the move was in part stimulated
by the demonstrably superior performance of East Asian countries
such as South Korea, the Taiwan province of China and later China
itself and the countries of South-East Asia, all of which demonstrated
that market oriented policies, with a particular focus on exports,
could be a recipe for rapid economic growth and poverty reduction.
in India have been successful in raising India's growth rate from
3.5 percent in the 1960s and 1970s to just under 6 percent in the
1980s and 1990s. The economy has grown at an average rate of 6.5
percent in the last three years and we expect to average 7.5 percent
in the next two years. We are aiming at taking the economy to an
8 percent growth path thereafter.
that India has the capacity to grow at 8 per cent per year is shared
by many observers. A much quoted recent study by Goldman Sachs has
identified Brazil, Russia, India and China as the set of large emerging
markets projected to grow rapidly over the next thirty years. Within
the group, India's potential growth rate has been projected to be
the fastest - around eight percent per year - faster even than China,
which is currently, and has been for many years, the fastest growing
economy, but is expected to slow down in future. According to this
study, by 2040, India will become the third largest economy after
the USA and China. This projection has been adopted by the US National
Intelligence Council's 2020 report "Mapping the Global Future".
that these projections are not guaranteed outcomes and there is
a great deal we need to do to realize our potential. The process
of economic reforms must be carried forward and the government is
committed to doing so. We will continue the process of reducing
the import tariffs to bring them in line with those in other countries
in East Asia. We will actively encourage foreign investment from
Asia and other parts of the world.
One of our major
priorities is to upgrade our infrastructure, including especially
roads, electric power, ports, railways and irrigation. In all these
areas, our objective is to bridge the gap between our infrastructure
and the standard of infrastructure in East Asia. The government
proposes to achieve this objective through a combination of expanded
public investment and private public partnerships, wherever possible.
in attracting private investment into infrastructure is mixed. We
have had very good experience in telecommunications and ports. It
has been more difficult in the area of electric power, but we are
trying to overcome these problems. We are currently planning a major
expansion in airports infrastructure based on public private partnership.
The expansion plan for roads will be dominantly in the public sector
but we are planning a significant role for private sector BOT projects
in this area in stretches where the traffic density is high.
are also needed in the health sector and in education, particularly
in rural areas, to make up the gaps which exist in social indicators.
We have done less in these areas than we should have, and we are
taking steps to correct these deficiencies.
reforms are similar in many ways to the changes that have taken
place elsewhere. We are trying to create an environment in which
the private sector is given freedom to compete and innovate supported
by infrastructure as good as in our competitor countries. We have
opened up the economy to trade and foreign investment. We are restructuring
the role of government to get it out of business wherever the private
sector can do the job and focus its energies on areas where the
private sector is unlikely to act and on creating regulatory structures
in infrastructure which create a credible environment for private
investment. The main difference with India's reforms is that they
have been implemented at a more gradualist pace than in many other
should not be mistaken for lack of conviction. It is, rather, the
inevitable consequence of India's democratic polity. India has worked
hard over 60 years to build a functioning democracy in which an
electorate of 700 million exercises its franchise regularly, and
often change governments in the process. We take pride in the highly
participative nature of our democracy, but this does mean that policy
changes must be made at the pace at which consensus can be built.
This slows the pace, but it has the advantage of building a broad
base of support, which ensures political continuity and sustainability.
that has taken place in our policies has given us a new perspective
on the importance of the Asian region. We have always attached emotional
importance to the concept of Asian unity and identity. Our first
Prime Minister, Pandit Jawaharlal Nehru was perhaps ahead of his
times when he saw the mighty possibilities that Asian unity could
offer to its nations. Many of the factors that drive Asian cooperation
and inter-dependence today, such as globalization and trade liberalization,
had not emerged in his lifetime. Nevertheless, he was clearly driven
by a common vision of Asia when he spearheaded two important Asian
movements of his time - the Asian Relations Conference in Delhi
in 1947 and the Bandung Conference in 1955.
of globalization and the growing economic potential of Asia, justifies
the resurrection of that vision of Pan-Asian regionalism. Driven
by this vision, India has been striving to strengthen relations
with its Asian partners - with Japan, China, Korea and countries
in the ASEAN region. We have a similar vision of South Asia, unshackled
from historical divisions and bound together in collective pursuit
of peace and prosperity.
We believe that
cooperation between India and East Asian countries in the 21st century
is economically logical and will help to make this century the century
of Asia. It was in this context, and with this vision of an Asian
century, that a decade ago, our Government unveiled the "Look
East" policy, which is now a vital part of India's foreign
This is not
a mere political slogan. Our "Look East" policy has a
strong economic rationale. East Asia- including Japan, China, South
Korea and ASEAN - is now India's largest trade partner, ahead of
EU and also ahead of the US. This region is an important source
of Foreign Direct Investment into India. Japan's investments in
India are growing. South Korea has become an important investor
in recent years. Singapore and the other South-East Asian countries
have also begun to invest.
the inflow of Foreign Direct Investment into India is about $5billion
per year, if we exclude portfolio investment in Indian equities
by Foreign Institutional Investors. This is a big increase from
$100 million when the reforms began, but it is far below our potential.
China, for example, attracts FDI of $60 billion. China is a larger
economy and would be expected to attract a larger flow. There are
also differences in the definition which if corrected, increase
the Indian figures. Nevertheless, the existing flow is below the
potential. An economy of India's size and growth prospects should
be able to absorb three times the level of FDI it currently does.
The government is committed to creating an environment in which
this increase will take place and we believe that a large part of
the increase could come from Asia.
The Indian economy
is also set on the path of greater openness in the area of trade
and this makes greater integration with Asia inevitable. Our trade
to GDP share has been increasing, but compared to the East-Asian
countries it is still low. We expect this share to increase substantially
as a consequence of open policies. Asia, with its highly diversified
production base, spanning the highest technology in Japan, very
high technology in South Korea, and proven competitiveness and quality
in other East Asian countries, is bound to have a large share of
economic considerations have guided our policies towards our neighbours
values its relations with Japan and believes that as the second
largest global economy, Japan has a natural central role in Asia's
global future. During Prime Minister Koizumi's visit to India last
month, the two Prime Ministers signed a Joint Statement, which adds
a new "strategic" orientation to the India-Japan global
partnership in the "new Asian era" and lays down a concrete
"Eight-fold Initiative" for strengthening it. The Joint
Statement recognizes that India and Japan will be two of the key
anchors in the new emerging Asian era, with a broad convergence
in their long-term interests and concerns. We have together agreed
to explore the feasibility of an India-Japan Economic Partnership
friendly and cooperative ties with China and we are working to improve
our relations in all areas without allowing our differences to define
the agenda of our relationship. During the visit of the Chinese
Premier Wen Jiabao to India last month, India and China agreed to
establish a "strategic and cooperative partnership for peace
and prosperity". This reflects the consensus between the two
sides that there is more than just a bilateral dimension to their
relations. These have now acquired a long-term, global and strategic
character with growing influence of the two countries on the regional
and global stage, and growing convergences between them on regional
and international issues. Trade and economic ties between the two
countries are expanding rapidly and the two countries have now decided
to examine the feasibility and benefits of an India-China Regional
Trading Arrangement. I am particularly happy to say that Chinese
firms are investing in India and Indian companies, including especially
those in IT and pharmaceuticals where we have some strength, are
investing in China.
With the ASEAN,
we have a partnership that is steadily expanding and has the potential
to become a catalyst of economic integration in our region. The
potential for beneficial co-operation is recognized by both sides.
At the third India-ASEAN Summit, we signed an agreement on India-ASEAN
Partnership for Peace, Progress and Shared Prosperity. We have started
evolving a Free Trade Agreement with ASEAN. We already have an FTA
with Thailand and a Comprehensive Economic Cooperation Agreement
There is a steady
development of friendly and cooperative relations between India
and South Korea over the last thirty years, since the time these
two countries established diplomatic relations. South Korea has
responded positively to India's opening up and, as I have already
mentioned, they have made important investments in India in the
past few years with the distinct prospect of more to come.
initiatives vis-à-vis Asia are the logical consequence of
our new economic policies which emphasise openness and integration.
An open and fast growing India will, we believe, have much to offer
to Asia, helping to knit the continent together in a manner never
seen before. It is with this conviction that India espouses a vision
of an Asian Economic Community, which encompasses ASEAN, Japan,
China, South Korea, and India - the five pillars which may form
the initial core to drive Asia's emergence as the epicentre of global
It is relevant
at this point to quote from the speech of our Prime Minister, Dr.
Manmohan Singh to the Third Indian - Asean Business Summit in October,
Such a community
would release enormous creative energies of our people. One cannot
but be captivated by the vision of an integrated market, spanning
the distance from the Himalayas to the Pacific Ocean, linked by
efficient road, rail, air and shipping services. This community
of nations would constitute an "arc of advantage" across
which there would be large scale movement of people, capital, ideas
and creativity. Such a community would be roughly the size of the
European Union in terms of income, and bigger than NAFTA in terms
of trade. It would account for half the world's population, and
it would hold foreign exchange reserves exceeding those of the EU
and NAFTA put together.
that it will take a great deal of time, energy and perseverance
to translate this vision into reality. But we should at least start
thinking about the idea and develop the roadmap for its realization.
towards Asian regional cooperation have already gained momentum.
Developments such as the Chiang Mai Initiative, the creation of
an Asian Bond market, the proposal for an Asian Exim Bank, are examples
which highlight the emergence of a distinct Asian consciousness.
Their reach could be expanded. Another encouraging development which
would point to a cooperative architecture in Asia is the East Asia
Summit to be held in Malaysia towards the end of this year, with
the participation of ASEAN, Japan, China, South Korea and India.
This could prove to be the beginning of a more permanent forum,
leading to the creation of an East Asian Community.
Studies by a
leading Indian think-tank show that economic integration within
the East Asian Community has the potential to generate welfare gains
of up to US$ 210 billion. Another recent joint study by Asian Development
Bank, World Bank and the Japan Bank for International Cooperation
concludes that developing countries in Asia need to spend more than
a trillion dollars over the next five years on roads, water, communications,
power and other infrastructure to cope with the rapidly expanding
cities, increasing populations, and the growing demands of the private
sector. Monetary and financial cooperation in Asia, designed to
mobilize the huge foreign exchange reserves of Asian countries for
development of regional commons and regional infrastructure, could
have the potential of creating hundreds of billions of dollars of
additional output to overcome these constraints.
The major countries
of Asia are already engaged in developing preferential trading arrangements
between themselves. India too is actively pursuing these possibilities.
This should continue, but we must also keep in mind that the larger
East Asian Community offers the opportunity to build a broader regional
trade and investment architecture which can overcome the sub-optimal
benefits of bilateral arrangements and build stronger synergies
and deeper complementarities for greater mutual advantage.
for ensuring energy security can be another highly lucrative collective
endeavour for the East Asian Community as many of its members are
amongst the largest consumers and importers of energy in the world.
Two possible areas of such an Asian energy cooperation could be
building an Asian Strategic Petroleum Reserve and creating an Asian
Emergency Response System. The cooperation could also extend to
cover the joint patrolling of the sea-lanes through which pass the
bulk of the oil and gas supplies for the region. The possibility
of building an Asian gas or oil pipeline is also promising through
in the development of transport infrastructure and connectivity
is another area of promise for the East Asian Community. In addition,
collective venture in core technologies for addressing the digital
divide and nutritional and health related issues also presents opportunities
for fruitful cooperation especially in fighting the common challenges
of poverty and underdevelopment in the region.
are indeed enormous. Prime Minister Manmohan Singh and Prime Minister
Koizumi articulated this in the Joint Statement signed on April
29, 2005 during Prime Minister Koizumi's visit to India, when they
said this Community of nations would constitute an "arc of
advantage and prosperity" which would act as an anchor of stability
and development for Asia and beyond.
Ladies and Gentlemen,
today, Asia stands at the cusp of exciting times, which hold a bright
promise for our future collective endeavours. We share the responsibility
to shape our collaboration to liberate the creative energies of
the entire region. We must put in place a political and economic
architecture which is conducive to Asia's emergence as a pre-eminent
region of stability and prosperity. This can make the 21st century
the Asian century in the truest sense. India seeks closer and wider
engagement with her Asian neighbourhood and is willing to work closely
with them to realize this shared aspiration.
the speech delivered at The Future of Asia 2005 Conference organized
by Nihon Keizai Shimbun in Tokyo on May 25, 2005)
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