Mr Bhattacharjee, Chief Minister of West Bengal

Mr Kamal Nath, Minister for Commerce and Industry

Mr Y C Deveshwar, President CII

Distinguished Guests

1. I am very pleased to be back in India and to see my friends again. Thank you, CII, for the invitation.

2. I last addressed the Partnership Summit in 1995 at the CII’s Centenary. The world has changed dramatically since then. So too India. One clear and significant change is the global trend towards regionalism. Europe is expanding and pooling sovereignties. The Americas are coming together, despite the resistance of some countries to the Free Trade Agreement of the Americas. Asia, too, is drawing closer.

3. Today, I would like to focus on the economic aspects of East Asian regionalism and share my thoughts on how I see the regional order evolving, and how businesses can contribute to regional integration and take advantage of the new opportunities.

Asian Economic Community

4. In Asia, the vision of an Asian community is taking shape. And India is an integral part of this community. This is the concept plan of the common home which Asians are designing and building. The foundation for this common home is regional integration. South Asia, Southeast Asia and Northeast Asia are increasingly being linked together by trade and investment flows, MNCs spreading their production chains, and a growing web of bilateral and plurilateral FTAs and regional processes. The Renaissance of China and India, two old civilisations, is forcing a competitive dynamic throughout the region. Consequently, countries have to rethink how to secure their place in the new Asia. The rise of China and India is accelerating the integration process. The trade figures reflect this. From around 30 percent in 1980, intra-Asian trade as a share of the region’s total trade rose to more than 50 percent in 2004. In the last five years alone, intra-Asian trade grew by 15 percent on average, well above the average growth rate of 5 percent for intra-NAFTA and 9 percent for intra-EU trade.

5. The integration process will continue through market forces and formal arrangements. Unlike Europe, the architecture for Asia will likely be a complex, overlapping combination of bilateral and sub-regional structures. It will not be one huge mansion of overwhelming uniformity. Instead, it will be a sprawling estate of bungalows, with different designs and sizes, which together form our common home.

6. I believe India and Singapore share the same vision.

7. Last month, in Kuala Lumpur, Prime Minister Dr Manmohan Singh outlined his vision of an emerging Asian Economic Community. He also envisioned a Pan Asian Free Trade Agreement which, together with many other FTAs being negotiated in the region, will form the building blocks of the eventual Asian Economic Community.

8. I share Prime Minister Manmohan Singh’s vision of an Asian Economic Community. When I was honoured with the Jawaharlal Nehru Award for International Understanding in July 2004, I also outlined a similar long-term vision for an Asian Economic Community, using FTAs as the building blocks. I therefore welcome Prime Minister Manmohan Singh’s pledge in Kuala Lumpur for India to play a major role in achieving this vision.

9. In Kuala Lumpur, we started the piling work for building our common home. I am referring to the East Asia Summit (EAS), which brings together ASEAN and six major economies in the region – India, China, Japan, South Korea, Australia and New Zealand. Together, they account for half the world’s population and one third of global GDP. The Leaders agreed to work towards a regional community in Asia. Significantly, they affirmed the importance of an open, inclusive and forward-looking regional architecture. I believe that the EAS will evolve into a high-level forum for strategic dialogue and cooperation and complement other existing structures like ASEAN + 3.

ASEAN-India Connect

10. ASEAN and India should work together to shape the common home we are building in Asia. I call this cooperative relationship the ASEAN-India Connect. ASEAN-India Connect encompasses the burgeoning strategic and economic partnership developing between India and ASEAN. It is an important beam in the regional architecture.

11. I should add a clarification here. ASEAN-India Connect is really a re-connection. India’s relationship with Southeast Asia goes back a long way. Over many centuries, Southeast Asia and India were intertwined through the exchange of people, trade, ideas and culture. But these ties waxed and waned. During the Cold War, Southeast Asia and India grew apart. India’s present re-connection with ASEAN began in 1992 when the late Prime Minister Narasimha Rao initiated India’s “Look East” policy. Since then, political and economic relations between India and ASEAN have grown steadily. Trade between ASEAN and India, for instance, increased six-fold between 1990 and 2004 to reach US$18 billion.

12. Indian industry and enterprise have taken a lead in this re-connection. The CII, in particular, has been in the vanguard of pushing for deeper ASEAN-India Connect. The ASEAN-India Car Rally which the CII organised in November 2004 vividly underlined the connectivity between ASEAN and India.

13. There is tremendous scope for deeper engagement between ASEAN and India. They have different natural endowments and are complementary in many fields. The two economies have much to gain through increasing trade and mutual investment.

14. Prime Minister Manmohan Singh has set the target of doubling ASEAN-India trade to US$30 billion by 2007. This is an ambitious but achievable goal. Experience over the last 10 years has shown that when ASEAN and China started to integrate their economies, trade grew by leaps and bounds. Today, this trade is worth US$90 billion. Also, initial fears that ASEAN economies would be hollowed out by China were misplaced. While some manufacturing plants did relocate to China, these were offset by the strong growth in exports and raw materials to feed China’s booming economy. Over the last 10 years, ASEAN’s exports to China grew at an average of 21 percent annually, 3 percent higher than China’s exports to the world which grew at an average of 18 percent per year. The benefits from ASEAN-China economic relations indicate what can be achieved for India and ASEAN.

15. India has a deep pool of intellectual talent and technological capability. India is strong in services and has carved a niche for itself as the world’s back office and a global software centre. ASEAN has abundant natural resources and well-developed manufacturing industries. ASEAN is already woven into global manufacturing networks. India and ASEAN should therefore leverage on each other’s comparative advantages to develop new products and services for global markets.

16. India can also use ASEAN as a launch pad for its companies. Many MNCs have established themselves in ASEAN. Singapore alone is host to 7,000. Indian companies can gain access through ASEAN’s connectivity to markets across the region and the world.

17. ASEAN can provide useful links for India’s economic dealings with other Asian countries like China, Japan and Korea. ASEAN has signed a merchandise trade agreement with China, with plans to implement a comprehensive FTA by 2010. China and India are re-discovering each other and making investments in each other's economies. But ASEAN businessmen have had long dealings with both Chinese and Indian firms. Indian firms can therefore tap into the experience and networks of ASEAN businessmen.

18. Japan, too, is renewing its interest in India. When I visited Tokyo two months ago, I was pleased to learn that Japan was keen to strengthen its relations with India. This is driven by both geopolitical considerations and economic interests. Some Japanese firms have already started to explore the Indian market. I encouraged them to accelerate the pace of exploration. However, Japan still tends to see India as culturally different, geographically distant and bureaucratically bound. Japanese businessmen told me frankly that they were more familiar with China. Singapore can help play a role in connecting India and Japan. This is why Nomura Securities chose to launch its India Stock Fund in Singapore, which raised US$1 billion in a week.

Obstacles to ASEAN-India Connect

19. There is clearly great potential for and benefit in ASEAN-India Connect. However, we must not overlook the major obstacles which will prevent this potential from being realised. I would like to highlight two critical areas which both ASEAN and India should pay attention to:
o First, maintaining the momentum of reform and liberation,
o Second, changing mindsets.

20. Harnessing the full potential of ASEAN-India Connect will involve not only physical reforms and tackling the "hardware" aspects but also addressing the "software" underpinning economic growth. Reforms and mindset change are two sides of the same coin. Nevertheless, I think it will be useful to consider them separately so that we can give due attention to each of them.

Maintaining the Momentum of Reform and Liberalisation

21. In our globalised world, investors are spoilt for choice. They can pick and choose their markets. We have to push the pace of reforms to improve our competitiveness so that we are the chosen ones.

22. In the case of ASEAN, improving competitiveness must be tackled through both national reforms and regional integration. In the wake of the Asian Financial Crisis, ASEAN countries have implemented structural reforms to strengthen their economies. Collectively, ASEAN is growing at 4 to 6 percent per year but has the potential to do better. Individual ASEAN countries are small and national reforms alone are not enough. Hence, ASEAN countries are stepping up their integration to create one single production zone and market. However, efforts at integration are complicated by disparities in economic development. Political will is therefore critical. At the ASEAN Summit in KL, ASEAN Leaders agreed to study how to accelerate the formation of an ASEAN Economic Community and advance the target date from 2020 to 2015.

23. The Leaders also signed a historic declaration to establish an ASEAN Charter, which will map out bold and ambitious programmes to enhance cooperation and integration of ASEAN.

24. The reform imperative applies equally to India. India has just started to reap the fruits of reform. Economic growth has risen from an average of 3 percent in the 1970s to more than 6 percent over the last decade. In 2004, India received US$5.5 billion in Foreign Direct Investment (FDI), a considerable jump from US$0.1 billion in 1990. However, going by China’s experience, the flood of investments will come if India stays on the reform path. What India has received in 2004 is still less than 10 percent of China’s US$61 billion. To realise its full potential, India needs to press on with and even accelerate the pace of reform. The Indian political leadership clearly recognises this and recently announced that it would simplify procedures for foreign investors. This is an important step.

25. I believe that India cannot turn its back on reform. No matter which party comes into power, the government of the day will have to deliver the economic goods that the people have come to expect. Reform is irreversible. However, the pace may well fluctuate. The intricacies of coalition politics means that time and patience will be needed to forge a national consensus on reforms. This is where businessmen like you can help. The CII has always impressed me as a forward-looking organisation with vision. It has always been pro-reform and - liberalisation and should continue to push the pace.

26. One important area for improvement is India’s infrastructure. Many international business rating agencies and businessmen highlight weak infrastructure as the key impediment for India’s growth. The Global Competitiveness Report 2005-2006, for instance, places inadequate infrastructure as the biggest problem for doing business in India. One Singapore businessman who runs a healthcare group said that while he was convinced about India’s long-term potential, he was hesitant about putting in more investments now because of the lack of good roads, clean water and reliable power.

27. The Indian Government has stated that in order for the country to meet its goal of 8 percent growth per year, it needs to spend US$150 billion on infrastructural projects over the next seven to eight years. This is a huge but critical investment. These projects can benefit from private sector participation, and open up huge opportunities for both Indian and foreign businesses. ASEAN countries with expertise in road and other infrastructural construction are well-placed to invest in infrastructure development in India.

Mindset Change

28 Apart from maintaining the momentum on reform and liberalisation and improving “hardware” like infrastructure, an equally important dimension is mindset change or “software” transformation. For ASEAN and India to be players in a globally-integrated economy, a globalised mindset is needed. We have to shift away from the old mindset that competition is undesirable because it leads to foreign economic colonisation. In reality, protectionism produces economic stagnation. Protectionism breeds complacency and inefficiency, which in turn begets more protectionism. On the other hand, competition spurs innovation and compels businesses to become stronger and more efficient, better able to tap the global opportunities. Competition drives economic growth. You lose some but you win more. Governments must therefore work to remove impediments to healthy competition.

29 In the case of ASEAN, looking back, economic integration amongst members could have gone further and faster during the boom years before the 1997 crisis. Back then, ASEAN was ahead of China in the pace of development. FDI was flowing into the region and we did not feel the urgency to push economic integration as we were doing well individually. We failed to ensure that as an economic grouping, we stayed ahead of global trends. Now, ASEAN has fallen behind China in attracting investments and economic growth.

30 Although ASEAN countries have recovered from the 1997 Financial Crisis, the world has not stayed still. Competitive pressures have been building up. China and India are on the rise. Japan’s economy is back on track and Korea is remaking itself. Last year, China drew in two and a half times more FDI than what ASEAN received. ASEAN countries must constantly seek ways to compete, restructure their economies or risk falling behind in the global race.

31 The same logic applies to India. In 1995, when I spoke at your first Partnership Summit, the thrust of my message was simple:
“Economic deregulation in India aimed at introducing competition and integrating with the global economy…is no longer a matter of choice. It is a necessity if you are to avoid being left behind in the new global economy…Persevering with the reforms will require taking carefully calculated social and political risks. But there is no other credible option if India is to relieve itself of poverty and take its rightful place in the world economic order”.

32 It is a theme I have returned to repeatedly over the past decade.

33 At the heart of whether India will open up faster is the country’s confidence in its ability to compete and take advantage of the global opportunities. I have no doubt that India can compete. Why? In a word, it boils down to the availability of talent. I know what Indians are capable of if they have the educational opportunities and exposure. Just look at the spread of Indian talent all over the world – in Wall Street, MNCs and international banks. Also, look at the enterprises in India. Many are already holding their own internationally.

34 The Indian business community is exuding tremendous confidence. I can sense it. Especially on this trip. The buoyant mood is infectious. I was told that you call this sense of self confidence “atma vishwas”. This national “atma vishwas” has helped to build the New Delhi Metro to world standards and on time. It is this spirit which will drive India forward.

35 There are signs India is already making the mindset change. One important step India has taken is to embark on an active FTA policy, signalling its intention to grow by leveraging on external economies and opening itself to competition. In June last year, India signed its first comprehensive FTA with Singapore. India has also concluded FTAs with Sri Lanka and Mauritius and is negotiating several more, including with ASEAN and the Gulf Cooperation Council.

36 The Comprehensive Economic Cooperation Agreement or CECA has facilitated the deepening of trade and investment links between Singapore and India. Even while negotiations were ongoing, CECA helped to raise awareness of the business opportunities in both our countries. In 2004, our bilateral trade reached US$7 billion. Between 2003 and 2005, both bilateral trade and Indian exports to Singapore more than doubled. Indian official figures show that for the first nine months of 2005, Singapore was India’s third largest source of FDI and for the same period, FDI from Singapore was about four times that for the whole of 2004. Many Indian companies are using Singapore to plug into the global business, knowledge and social networks. There are more than 1,600 Indian companies in Singapore which use it as a base to expand into the region and beyond. CECA has been in force for about six months. In order to realise its full potential, it is critical that the Agreement be fully implemented.

37 CECA can also act as a building block for India’s comprehensive economic integration with ASEAN. The benefits from CECA show the potential benefits that can be reaped from an ASEAN-India FTA. Unfortunately, negotiations have not progressed as quickly as ASEAN’s FTA negotiations with China, Japan and Korea. India should take a strategic view and work towards a high-quality FTA. Otherwise, the complementary and potential benefits from ASEAN-India Connect will remain at the level of potential. Strong political commitment will be needed to break the current deadlock. Prime Minister Manmohan Singh has given his assurance that the ASEAN-India FTA has India’s full political backing. Businessmen like you can also do your part in helping to turn the ASEAN-India FTA into reality.


38 Let me conclude.

39 Globalisation has intensified competition and is reshaping the world. Globalisation is not “gobble-lisation”. Competition is a positive sum game, not a zero sum venture. This is why we in Asia have started to construct a common home. India has a key role to play in the transformation of Asia.
Thank you.