- Total trade, investment and financial flows between India and ASEAN-6…
- …have strengthened over the past two decades.
- There are multilateral as well as bilateral linkages between the two regions.
- Ongoing efforts to expand manufacturing footprint will help address the skew in India-ASEAN-6 trade.
- We see scope for synergies to strengthen over the medium-term.
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Two fast-growing regions
India’s dominance in the global economic and diplomatic arena has grown steadily in recent years. Strong growth, demographic dividends, a growing consumption market, and a push to improve the ease of doing business are few of the key tailwinds driving the country’s medium-term prospects. The country has tapped opportunities to reassert its growing influence, while also strengthening ties with strategic partners in the region (read India: Supply chain tailwind, reforms, and resilience and 2024 Outlook: Advantage India).
The ASEAN-6 economies, on their part, are home to rapidly expanding economies, with on-aggregate favourable demographics and strong foothold in the export sectors, including advanced manufacturing and fast-growing services sectors (read ASEAN-6: Tailwinds from supply chain reconfiguration).
For India, beyond historical close linkages with the US and Europe, we expect the bilateral India-Southeast Asia (with our focus on ASEAN-6) corridor to also benefit materially from growing synergies and improving connectivity.
Strong existing links and prospective growth
TRADE
India and ASEAN-6 already enjoy strong trade linkages, with room to flourish further. The Southeast Asian bloc was India’s fourth largest trading partner as of FY2024, ranking behind the European Union (EU), the US, and China, accounting for a steady share of around 11% of India’s global trade over the years. Bilateral goods trade between India and ASEAN-6 has grown by 5.2% CAGR from FY2014 to FY2024, outpacing India’s overall trade growth of 3.8% CAGR over the same period. Singapore (30% share in India’s trade with ASEAN-6 in FY2024), Indonesia (25%), and Malaysia (17%), and Thailand (13%) have been India’s top trading partners within ASEAN-6 in recent years.
INVESTMENTS
Foreign direct investment (FDI) flows between India and ASEAN-6 have been concentrated in Singapore. Singapore was India’s largest source of FDI, accounting for 28% of total FDI inflows into India in 2023, amounting to USD11.6bn.
FINANCIAL LINKAGES
The advanced state of India’s financial system technology platforms has led the country to promote its homegrown fast payment system i.e., the Unified Payments Interface (UPI) and Rupay for cross-border payments. Taking a step in this direction, MOUs were signed with 13 countries who would adopt the UPI interface for digital payments, including Singapore which has since completed its UPI integration.
Counting on deeper synergies
India is presented with a strategic opportunity to expand its economic heft to assume a greater role in the world arena as well as amongst the investment community. Concurrently, the ASEAN-6 countries have also assumed a bigger role in global value chains, benefiting from higher trade and investment inflows in midst of the China + 1 strategy and participating in increasingly key sectors like electronics and semiconductors. We expect the synergies between these two regions to strengthen in the coming years, encompassing stronger trade and investment ties.
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