Export-Import Bank of India : The Act East Policy and the Economy of East and North East

By Debasish Mallick | Deputy Managing Director | Export-Import Bank of India

The economic activities of East and North East comprising 12 Indian states with a population of around …… has remained largely confined within the Indian borders, except for trade with the immediate neighbouring countries of Bangladesh and Myanmar. Despite quite a few advantages which the region posses, the growth rate has been much below the growth achieved by the rest of the country. In this context, it is important to take a closer look at the “Act East” policy and other recent trade enhancing policies outlined below, which could usher in significant growth opportunities through enhancing international trade and investment. The geographic location of the region puts the Eastern and North Eastern states, in a favourable position to take advantage of the proposed trade arrangements, and propel to the stage of “take off”, with careful analysis and suitable economic reorientation. 

Intra Regional Trade – South Asia

South Asia comprising Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka, with a population of 1.67 billion people and economic growth of 7.1 percent over the last decade. The region comprises some of the faster growing economies of the world. Intra-regional trade, however, accounts for only 5 percent of South Asia’s total trade, compared to 25 percent in ASEAN, 35% in East Asia and 60% in Europe. Intra-regional investment is smaller than 1 percent of overall investment. Due to limited transport connectivity, deficient logistics and regulatory impediments, it costs more to trade within South Asia than between South Asia and the world’s other regions. Indian trade with Brazil is estimated to be 20% cheaper than trade with Pakistan. It is estimated that exports from Bangladesh to India can potentially rise by 300%, if the essential trade and logistics issues are addressed. 

The aforesaid status quo is set to change as the region witnesses serious attempts to forge new trade and investment arrangements. The new two regional arrangements – BIMSTEC and CLMV – are important diversifications. BIMSTEC essentially focuses on the potential for significant enhancement of intra regional trade in South Asia. The CLMV programme, on the other hand, focuses on the significant market access which Indian business could make through investment in manufacturing in Cambodia, Laos, Myanmar and Vietnam. The major transport projects, viz. the Asian Trilateral Highway, the Bangladesh, Bhutan, India and Nepal Motor Vehicle Agreement (BBIN-MVA), India– Bangladesh Water Treaty and the Kaladan Multi – Modal Transit Transport projects, are expected to improve the logistics of the region to facilitate trade between the countries. The proposed 1318 km Amritsar-Kolkata corridor, between Ludhiana in Punjab and Dankuni in West Bengal – the Eastern Dedicated Freight Corridor – though not an international corridor, will provide connectivity between the East and the North Indian economy, and thereby facilitate to enhance trade, which can be carried to international market.

BIMSTEC

The Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) involves a group of South Asia and South East Asian countries, viz. Bangladesh, India, Myanmar, Sri Lanka, Thailand, Bhutan and Nepal. The countries have an aggregate population of around 150 crores and a total GDP of around USD 3 trillion. The group proposes a Free Trade Area Framework Agreement (FTA) to stimulate trade and investment in goods and services in the region. To improve intra regional connectivity, in which India is to play a significant role, Bimstec has three major projects which, when finished, could transform the movement of goods and vehicles through the countries. One is the Kaladan Multimodal project that seeks to link India and Myanmar. The project envisages connecting Kolkata to Sittwe port in Myanmar, and then Mizoram by river and road. The other is the Asian Trilateral Highway connecting India and Thailand through Myanmar. The highway will run from Moreh in Manipur to Mae Sot in Thailand via Myanmar and represents a significant step in establishing connectivity between India and Southeast Asian countries.  The third is the Bangladesh, Bhutan, India and Nepal (BBIN) pact for the movement of goods and vehicles among them, seamlessly through the road network. The three connectivity projects are under various stages of implementation. Trial run of trucks between Bangladesh and India, conforming to the BBIN pact has already begun.

CLMV

In his budget speech last year, the Finance Minister 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 catalyze 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.”

The bilateral trade between India and the CLMV countries was USD 0.46 billion equivalent in 2000, increased to USD 4.97 billion in 2010 and reached USD 11.85 billion in 2014. India’s trade with these countries is approximately 16 per cent of its overall trade with ASEAN. India’s foreign direct investment (FDI) in the CLMV countries is mainly concentrated (about 55%) in Vietnam, involving more than 90 projects with a total investment of USD 1 billion. The emphasis put in the CLMV programme, has the potential to enhance both Indian trade and investments in all countries.

BANGLADESH, BHUTAN, INDIA AND NEPAL MOTOR VEHICLE AGREEMENT (BBIN-MVA)

BBIN transport deal entered in 2015 will enable seamless sub-regional connectivity. BBIN-MVA is an umbrella agreement, which would permit unhindered movement of passenger and cargo vehicles among the four countries. Cargo vehicles do not have to be changed at the border, a practice that has prevailed until now. As per the agreement, member countries would allow vehicles registered in the other countries to enter their territory under certain terms and conditions. The agreement could increase intraregional trade within South Asia by 60% and with the rest of the world by 30%. It will also allow Indian businesses to develop more cost and time effective supply lines and distribution channels for the region.

The primary benefit of the BBIN MVA for India-based companies is the ability to travel through Bangladesh. At present, a manufacturer in Kolkata, who needs to deliver products to Agartala, can either plan for multiple permits and transport operators to reach Agartala directly through Bangladesh or a 1550 km journey around Bangladesh. With the implementation of the agreement, the same manufacturer can use one transporter for a 640 km trip through Bangladesh to Agartala.

INDIA – BANGLADESH WATER TREATY

India and Bangladesh inked an agreement on coastal shipping for two-way trade through ports in June 2015, renewing the 1972 Protocol on Inland Waterways Transit and Trade (PIWTT) for using their waterways for commerce. This agreement will help to reduce the time taken at present for trade between the two countries through sea and river routes. Under the protocol, India and Bangladesh agreed to use inland waterways for the passage of goods between two places of one country through the territory of the other, as well as for inter-country trade. Prior to this treaty, Indo Bangladesh sea trade passes through sea routes via Singapore or Colombo. The time and cost of trade through this route is high and will now reduce, and create scope for increased economic cooperation and benefits. Apart from a direct access to Bangladesh, this agreement will also allow access to the Northeast part of India from West Bengal, through Bangladesh, significantly shortening the distance and time.

KALADAN MULTI-MODAL TRANSIT TRANSPORT PROJECT

The Indian government has initiated the Kaladan Multi-Modal Transit Transport Project; a project that will connect Kolkata port with Sittwe seaport in Myanmar by sea thereby facilitating movement of good between India and the region. The project includes construction of an integrated port and inland water transport (IWT) terminal at Sittwe, development of a navigational channel along the river Kaladan in Myanmar from Sittwe to Paletwa, and construction of a highway trans-shipment terminal at Paletwa. The project, when completed, will first link the Kolkata port to the port of Sittwe in Myanmar across the Bay of Bengal, a distance of 539 km. From Sittwe, the route will continue over river Kaladan to the western Myanmarese town of Paletwa, 158 km away. Paletwa will then be connected to the India-Myanmar border by a 110-km-long road. The international border will then be connected by road to the town of Lawngtlai in Mizoram, 100 km away where National Highway-54 passes by. The project which is under advanced stage of construction will provide direct access between India and Myanmar. 

AMRITSAR-KOLKATA CORRIDOR

The Amritsar-Kolkata corridor covers major manufacturing hubs like Amritsar, Jalandhar, Ludhiana, Ambala, Saharanpur, Delhi, Roorkee, Moradabad, Bareilly, Aligarh, Kanpur, Lucknow, Allahabad, Varanasi, Patna, Hazaribagh, Dhanbad, Asansol, Durgapur and Kolkata. The corridor will enable movement of goods trains from Amritsar to Kolkata without any restraint. The Eastern Corridor is projected to cater to a number of traffic streams-coal for the power plants in the northern region from the Eastern coal fields and food grains, cement, fertilizers, lime stone from North to the East.  The total traffic in UP (northerly) direction is projected to go up to 116 million tonnes in 2021-22, and in the Down (East) direction, the traffic level has been projected to increase to 28 million tons in 2021-22. The incremental traffic since 2005-2006, works out to a whopping 92 million tons. The corridor is also expected to pave ways for export of goods that are manufactured in Punjab to Bangladesh, Myanmar, Thailand and Malaysia.

What could the pacts mean for East & North East India

The pacts mentioned above, are essentially to facilitate trade of goods and services between the BIMSTEC and the CLMV countries. The transport pacts are supplemental to the trade pacts to improve logistics and thereby facilitate trade and investment, as envisaged in the preferential access mooted. The BIMSTEC and CLMV represent a group of countries with differential level of development. Besides, manufacturing efficiencies, availability, quality and cost of a range of services, viz. IT, financial services/ infrastructure, education, health etc are more developed in India, than in many other countries.  All the countries have laid out aspirational plans for development. A few of the countries, especially Thailand, Vietnam, Bangladesh and Sri Lanka have made significant strides in its development. Though Intra regional trade between these countries is low, at present, increasing income and the emerging middle class, presents a scope for significant growth in Intra regional trade and investment, thereby benefiting all countries in the BIMSTEC and CLMV group. The trade pacts and the transport arrangements, mentioned above, endeavours to open up a new vista of growth in trade in products and services, with these countries, which where earlier not available. The trade pacts/ arrangement mentioned above provide the basic foundations to pursue growth strategy in India’s overseas trade and investment. The pact can indeed foster rapid growth in intra regional trade and lead to trade led development in the region. The relatively superior developmental status and the strategic location puts India in a favourable position to lead the development aspiration of the BIMSTEC and CLMV group of countries.

The opening up of these new markets obviously provides a compulsive reason for new investments to be located in the Eastern and North Eastern Region, considering its proximity to the target market, besides resource advantages. Further, the various transport pacts entered into, would make trade from most parts of India travel through the region. The Eastern Dedicated Freight corridor and the direct access from Kolkata port to Bangladesh and Myanmar would enhance this trend. Eastern and North Eastern region could then emerge as vibrant and important trading hubs, to cater to the new markets, provided the policies and trade infrastructure is right. This would be in addition to the manufacturing activities which are expected to be spawned in the region, apart from the superior services sector which could now open up. It is, therefore, necessary for the policy makers and the State Governments in the Region to take this into account. Eastern and North Eastern India is indeed in the cusp of a phenomenal growth potential, which one would be ill advised to miss.

(Shilpa Bichitra | Anniversary Edition | 2017)