Indian Prime Minister Narendra Modi talks to Chinese Premier Li Keqiang (center) and Thai Prime Minister Prayut Chan-ocha during the third RCEP Summit in Bangkok on November 4, 2019, on the sidelines of the 35th ASEAN Summit. India opted to stay out of the pact. Photo: AFP / Manan Vatsyayana

India has historically not been very keen on sub-regionalism in South and Southeast Asia because the gains it would make seem to be lopsided compared with the other smaller countries that would gain access to the large Indian market. It is mainly for this reason that India has always shown more interest in economically integrating with Europe or the US than with the Southeast Asian nations.

However, in the age of Globalization 4.0, it is important to harness the big virtual markets in Asia that are brimming with opportunities.

In fact, if India fails to participate in the free-trade agreements in the region, its loss might be intensified in the long run as more countries join these FTAs. In this regard, it is important to note that India’s non-participation in the Regional Comprehensive Economic Partnership (RCEP) may need a second look in the future.

In order to create complex goods with high-tech knowledge inputs, such processes cannot be operationalized in silos. Hence sub-regionalism is required to facilitate knowledge transfer and enhancement at both commodity and market levels for economic convergence between Asia and the West.

The Covid-19 situation has reshaped the traditional sources of economic advancement. This will definitely lead to digitization making massive inroads into the sphere of economic development due to the restrictions on physical mobility.

This is largely due to a few factors. First, a degree of insulation should exist in times of unprecedented crises while the global economy remains adrift. Second, economies should be self-sufficient and robust to sustain themselves amid encumbrances created by disruptions in supply chains (such as in China).

Finally, countries should aim for efficient production and consumption processes in the long term – to be self-sufficient and not contingent on other countries for their needs, including increased domestic production to cater to widening consumption demands.

The launch of the Association of Southeast Asian Nations (ASEAN) Economic Community coupled with contemporary digitization efforts in the region would benefit the Indian companies that rely on the intermediary goods from Southeast Asia. It would also enhance investments and provide a doorway to tap into the true potential of India’s Act East Policy (AEP).

Increasing digitization of trade can also offset the problems associated with underdeveloped and ineffective border procedures that often cripple the networks between India and the Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC) countries and the Cambodia Laos Myanmar Vietnam (CLMV) nations.

At the 14th ASEAN-India Summit, an ASEAN-India innovation platform was established to facilitate commercialization of low-cost technologies, and cooperation in capacity building in solar energy.

Currently, India has extended a US$1 billion line of credit for enhancing physical and digital connectivity. However, the conditionality that 85% of the goods and services related to digital projects have to be obtained from India has deterred the countries of the region from utilizing the offered line of credit.

India’s AEP is also complementary with Thailand’s “Look West” Policy, and hence the two countries resolved to extend cooperation to enhance digital connectivity at the recently concluded eighth Joint Commission Meeting (JCM).

Digital technology and services have also powered India’s financial technology industry, which in turn has led to increased inflows of foreign direct investment. Singapore and India also cooperate in the Network for Electronic Transfers (NETS) of Singapore and the National Payment Corporation of India (NPCI) and are hence assimilating the RuPay Network.

The government of Andhra Pradesh and the Monetary Authority of Singapore in 2016 entered the FinTech Cooperation Agreement to accelerate financial-services innovation in both.

In the present context, opportunities for collaboration between India and the Southeast Asian nations exist in the sectors of digital payments, cybersecurity, fintech and digital content value chains.

Introduction of the goods and services tax (GST) and the launch of initiatives like “Digital India” in India and complementary initiatives like the ASEAN Single Shipping Market and “Digital ASEAN” are likely to facilitate effective cooperation between India and ASEAN.

Another important sector – agricultural technology cooperation between India and ASEAN for sustainable farming – would be beneficial for the domestic markets, and could contribute to the regional agricultural value chains.

Additionally, India has a comparative advantage in services with respect to CLMV countries, and could extend its cooperation as well as investments in these ASEAN nations.

India’s efforts in extending the digital connectivity to neighboring countries have been appreciated by Sri Lanka, which is a leader in the technology sector in BIMSTEC. India has also pledged to deepen the e-governance framework and the IT sector along with Sri Lanka, which is expected to strengthen trade between the two countries.

The Fourth Industrial Revolution is distinctly different from the previous ones in terms of its pace, scope and impact. However because of the lack of an institutional focal point, international cooperation in technology is challenging, unlike other developmental domains.

Additionally, since digital evolutions are rapid and intersect across various sectors, a set rule or static policy may often be an ineffective approach.

However, despite these challenges, there is no denying that the social and economic stakes are much higher within and across nations in this relatively new digital era.

Integration of digital technology in the regional and global value channels, extensive penetration of e-commerce, and app-based crowdsourced logistics performance, data analytics, blockchain and robotics would enhance connectivity by developing efficient logistics, reducing time and provide cost savings between ASEAN and India.

Digitization in financial services, retail and e-commerce, health care and logistics would boost the trade between India and Southeast Asia. In this regard, India and the ASEAN nations may consider signing the Framework Agreement on Facilitation of Cross-border Paperless Trade in Asia and the Pacific, a treaty adopted at the United Nations in 2016 that provides a great opportunity to reduce trade costs and increase trade volumes.

Transformation in the maritime domain can be achieved by adopting a two-pronged strategy. The first prong involves transformation of maritime networks, easing trade connectivity, and promoting public goods with a thrust of technology. This aims to ramp up the scale of economies in the region.

The other prong involves heightening security measures in the maritime domain. This involves generally following the trend set by regional groupings such as the Indonesian-Malaysia-Philippines model.

For example, this model involves setting up a hotline between countries to combat piracy and kidnapping. This could massively curtail the drug trade, which is responsible for creating a parallel illicit economy in the region.

Eliminating logistics and supply-chain hurdles, and addressing people’s reluctance regarding online payments and cybersecurity concerns, would be crucial for both India and the Southeast Asian nations to draw real benefits from digitization.

More important, these measures have to be complemented with technological skilling initiatives in the region to upgrade its human-capital base in a digital direction.

An adequate thrust toward emerging technologies, smart logistics and building the convergence of the online and offline ecosystems by both the regions would go a long way to assure a prosperous and progressive relationship between India and Southeast Asia.

This article was co-authored with Harish S Nalawade of the National Law School of India University, Bangalore.

Soumya Bhowmick

Soumya Bhowmick is a junior fellow at the Observer Research Foundation, Kolkata Chapter, India. His research focuses on the Indian economy and governance, sustainability and globalization.