Revitalising Singapore-India Commercial Ties
India’s Prime Minister Narendra Modi delivered the keynote address at the Shangri-La Dialogue on 1st June 2018. Modi’s visit to Singapore at the invitation of Prime Minister Lee Hsien Loong was also a timely opportunity to reaffirm and update the bilateral relationship to take into account new trends such as digitalisation and financial technology. How should both countries move forward?
The strength, scope and depth of engagement between India and Singapore has grown significantly over the last few decades, most notably with the signing of a Strategic Partnership in 2015 during the 50th anniversary of the establishment of diplomatic relations between the two countries.
The cornerstone of the Strategic Partnership is the so-called “5S Plank” that involves “scaling up trade and investment; speeding up connectivity; smart cities and urban rejuvenation; skill development; and state focus.” It will be an appropriate time to take stock of the developments on each of these fronts and identify areas for further cooperation.
Just as we should not forget the roles of former Prime Ministers P.V. Narasimha Rao and Atal Bihari Vajpayee in respectively initiating and carrying on India’s “Look East Policy”, the foundations for strong bilateral relations on the Singapore side were laid by the then Prime Minister of Singapore, Goh Chok Tong.
Former PM Goh tried to launch an “India fever” in Singapore in the 1990s as a way of diversifying the city state’s economic interactions beyond ASEAN and China. In his own words, “I have always believed that it is in Singapore’s interests to build strong abiding relations with India…I believe that India will emerge as a major economic power and geopolitical player. Singapore can benefit from India’s growth just as we are benefiting from China’s.
He continued, recounting his trip to India, “I made my first official visit to India in 1994….I recognised the potential of the country…I returned to Singapore determined to spark off an “India fever”. Although at that time many doubted India’s commitment to economic openness, I never lost faith in India.“
Bilateral Trade and Investment Linkages
Over the years, Singapore’s ties with India have been quite broad-based, with both countries being particularly interested in intensifying trade and investment linkages. The signing of the Comprehensive Economic Cooperation Agreement (CECA) in 2005 was an important milestone in this regard to both consolidate existing economic relations as well as to provide a much-needed impetus to move them to a higher trajectory in bilateral services trade and foreign direct investment (FDI) flows.
As of now, Singapore is India’s second-largest investor with cumulative investments between 2000 and 2017 worth US$ 3.74 billion. A quarter of India’s overall FDI inflows originated from Singapore in 2017. It grew from about 5 percent in 2000 before peaking at just under 35 percent in 2015 when it overtook Mauritius as the top source of FDI into India, attributable in part to the Double Taxation Avoidance Agreement.
Bilateral trade is equally significant, with trade between the two countries jumping markedly, from about US$ 7 billion in 2005 to about US$ 16 billion in 2017. In fact, despite Singapore’s size, it is the fifth largest export market for India globally and the first in ASEAN, with nearly 30 percent of India’s overall exports to the ASEAN destined to Singapore.
However, all is not rosy. After the peak in 2015, FDI flows from Singapore have dipped rather sharply to about 20 percent of India’s total FDI inflows in 2016. Despite Singapore’s continued interest in investing in India, the city state invests more heavily in other Asian economies like China and Hong Kong SAR, as well as other ASEAN members like Indonesia and Malaysia.
Similarly, data from India’s Department of Commerce reveals that Singapore’s significance as India’s exporting partner has been dwindling since 2011, especially compared to the rest of the ASEAN. Singapore constituted about 5.5 percent of India’s overall export share in 2011 and it gradually reduced to around 3.5 percent in 2016.
From Singapore’s point of view, World Bank data indicates that India was Singapore’s 11th highest exporting partner in 2016, a gradual decline from the 8th position it used to hold in 2010.
Strengthening Regional Ties
Beyond bilateral relations, Singapore should use the upcoming round of discussions to try and nudge forward negotiations on the Regional Comprehensive Economic Partnership (RCEP). The RCEP appears to be a bona fide Asian mega regional trade agreement with the participation of China and India.
It could serve as a vehicle to help consolidate several other smaller free trade agreements (FTAs) within ASEAN, including ASEAN’s FTAs with each of its dialogue partners as well as several bilateral FTAs among the 16 countries. RCEP negotiations were formally launched in November 2012 and have gone through 22 rounds, well beyond the original deadline of 2015.
RCEP negotiations have slowed down as India has requested concessions for tariff cuts to be tied to service market access (movement of professionals and skilled workers) in which it has a comparative advantage while some ASEAN countries remain reluctant to do so.
More generally, a strong sense of scepticism appears to be prevalent among Indian policy makers about concluding trade agreements from which the benefits to India are not obvious as seen from a narrow employment and manufacturing growth perspective. In fact, the last FTA India signed was a comprehensive economic partnership agreement with Japan in 2011.
As the ASEAN chair, Singapore will no doubt play an important role in trying to move along talks on RCEP. In parallel though, Singapore must continue with its own efforts to add further impetus to its bilateral economic and commercial ties with the Asian giant, including broadening and deepening the existing bilateral trade pact.
Ramkishen S. Rajan is Professor and Vice Dean (Research), Lee Kuan Yew School of Public Policy, National University of Singapore. Sasidaran Gopalan is an Assistant Professor at the Graduate School of Public Policy, Nazarbayev University, Kazakhstan.