India is looking at setting up manufacturing hubs in Cambodia, Myanmar, Laos and Vietnam as part of its “Act East” policy, according to a budgetary announcement made on Saturday.
Indian Finance Minister Arun Jaitley, while presenting India’s annual budget speech in parliament, said the aim was to use $16.1 million, an initial budgetary allocation, to create a project development company that will make strategic investments in the region.
“In order to catalyse investments from the Indian private sector in this region, a project development company will, through separate special purpose vehicles, set up manufacturing hubs in CMLV countries, namely, Cambodia, Myanmar, Laos and Vietnam,” said Jaitley, during his 90 minute speech.
A special purpose vehicle will be set up by the Export-Import Bank of India, according to Dinesh Patnaik, Indian ambassador to Cambodia, which recently completed a study of the region and will take its findings back to India.
The move will see the Indian government acting as a catalyst to direct investment to the region. The government will take the first step of setting up critical infrastructure before asking Indian companies to set up factories and manufacturing plants.
The Indian ambassador said the government was playing an active role in this process as there was still limited knowledge about the CLMV region, and some amount of “handholding” would be required.
“You have to make the first step. This will be good for Cambodia because they don’t have to go to India for investment. It is coming to them,” added Ambassador Patnaik, adding that these investments can be expected in 2016.
Debasish Pattnaik, president of the Indian Chamber of Commerce in Cambodia, said the major focus, at least in the short term, will be on Myanmar and Vietnam, as they are strategically more attractive investment destinations, whereas Cambodia and Laos would be looked at in the medium term.
“I don’t think it will benefit Indian businesses specifically, but it will bring in Indian investments into Cambodia and hence benefit the economy here,” said Pattnaik.
Pattnaik said Indian businesses will likely invest in agro-based industry, Cambodia’s garment manufacturing sector, mining, and oil and gas.
Indian exports to Cambodia for 2014 were around $85 million, with textiles, pharmaceuticals and leather goods being the major contributors. Indo-ASEAN trade, as of December 4, 2014, was $68 billion, a meagre 2.7 per cent of ASEAN’s total global trade.
These investments will also look to tap the large China market, which currently imposes non-tariff barriers on Indian exports. India’s trade deficit with China topped $40 billion for 2013-2014, with that tally projected to only rise in the future.
The Indian ambassador said that it would not be easy to circumvent those barriers, but that by setting up in CLMV countries, coupled with the impending ASEAN Economic Community integration, it should open up the ASEAN market, including China.
India’s “Act East” policy is Indian Prime Minister Narendra Modi’s revamp of the decades old “Look East” policy, which aimed to strengthen economic and strategic relations in the region. It looks to counter China’s strategic and aggressive economic investments, much like the US’ “Pivot to Asia” policy.
Modi, while at the 12th India-ASEAN Summit in Myanmar last November, spoke of the important role the region plays in India-ASEAN relations.
“We are placing as much emphasis on ease of doing business in India as we are on making policies attractive. I invite you to this new environment in India. Indian companies will also invest in and trade with ASEAN,” said Modi.