By Anisree Suresh
The 2nd edition of the India-Singapore Ministerial Roundtable (ISMR) was held in Singapore on August 26, focusing on trade and economic cooperation between the two nations, ahead of PM Narendra Modi’s September 4-5 visit. India's delegation of four union ministers was led by Finance Minister Nirmala Sitaraman, who deliberated on six priority pillars for the bilateral partnership in emerging and futuristic areas. While active bilateral political coordination and economic engagement are strengthening at a rapid pace, it is crucial for India to rethink its trade policies and forgo its protectionist measures urgently. This is necessary to integrate better with the broader global value chains and to tap into the economic prospects offered by the Southeast Asian markets.
Significance of India-Singapore Ties
India's bilateral relations with Singapore are of immense significance to India's policymakers. Singapore, as India's sixth largest trading partner, with a total trade of $35.61 billion, accounts for approximately 29 percent of India's total trade with ASEAN. It is also India's largest source of FDI, with a $ 11.7 billion invested in FY 2023-24, though a significant portion of this due to roundtripping. India's economic reforms in the 1990s, its ‘Look East Policy’, and later ‘Act East Policy’ have led to a new framework for cooperation with Southeast Asian countries, including the Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore in 2005. With over 20 active routine bilateral engagements and an India-ASEAN Free Trade Agreement (FTA) in Goods, Singapore plays a crucial role in enhancing India's participation in regional supply chain arrangements in the wider Indo-Pacific region. However, it remains to be seen if they have fully realized their trade potential.
Trade Dynamics and Challenges
The import concession rates that imports from Singapore enjoy in India fuel the trade relations to some extent. The CECA helped India and Singapore liberalise trade relations by establishing mutual recognition agreements, liberalising visa rules, and launching e-commerce platforms. The rapid growth of Singapore's digital economy and trends in the global demand and supply for tech talent have increased the prospects of Indian talent migration to Singapore. Although trade and connectivity are significantly increasing between both countries, a few concerns continue to impact achieving the fullest potential of the trade prospects.
India's trade concerns include inadequate market access for services exports and greater mobility of people to deliver them (professional talent migration). India's continued connectivity dilemma in integrating well with its eastern neighbours continues to hamper the trade prospects. Although trade relations with Singapore are strong, India has not fully captured other Southeast Asian markets. The decision not to join the Regional Comprehensive Economic Partnership (RCEP) has further exacerbated this gap.
Impact of RCEP and Strategic Opportunities
Though India was party to the initial negotiations, it has decided to abstain from joining the RCEP Agreement to safeguard the interests of the agriculture and dairy sectors. Moreover, India has been experiencing a trade deficit with most RCEP participating countries. Due to its decision to abstain, India had to forgo market access in sectors such as IT and pharmaceuticals, where it enjoys a comparative advantage and risk of trade diversion away from Indian products and services as RCEP members gained preferential access to each other's markets. Despite the individual agreements that India has with many East Asian and South Asian countries, it cannot boost trade in the same way as a multilateral deal with the scope of RCEP, and that continues to impact India's trade prospects with the region, as ASEAN strongly promotes the economic integration with its FTA partners.
Future Directions for Economic Integration
India must also engage with Singapore to liberalise the service sector and maximise its comparative advantage. Given Singapore’s role as a hub for trade and finance in the Southeast Asian region, India can leverage this by offering fintech products, IT services, and backend processing. Both countries can also collaborate in the semiconductor ecosystem, combining India’s design skills with Singapore’s 20 years of ecosystem management experience. By focusing on liberalising the trade in goods and services and providing seamless connectivity, intra-regional trade can be improved. From India’s end, Visa-on-arrival for Singapore citizens and cross-border transit projects will increase the physical connectivity between the two regions. This enhanced physical connectivity would help India to integrate well with its Southeast Asian neighbours. Simultaneously, India could also explore preferential trading agreements with other Southeast Asian economies, such as the Philippines, Vietnam, and Indonesia.
India-Singapore trade relations are progressing positively, and with a further push on economic integration, the challenges of not joining the RCEP can be overcome. In a world which is slowly deglobalising, India must take every opportunity to augment trade relations with existing partners.
(The author is a Research Associate at the Takshashila Institution, which is an independent think tank and school of public policy.)
Views are personal and do not represent the stand of this publication.
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