US India Global Review 2018

Growth Rate (CAGR) of about 4 per cent.05 After a steep rise in 2011–12 (up 40.4 per cent YoY), the trade value remained stable till 2016–17. Despite buoyant eco- nomic sentiment in India, the trade value has remained sub- dued on account of soft commodi- ty prices. However, this trend is set to reverse owing to rigorous focus of both parties for expand- ing trade relations in existing areas, as well as exploring oppor- tunities in new sectors. With renewed interest in economic cooperation, the bilateral trade value is expected to reach USD200 billion by 2022.06 While the trade value between the two parties has largely been unchanged, true growth of the partnership is reflected through rapid growth in Foreign Direct Investment (FDI) flow from ASEAN to India. India, one of the fastest growing economies in the world has emerged as a favoured foreign investment destination owing to various market-led factors such as availability of large talent-pool and huge domestic market. In addition, various flagships initiatives such as: ‘Make in India’, ‘Skill India’ and ‘Digital India’ introduced by the Indian government. These initia- tives are directed to enhance India’s competitiveness as an investment destination. Key initiatives taken under these include: • Increase in upper limit for for- eign investment in various indus- tries, including digital and creative • Introduction of reforms, such as labour (allotment of labour identification number to simplify online compliance filing, among others), tax (launched Goods and Services Tax or GST), innovation (improved and faster registration of Intellectual Property Rights or IPR) • Improvement of business envi- ronment by withdrawing obsolete and outdated policies (scrapped retrospective tax, withdrawn cus- toms and duty exemptions on parts and components of mobile devices). Driven by these advantages, FDI in India is growing at an unprecedented rate. ASEAN, a key trading partner, also realises these benefits and is therefore investing in India. During 2010–11 to 2016–17, FDI from ASEAN to India grew five folds from USD1.8 billion to USD8.9 billion.07 While most of the growth has come from Singapore (about 98 per cent of the cumulative FDI inflows from ASEAN, during 2011–17),07 other ASEAN members have made sig- nificant investment commitments in recent times. In April 2017, major Indian and Malaysian com- panies in the oil and gas, infra- structure, and engineering sectors signed 31 Memorandum of Understanding (MoUs) to facilitate investment proposals worth USD36 billion in both countries.08 Similarly, other ASEAN members, such as Myanmar, Vietnam and Thailand have signed MoUs in the areas of power and energy, finan- cial services, and Information and Communication Technologies (ICT). In general, India’s market dynamics complements the busi- ness needs of ASEAN. For instance, Singapore’s outward FDIs appears to be focused on growing markets (as observed in financial/retail/construction sec- tors) or achieving efficiencies in the existing business processes (as observed in the manufacturing sector). India, with its sheer popu- lation size, availability of labour and technical capabilities, serves as an appropriate investment des- tination for Singapore based com- panies. The similar case is observed in Malaysia, where gov- ernment-linked programmes encourage local companies to expand operations overseas to gain scale and leverage techno- logical advancements in the desti- nation country. On the contrary, Thailand’s outward FDIs in foreign markets to overcome their domes- tic challenges. Driven by the above factors, various companies based in ASEAN plan to set up and expand operations in India. For instance, several Thailand-based compa- nies plan to invest USD772 million in food processing, automobile components, electronic devices, and telecommunications sectors in India. If looked at the sectoral split, services sector attracts largest FDI inflows from the ASEAN region, followed by software and hardware, and telecommunication sectors. A large market coupled with vast availability of skilled tal- ent has been driving investments into these sectors. In the recent past, the pharmaceutical sector also invited greater focus due to 5 US-INDIA GLOBAL REVIEW APRIL-JUNE 2018 India, one of the fastest growing economies in the world has emerged as a favoured foreign investment destination owing to various market-led factors such as availability of large talent-pool and huge domestic market.

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