India’s Act East Policy and its Challenges

Abstract:
India has been a active regional strategic partner and net security provider in the SEA. Through
AEP India is tackling non-traditional security challenges through its soft power, medical, cultural
and security diplomacy. This paper focuses on understanding India’s dynamics and challenges
to AEP actualization. It also tries to focus on recommendations and future prospects for India in
the region.

History and Background:

India's engagement with the SEA and Indo-Pacific region has references in history
dating back to 290 BC. It was mainly in the prism of culture and religion. Chola and the Pallava
dynasty have been central to expanding trade between India and Asia. India was important
mediator for spread of Buddhism in the region. And the notorious trade of opium and tea
developed between Shanghai, Hong Kong and India developed. Post independence though
India depended on west and mainly on former USSR for ideological, political and economic
developments, India aspired to remain as a remarkable leader, as a largest independent state
then in Asia. In 1947, Nehru hosted Asia Relations conference in Delhi and remarked “Asia is
again finding itself”1. In 1950s India played as a diplomatic channel between china and USA,
and headed NNRC. India helped recognition and participation of Japan, and China to the west.
India became the first to receive the yen denominated loan. India and the former Soviet Union
had shared strong political and ideological ties and relations in the 50’s. And with cold war
politics, India's engagement with the east was absent. The oil shocks of the 70s and 80s and
India's license permit raj limited inflows of investment to India. In fact Malaysia and Indonesia
were skeptical of India’s non alignment policy. Parallely India viewed ASEAN as anti communist
bloc, and was skeptical of US-China alliance. During the 1990s, China did not reciprocate India
as an important strategic partner. But for India, China remained pivotal in its foreign policies.
Along the rise in Chinese influence, was the increased anxiety from China on the US moves and
alliances, and initiated the EAEC to distance western powers, which apparently failed to pass.
China-US-India relationship capsuled as ‘frenemy’. Tiger economies were booming. And India
found itself outside important regional architectures like APEC.
As a consequence, ‘Look East Policy’ was formulated in 1992 to expand eastward as
Middle East by then was a breeding ground for terrorist networks was politically unstable. LEP
was mainly focused on ASEAN with aim of developing economic cooperation and cultural ties.
In 2003, in its second phase it expanded beyond ASEAN. In 2014, impetus was given to this

Notes

Nehru, Jawaharlal. Asian Relations Conference, 15 August 1947, New Delhi.

approach under the banner ‘Act East Policy’, by Shri Narendra Modi. The AEP has expanded
India’s role in CLMV and pacific countries as a net security provider. The major elements of AEP
will be to accelerate diplomatic, security, economic and military integration, secure IOR,
mitigating power imbalance with rising powers like china and further deepen strategic alliances.
The growing importance of AEP is seen as dynamic coupling and confluence of the two
seas [IOR and Pacific Ocean] as iterated by former Japanese PM Abe2. C. Raja Mohan in his
book Samudra Manthan3 made reference usage of ‘indo-pacific’, and is now increasingly AEP is
acknowledged also as Indo-Pacific policy. Australia made references in its defense white papers
and ASEAN also consequently acknowledged it in 2019. PM Modi in his speech in Shangri -La
Dialogue mentioned India’s aspiration for free, open, inclusive, rules, norms and consent based
functioning of the ‘natural region’4 indo-pacific. The usage of the terms has 2 interpretations;
china has presence in both these oceans, and this conception is both necessity and reality,
secondly identifying coastal boundaries rather than continental borders shows prominence of
maritime domain and blue economy.

ASEAN and QUAD:

ASEAN is central for India’s actualization of India’s AEP. ASEAN was established in
1967, with Indonesia, Malaysia, Philippines, Singapore and Thailand as founding members.
Currently there are 10 members’ states including Myanmar, Cambodia, Laos, Vietnam, and
Brunei. The main objective is to promote economic, social and cultural development and to
maintain beneficial cooperation in the SEA. India had opportunity to become member in 1982,
but did not due to ideological differences, but in 1995 India became a full dialogue partner with
ASEAN and later founding member of EAS.

Along with ASEAN, QUAD plays an important role to facilitate free and rule based order
in the region. QUAD gives AEP the indo-pacific lens, and will be able to security architecture for
the SEA region. But the problem lies in how it might dilute ASEAN and its centrality. There is
also a possibility of resurgence of QUAD in QUAD plus adding ASEAN countries. Even in
Shangri La dialogue the Prime Minister did not address QUAD, but just mentioned indo-pacific.

Trade and Development:

SEA has historical references as ‘suvarnabhumi’ in Indian literature. India's midway

strategic location between west and East Asia made it an attractive market for world trade. Post
independence, India remained in clutches of nehruvian economic principles. And only in 1991,

2
Abe, Shinzo. “Confluence of the two seas”, 22 April 2007, New Delhi.
3
Samudra Manthan: Sino-Indian Rivalry in the Indo-Pacific, by C. Mohan, Oxford
University Press, 2013, p. 212.
4
Modi, Narendra. “Keynote Adress”. Shangri La Dialougue, 01 June 2018, Singapore
the extreme crisis forced India to accept LPG. And today with continued historical, cultural and
civilization linkages, the relationship with ASEAN and SEA has come to relevance.
India and ASEAN both have complimentary strategic dynamics in trade, and development. India
has a large diversified raw material base, labor market, and increasing number of manufacturing
hubs. And parallely ASEAN countries have their own market appeal with a large youth
population, fast growing digital economy and rising disposable incomes and growing consumer
market.
India became a sectoral dialogue partner for trade, investment and tourism with ASEAN
in 1992. In 2009 trade in goods agreement and in 2015 trade in services agreement was signed
which would boost trade to $100 billion. India-ASEAN signed FTA in 2010 to increase economic
engagements in the Indo-Pacific region. Under this agreement ASEAN has agreed to
progressively eliminate tariffs on 80% of tariff lines, lower intra-regional tariffs through CEPT and
India excluded 489 tariff lines. India is currently engaging in over 30 dialogue mechanisms in the
SEA region. Gems and jewelry, pharmaceuticals, and agriculture are important trade industries
between India and ASEAN.
The BBIN plus Myanmar on the east and Sri Lanka are best suited to diversity trade
linkages and integrate supply chains. India's border trade with 6 neighboring countries accounts
to just over $12 billion. India's export trade with Nepal is worth $6.38 billion and imports worth
$437 million. Bangladesh and Bhutan stand 2nd and 3rd respectively in its bilateral trade.
Pacific and CLMV countries form the primary realm of the geopolitical relations in the AEP for
foreseeable future. But yet APEC seems outlier for India as it is not yet a member, and does not
want to be part of CPTPP.
India and South Korea share strategically beneficial and friendly relations. They have
signed CEPA to help boost trade from $12 billion in 2008 to over $21.5 billion annual bilateral
trade. The two countries have negotiated on double taxation avoidance committee. And sees
possibility of setting industrial town in Rajasthan. In case of Japan, though CEPA has been
signed, the bilateral trade is decreasing. Yet Japan has agreed public and private investments
worth $35.5 billion, which will be used for building smart cities, and industrial townships.
Australia being the hub for uranium reserves, the agreement can be beneficial for India's energy
generation. Singapore accounts 90% of FDI inflows from ASEAN, and is 12th largest trading
partner. There are around 1500 Indian companies currently in Singapore. In 2003, India signed
FTA with Thailand to import at 50% of the prevailing duty rate. Gems and jewellery business
accounts 57% of exports to Thailand. India has ventured into sugar and pharmaceutical
business investments worth $270 million, and the ONGC investment in gas project is generating
over $6 million cash flow from industries in Vietnam. India's IT forays in Malaysia can in no time
change India’s trade balance. Malaysia’s investments are diversified in aqua-culture, rubber
industries, and telecom equipment. Indian public companies STC and MMTC have been active
trading partners with Indonesia, and are the 3rd largest trading partner for India.
India is experiencing a strategic mistrust relationship with china. India has a trade deficit
of $40 billion with China alone. China has remained as the largest exporter for India in
telecommunications, chemicals, and electronics.
But over years India's markets have realized the sensitivity of the FTA’s. The tax implementation
based on rules of origin has been a loophole for routing cheap products from SEA to India. India
in its trade with ASEAN has seen elimination of 75% of tariffs, which has affected over 13
sectors. And consequently imports grew by 25% and exports by just 9%, which as experts
predict might be detrimental to India's budding manufacturing sector. India also holds a trade
deficit of 24 billion dollars with ASEAN. Along
all these lines, RCEP, a mega free trade agreement for ASEAN, seems extremely vicious for
India. One, it will free China's cheap products dumping in India and will consequently dilute the
bilateral trade agreements with the ASEAN. Though ASEAN has announced open for
negotiations, they still seem slow to move the ball. China has been the main mover of RCEP,
and has also shown interest to be part of CPTPP, which the US initiated, but now has no
interest, and other 7 ASEAN countries have also lined up with the US. Another challenge is the
inadequate institutional infrastructure between India and ASEAN for energy trading, which is
highly unutilized. In long term china cannot be relied for sustainable trade relations, and need of
the hour to diversify resilient supply chains in SEA and pacific countries.

India’s Maritime Outreach:

Southeast Asia is maritime in character. It has most important arteries of world sea trade,
and is vital for competitive cooperation for budding blue economy in the region. For India about
95% of its trade in volume, 68% in terms of value passes in and out of IOR. About 40% of
worlds oil supply passes through IOR. Additionally this basin is heavily relied upon for mineral
and fishing resource extraction.
However during the cold war period, India had focused towards its northern borders with
Pakistan and China. India’s maritime outreach was called ‘peaceful periphery’ and was
considered to be sea blinded. But during 1990s IOR attained economic importance as the
economies along IOR littorals were becoming major world economies.
India’s role has matured from being observer to strategic partnership in enhancing defense
cooperation with ASEAN. ASEAN countries have agreed upon Delhi Declaration to strengthen
maritime cooperation and build rules based regional architecture like Expanded ASEAN
maritime forum, PMC+1, etc. They share congagement strategies, i.e. containment and
engagement directed against forays in the Indo-Pacific region. In 14th India and ASEAN
summit, PM Modi reiterated India-ASEAN objective of shared responsibility and collective
maritime security by stating “Securing the seas is the shared responsibility”5.

5
Modi, Narendra. 14th ASEAN-India Summit, 08 september 2016, Lao PDR
 Myanmar, Malaysia, Indonesia, Singapore and Thailand share important bilateral and
multilateral defense cooperation, and have Task Force deployments in the region. India has
promised offshore patrol vessels to Myanmar. India and Bangladesh have resolved their
maritime border dispute with greater mutual understanding. This has paved for effective
cooperation in managing the bay and its resources. Access to Chittagong port will increase
India’s strategic presence in the region. India and Malaysian navy have frequent port calls,
training exchanges and high level delegations. India has already provided over $100 million
worth in defense credit to help Vietnam in its oil exploration in the SCS. It has also signed a
MoU with India in 2015, for cooperation between coast border securities of both countries. India,
Singapore and Thailand concluded their trilateral naval exercise SITMEX20 in nov 2020.
India is deeply engaged with multilateral forums and naval exercises and is recasting
regionalism. AUSINDEX-2015, is one of the first naval exercises by eastern fleet. IORA remains
an inclusive body for regional cooperation and maritime security, where Australia and Indonesia
play vital roles along with India. Similarly IONS, FIPC [especially for pacific countries],
BIMSTEC, MGC. India plans to extend its integration with information fusion centers in maritime
security in Singapore and Madagascar through IMAC in India. MILAN exercise with absence of
US and China shows India's interest in regional integration. Malabar has been a landmark for
maritime cooperation with US and Japan. South Korea has been pivotal for development of port
projects and port town in Odisha.
But on the sub-surface level, Chinas ambitious projects like maritime Silk Road, claims
of nine dash, strategy of string of pearls have raised serious tensions. China is developing dual
use port infrastructure, for civilian and military purposes around the IOR, and dotting its littoral.
Since 2008, China has had a presence in IOR under the disguise of anti piracy operations.
China has expanded its development projects in Spartly islands, Senkaku islands of Japan, and
sailed its militia boats in shores of Malaysia, Indonesia and Vietnam. In 2019 Chinese vessels
and spy ships were found in Andaman and Nicobar islands EEZ. China has also involved in
construction of canal across the Thai isthmus with Cambodia. It has also made Indian seafarers
as scapegoats, stranding them for 18 months on SCS shores for its tug offs with Australia.
These seemingly pose threat to India’s strategic maritime cooperation in the region.
The regional players have highlighted UNCLOS 1982 convention, code of conduct by
ASEAN to maintain rule based order and equity among the stakeholders, code of unplanned
encounters at sea has been signed by 21 countries in the region to facilitate better
communication.
Parallely India is also rapidly working in deploying and developing security architecture in
the indo-pacific region. India has deployed INS shakti, sahyadri in SCS and western pacific,
and has exported coastal radar systems in the region. It has indigenously developed
intermediate range nuclear capable submarine launched ballistic missile and had successful
trails of INS Arihant. Induction of P-8i maritime reconnaissance aircraft has increased maritime
awareness. India is a part of regular patrols in Mauritius and Seychelles. India has signed white
shipping agreements with over 38 countries for transparency and security in the region.
The main challenge to counterbalance Chinese maritime influence is that India does not
have enough naval capacity to support ASEAN and as a consequence these countries should
either be self-sufficient or align with Chinese development projects.
Connectivity:

Developing multifaceted connectivity across land, air, sea and railways is important in
fructifying the potential of AEP’s strategic partnership with the indo pacific region. One of the
major objectives of AEP is to erase the sense of alienation in northeast India. In fact Narendra
Modi reiterated north east as the heart of the AEP in various global summits. In this aspect
Myanmar and Bangladesh hold special positions in the matrix. It is predicted that the economic
gains with this development might undo the post-independence developmental deficit. In 2007,
India had proposed a rail line between Assam and Hanoi. It has also been working on Asian
highways and trilateral highways with Thailand and Myanmar. But none has seen any tangible
progress. India has focused on CLMV countries with the Mekong India Bangladesh economic
corridor. The BIMSTEC member states, Bangladesh, Bhutan, Nepal and MGC members have
signed the motor vehicles act to increase road connectivity. The Kaladan Multi Modal Transit
Transport Project will increase connectivity between Kolkata and Myanmar. The BCIM economic
corridor is the 1st expressway between India and China which will pass through Bangladesh
and Myanmar will increase cross border connectivity for Kolkata, Silchar and Imphal.
China’s assertive and ambitious projects in the region is a concern for India as it might
reduce the strategic space for India. China has invested over $46 billion dollars in CPEC and
plans to expand highways and railways through Asia and Africa. Over $200 billion is invested in
BRI projects. One belt one road initiative [OBOR] being china's flagship foreign policy seems to
supersede the American Marshall plan. If India joins OBOR it will be synonymous to India
legitimizing Pak occupied Kashmir.
China has been rolling out finance for its projects through low interest loans to
developing counties and as collateral providing with strategic influence in the region. Angola for
example having $10.5 million as loan from china in 2004, gave access to 75% government
contracts to Chinese companies. In terms of economic investments, India’s ties with ASEAN see
a fraction of investment that china pours.
The second challenge is complicated bureaucratic structures in place form the Indian
government to supervise projects in the borders. For example, the IMT, proposed in 200’s is still
not in operation even after 21 years. The next challenge is that the north east organizations and
NGO’s themselves have raised concerns that there is no socio economic development as
parallel to proposed connectivity infrastructure.

Recommendations:

● Digital economy in ASEAN can grow to $300 billion by 2025. And with covid 19
pandemic and reduced connectivity India needs to leverage digital economy
partnerships.
● India needs to build on its maritime capabilities in the Andaman and Nicobar islands to
increase surveillance in Malacca strait. This is important to survey Chinese maritime
 movements. India needs to invest in building sub hunting capabilities of the navy. India
by nature of its policy is anti-submarine warfare handicap and does not have much hard
power in naval infrastructures. So it's hard time for India to become a part of the fish
hook operation of US-Japan to retain its primacy in IOR.
● As an alternative to RCEP, India needs to develop regional value chains with ASEAN,
focusing on textile, mining, energy resources, IT and auto components. India needs to
change its focus from less capital intensive sectors to the manufacturing sector.
● Reduce bureaucracy inefficiency by establishing centralized bodies for project
surveillance.

Conclusion:

SEA is losing trust in Chinas hegemonic and aggressive power in the region. However India's
soft power will have limitations in the long run. India needs to hang on the path of ASEAN for its
primacy in the region. Both India and ASEAN are in similar directions of policy, and are playing a
safe zero sum game. But yet there is an immediate need for ASEAN to be vocal against power
imbalances in the region. India in this situation can be divisive in bringing the rule based order in
the region. Thence it can be concluded that the hypothesis rightly predicts china as a potential
threat to India’s actualization of act east policy.

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