- Mrunal - http://mrunal.

org -
[Current] Economy SepW1: Wilful Defaulters, MNREGA
reformed, Global Competitiveness Index, BSNL-MTNL
Merger, Gold Account scheme
1. E1: Wilful defaulter?
1. Vinod wisdom on wilful defaulters
2. E2: Coinage Act & right to issue Rs.1 note
3. E3: Gold account scheme
4. E4: MNREGA: Sweeping changes
1. Proposed: MNREGA only for backward districts?
2. Proposed: Changing labor to material ratio
5. E5: MPLADS & toilet building
6. E7: PDS Reforms: Lessons from Delhi
7. E8: Commerce Ministry on IPR and FDI
8. E9: Global competiveness index 2014
9. E10: MSME speech: fodder material
10. E11: BSNL, MTNL merger
11. E12: Indias Sovereign rating
E1: Wilful defaulter?
Who is wilful defaulter?
Person/company, who has taken loan from any scheduled commercial bank or
financial institution, and
1. Has capacity to repay the loan / installment but not repaying the loan.
2. Has diverted loan money for other purpose.
3. Has not utilized the loan money for the actual purpose (for which they had
taken the loan)
4. Has sold off the mortgaged assets (in exchange of which, they had taken the
loan.)
In simple terms: Has the moolah + but doesnt want to pay + used the money in desi
liquor + makes the collateral vanish = Wilful defaulter.
Why in news?
Mallya owes ~7,000 crores in loan repayment to total 17 banks.
September week1: United Bank of India became the first bank to Kingfisher
Airlines and its promoter Vijay Mallya as wilful defaulters.
Implication after Wilful defaulter branding?
1. Once a lender announces as person/company as wilful defaulter- their names
are sent to RBI and credit information companies such as CIBIL.
2. This way, all other banks and NBFCs are warned not to lend any more money
to such totally awesome person.
3. As per SEBI order: Willful defaulters cant raise money from capital market
i.e. they cannot issue fresh IPO or bonds.
4. In Sep-2014, Rajan issued new directive- from nowon, if person doesnt repay
loan then extract it from guarantors. And if those guarantors dont repay the
loan then declare them as wilful defaulters as well.
Vinod wisdom on wilful defaulters
Former Comptroller and Auditor General (CAG) Vinod Rai gave following
commentary:
1. Public sector banks have large NPA because cronies have used political
connections to get loans- even for unviable business projects.
2. These cronies didnot have the financial knowledge or business acumen to
deliver the product / service.
3. Kingfisher loan default is just a small trickle- many others like him.
4. Solution: need to make bank board members appointment more transparent
E2: Coinage Act & right to issue Rs.1 note

Who prints what?
RBI Union Government
issue bank notes from Rs. 2 till Rs. 10,000 sole right to mint coins of all denominations.
Hum notes mein jeethe hain Hum chillar party hain
Then who prints notes less than Rs 2?
1940: Currency ordinance empowered Government to print one rupee note.
Later, ordinance was repealed. And in 2011: new Coinage act came.
Under this act, union Government can mint coins upto Rs.1000
And as per law ministrys interpretation one rupee is included in it.
Besides, as per RBI act 1934- RBI doesnt have the power to issue one rupee
note.
Side note: they have stopped printing one rupee and two rupee notes. Only the
existing notes in circulation.
E3: Gold account scheme
Who? MMTC-PAMP- one of the gold refining companies in India.
What? Gold Metal account scheme. Yet to obtain all clearances though.
Features You can deposit gold jewelry, coin, biscuit etc. Company will melt and sell it. You
get interest payment (in gold). Thus, on maturity, you get a heavier coin /biscuit.
Benefit
Junta deposits gold- company utilizes it for productive purpose. Thus gold supply
will increase. Lower gold imports. Lower current account deficit.
E4: MNREGA: Sweeping changes
Rural Development ministry has updated MNREGA guidelines.
To mitigate drought and water scarcity in rural India.
As per new guidelines:
50% of all MNREGA works should be for water conservation works like check
dam construction, de-silting of traditional water bodies, minor irrigation tanks
and canals.
51% of the wagepayment must be made to unskilled laborers. Remaining upto
49% may be done by Skilled laborers. (if skilled laborers are required for
check dams, minor irrigation tanks with machinery)
Fund transfer to states via E-payment platform
Fund transfer just in time basis so that laborers wage payment are not
delayed beyond one week in any case.
Proposed: MNREGA only for backward districts?
Rural development minister said that MNREGA should not be required in areas
having high growth rate, high percapita income.
MNREGA is required only in areas with large tribal or poor population.
In other words, Modi Government is planning to confine MNREGA only to
backward areas.
Although theyll need to amend the act for this, but theyve began ground
exercise of identifying the blocks using 2011 Census and planning
commissions Backwardness index.
Proposed: Changing labor to material ratio
Labour to material ratio
Components UPA Rural ministrys New proposal
Labor 60 51
Material 40 49
Total 100 100

Proposed changes
Favor Against
Will permit greater use of (permanent)
material. Perhaps paving way for machinary
Most states have not even used the
40% material quota Expenditure.
and contractors- so that permanent durable
assets can be created.
So increasing it to 49% wont
benefit.
Will decline poor peoples wage
share in the scheme.
E5: MPLADS & toilet building
Under the MPLADS, each MP can recommend works to the tune of Rs 5 crore
annually to the district collector in his or her constituency.
2nd Administrative reform commission: absolish MPLADS because it breaches
the separation of powers between executive and legislature. But SC ruled in
2010 it is not a breach.
Topic in news because
Planning and statistics ministry urged all MPs to make toilet construction their
top priority this year.
PM has repeatedly emphasized the importance of separate toilet facility for girl
child education.
MPLADS funds could also be used to install bio-digesters (DRDO) for sarkaari
schools.
NSS survey: Households without toilets
Hindu 47%
Muslim 31%
Christian and Sikhs 16%
Challenges ahead:
1. Since 86, weve provided money to build toilets in rural India.
2. But rural men consider its more healthier to go out. until that mentality is
fixed, merely throwing money wont help.
3. Same even in schools, if toilets are built but not cleaned properly, the children
will still go out.
E7: PDS Reforms: Lessons from Delhi
What Why
Delhi Government decided to
allow ration shop owners to sale
non-PDS items from their outlets
Mobile recharge coupens, DTH
cards, consumer durables, even
ATM and railway tickets.
To solve shopkeepers problems:
o Low profit margin on foodgrain and
other subsidized items.
o Shop Rent and labour cost too high in
Delhi.
o Hence they wanted to sell non-PDS
items. Now theyll keep the shop open
throughout business hours. Poors will
benefit.
E8: Commerce Ministry on IPR and FDI
Regarding IPR
At present, India has a strong IPR framework, fully compliant with WTO
norms.
But we dont have a separate IPR policy.
American pharma, solar companies, Special-301 reports keep rasiing the issue
of intellectual property rights (IPR)
Therefore, Commerce ministry decided two things
Separate IPR policy in next four months.
Setup a think tank to handle IPR matters more effectively.
Regarding Multibrand FDI
UPA Government permitted 51% FDI in multibrand retail, with certain caveat.
So far only one proposal cleared: Tesco(UK).
The new Commerce minister says we are against multibrand FDI. But no
formal notification yet given to scrap the FDI.
Her reason- there are no pending applications for FDI approval. (hence no need
for notification, because everyone knows we are against it so other MNCs
wont waste time in applying anyways.)
E9: Global competiveness index 2014
World Economic Forum (WEF) releases Global competitiveness index. (HQ:
Geneva, Switzerland).
(as expected), India lost 11 places than previous report. Current rank 71st.
Among BRICS nations: China>Russia>South Africa>Brazil>India
Top three: Switerland, Singapore, USA
It can be taken as a measure of knowing the sustainability of the growth.
When GCI 2013 was released, govt. was defensive against the rankings. It said,
the indicators keep changing and it targets mostly MSME sector. It is not right
to single out a single measure.
But now govt is taking steps to ease doing business- formed the Damodharan
committee to give recommendations to improve business climate in the
country.
Some of the reasons, why we suck in this report?
1. Complex taxation structure.
2. Obtaining business permits and plant construction permits.
3. Multiple tax rates and complex paper work in various states. Procedure far
burdernsome than international standards.
4. Complicated procedures to get environment clearance and building
permissions.
E10: MSME speech: fodder material
Some fodder points from Ministers speech
Why MSME important Obstacles before MSME
MSME sector vital 90% of
non-farm workforce
45% of manufacturing output
and 40% of total exports of
country.
PM I-day address stressed to
have Make in India
environment.
Lack of skilled workforce.
Skilled youth moving towards service sector
and MNCs.
Unorganized nature and poor work conditions
Compared to Thailand, Brazil etc. we have
very low number of new start up companies
in MSME segment.
Lack of collaboration between MSME vs
training institutions.
Reforms taken:
Skill India Mission
Make in India campaign.
31 Sector Skill Centres to set standards for job profiles.
Government began amendments in Apprenticeship Act and factories act.
E11: BSNL, MTNL merger
BSNL Serves All India except Delhi and Mumbai
MTNL Serves Delhi and Mumbai
Government wants to merge BSNL and MTNL into a national
telecommunication services company.
Deadline: 2015, June-July.
Challenges to this merger
1. MTNL has large debt. Government will have to give it soft loans to clear the
debts first, before merging with BSNL.
2. MTNL is a listed company. Its shares will have to be de-listed from the stock-
exchange. Need clearance under SEBI and Companies Act 2013.
3. MTNL employees get higher salary than BSNL.
4. Both MTNL and BSNL are overstaffed, if you compare their salary as % of
company
5. revenue. (Compared to private telecom companies of similar revenue).
6. Therefore, Atleast 1 lakh BSNL employees and 20,000 MTNL employees need
to be given VRS- imagine the legal and trade union hurdles!
E12: Indias Sovereign rating
Agency Rating Meaning
Moodys BAA3 Stable outlook.
S&P BBB- Lowest investment grade. Negative outlook.
Fitch BBB- Stable outlook.
Why in news? Fitch representatives met with Finance ministry officials. Theyd
inspect the database and reforms and may upgrade the rating.

Published on 23/09/2014 @ 6:05 pm under Category: Economy
URL to article: http://mrunal.org/2014/09/economy-wilful-defaulter-gold-account-
mnrega-reformed-global-competitiveness-index-bsnl-mtnl-merger.html
- Mrunal - http://mrunal.org -
[Current] IR-Diplomacy SepW1: Defense FDI reforms,
procurement; Nalanda University, APF Human rights
summit, PTA with Nepal
1. D1: Defense FDI reformed
2. D2: Defense Procurement:
3. D3: India-Nepal agreements during Modi visit
4. D4: Power Trade agreement (PTA) with Nepal
5. D5: Nalanda University
6. D6: APF: Human rights conference 2014
7. D7: Border security Management: Gujarat
8. D8: Letting states have foreign relations
D1: Defense FDI reformed

Old policy New policy
FDI 26%
49% govt. approval
Above 49% also allowed, if access to
modern and state of art technology
FII banned
24% automatic approval
Allowed FPI, FII, QFI, NRI, foreign venture
capital investment.
Only 24% because hot money and
sometimes hard to trace real owners.
JV
Single Indian resident to
have 51% share
NO such requirement
Duration
Three years lock-in period
on foreign investor.
No such requirement.

Who approves what?
Investment limit Approving agency
Upto 1200 crore FIPB
>1200 crore CCEA
>49% FDI CCS (cabinet committee on security)
Challenges in Defence FDI
1. 49% FDI means the foeigner still cant get management control of the Joint
ventures with Indian companies.
2. Hence theyll be hesitant in transferring the proprietary technology to India.
3. This was the same reason why old policy did not attract large investmnt.
4. Secondly, Government has yet to notify what constitutes modern and state of
art technology, (because there more than 49% FDI permitted, and foreign
companies may get attract to invest and transfer secret technology.)
D2: Defense Procurement:
Defense Acquisition Council (DAC) is chaired by Defense Minister.
This DAC cleared following proposals (in August 2014):
1. Stopped the tender process to import helicopters for army. (perhaps dont want
to burn hands again like UPA did with AgustaWestland)
2. Instead, Government will now buy 400 desi helicopters from Hindustan
Aeronautics Ltd. for moving men and material in border region.
3. Will induct 118 new (Desi) Arjun tanks.
4. Will produce Self Propelled (SP) guns to mount on Arjun tank- this will give
us advantage in swift desert battles in Rajasthan and Western Border.
5. Will upgrade six submarines.
D3: India-Nepal agreements during Modi visit
Happened in August 2014. Just a brief outline here:
India Nepal Agreements during Modi visit:
Infra
HIT Highways, Information ways, Transways.
Modi promised them $1 billion loan for infrastructure and energy projects
Border
Will form Boundary working group to construct boundary pillars.
Joint commission on border issues
Energy
Raxaul-Amlekhgunj petroleum pipeline
Hydel projects- Upper Karnali (Nepal and GMR), Arun III, Upper
Marsyangdi and Tamakoshi III
Transport
Cross border railways at 5 border points, 4 integrated check posts
Bridges over Mahakali river at Mahendra nagar
India to allow 3 additional air entries Janakpur, Bhairahawa, Nepalgunj
3 MoU
Pancheshwar Developmental Authority
Tourism in Nepal
Doordarshan and Nepal TV
Trade India will remove quantitative restrictions on Nepalese products.
Misc.
Grant to provide iodized salt to Nepalis.
Donated 2500 kgs of Sandlewood to Pashupatinath temple.
D4: Power Trade agreement (PTA) with Nepal
Happened in September 2014, after Modi came back.
Now any Nepali public or private entity can sell electricity to India.
India wanted to setup a joint venture Company with Nepal- for trading
electricity. But Nepali Government did not agree.
India even offered to help developing Nepals hydro-electricity power but their
political factions disagreed.
Modi has earlier said- Nepal has immense hydropower and just be selling
electricity to India, they can become a developed country(!)
Includes Doesnt
electricity power trade, cross-border transmission, inter-
connection and grid-connectivity
Indian investment in Nepali
power sector.

Dont confuse
Power trade agreement Power Development pact
Between respective Governments of Nepal
and India
Between GMR India with Nepali Government
to develop Karnali hydropower.
Signed with consensus of Maoists and
other political factions of Nepal.
Nepali maoists dont like this, not one bit so
theyve began protests.
D5: Nalanda University
Nalanda: Ancient times
During the rule of Kumargupta of Gupta dynasty.
Mahayana monks Asnaga and Vasubandhu said to have found Nalanda in 400-
500AD
Chinese pilgrim Hiuen Tsang, came during Harshas reign, gave detail account
of Nalanda University.
o Nalanda was a huge monastic-educational establishment.
o Teaching done in Sanskrit.
o Primary teaching focus: Mahayana Buddhism, yet included other
secular subjects as well- Like, Grammar, logic, epistemology and
sciences.
o Active discussions and debates were taking place.
o Harsha is said to have invited a thousand learned monks of Nalanda to
take part in the philosophical assembly at Kanauj.
Another Chinese scholar, Itsing, mentioned that Nalanda housed 2,000
students, was funded by revenues of 200 villages.
Thus university continued to be the centre of intellectual activity till the
12
th
century
1193 AD: Turkish ruler Qutbuddin Aibaks general Bakhtiyar Khilji destroyed
Nalanda University.
Nalanda: Modern times
2006: President Kalam proposed setting up this university as an international
learning institute, a link between the past, present and future, a channel for
knowledge exchange between scholars of the world
Singapore, China, Thailand and Australia have contributed funds.
university came into existence by a special act The Nalanda University Act
2012: Noble Laureate Amartya Sen was appointed the Chancellor
Total 7 schools- including ecology, environment and historical studies.
2020: will become fully operational, with campus in Rajgir foothills.
Until then, temporary classes at Rajgir convention hall, students will live in a
hotel.
Foreign minister Sushma Swaraj inaugurated in 2014, September.
University aims to become a research university, not a teaching university.
D6: APF: Human rights conference 2014
1991: UNs Paris principles- to establish norms for various human rights
bodies across world.
Later, an International coordination Committee of National Human Rights
Institutions setup.
This Committee has 4 regional networks, one of them is Asia Pacific forum
(APF) with 21 member-nations.
2014, Sep: Indias national human rights commission headed the conference of
this body, at New Delhi.
Outcomes of this Human rights conference
1. Until now NHRCs have focused on human rights violations by state actors
2. But, economic scenario has changed, weve to focus on human rights violations
by companies- pollution, tribal-displacement, sweatshops, labour exploitation
and negative-externalities created by MNCs.
3. For Prevention of Torture , well create a working group including the NGOs.
4. Members agreed to use a five-pronged strategy to protect human rights from
2015 to 2020: Gender equality, peace , security, Business, Vulnerable groups-
children, women, the disabled, the elderly and displaced persons.
D7: Border security Management: Gujarat
Following reforms taken: (aka fodder for GS3)
1. Men from Puggie community are expert in reading camel footprints. They
belong to Kutch and Banaskantha districts of Gujarat.
2. Theyve been recruited to trace the movement of smugglers, terrorists and
refugees across western border through desert.
3. Police has enrolled more friends of police in border villages- to act as
informants.
4. For coastal security the security forces are keeping surveillance on fisher-
communities including Hindus- because some of them were caught by Pakis,
brainwashed and then released back to India- they supply sensitive information
to Pakis in lure of money.
5. Stringent identity verification of fishermen and those returning from Dubai and
Karanchi via sea route.
6. Intelligence agencies keep a tab on terror website, online groups, people
returning from specific countries and dollar transactions. Because dollar
transactions give footprints of any terror activity.
D8: Letting states have foreign relations
1. After LPG reforms the CMs of Andhra Pradesh and Karnataka actively sought
out FDI from MNCs. As as result, Hyderabad and Banglore have developed as
IT hubs.
2. On similar lines, the then Chief Minister Modi began hosting Vibrant Gujarat
summits to attract investment in his state.
3. Therefore, all state Government should actively seekout FDI and establish
direct-relations with foreign Governments- many American states do the same-
they setup standalone offices in foreign nations to boost trade-tourism to their
home state.
4. Since 80s- Even the authoritarian Chinese leadership has permitted their
provinces to establish sub-regional links with other Asian countries. As a
result, Yunan is thriving as a trade hub.
Challenges?
1. Border states- what if Pakistan wanted to invest in Punjab or China in
Arunanchal or Bangladesh in W.Bengal? Even if they wanted purely economic
relations, the security aspects will overshadow and the Union Government may
not allow the deals.
2. While Madhya Pradesh, Gujarat, Maharashtra and other big states can afford to
host investors summits, the interior and backward states cant host such lavish
events -given the lack of event managers, rail-road-air connectivity, media
publicity etc. Union Government needs to help them.

Published on 24/09/2014 @ 8:48 pm under Category: Current Affairs Weekly
URL to article: http://mrunal.org/2014/09/current-diplomacy-sepw1-defense-
procurement-fdi-reforms-nalanda-university-nepal-power-pact.html



- Mrunal - http://mrunal.org -
[Diplomacy] India-ASEAN: Relation, FTAs in Goods, services
and investment
1. Prologue
2. ASEAN: Origin
1. Musyawarah & Mufakat
2. TAC Treaty
3. Timeline: Growth of ASEAN since 90s
1. ASEAN Community (2015)
2. ASEAN Performance: GOOD
3. ASEAN Performance: NOT so GOOD
4. Chinese Arm twisting
4. India-ASEAN Relations
1. Why ASEAN important for India?
2. India-ASEAN FTAs: A Timeline
3. India ASEAN FTA in Goods
4. India ASEAN FTA in services and investment
5. Benefits of FTA in services and investment?
5. Mock Questions for Mains
Prologue
This is an old article, Ive only updated the bottom part of it (FTA in services
and investment)
As such that FTA topic was part of September week1 current series but for
better revision of theory + trade relations, Ive fitted it into this old article.
ASEAN: Origin
Recall the Article on Colonization of Asia. We had seen how the British, French
and Americans had colonized almost entire South Asia.
After Second World War, most of these colonies attained independence. But
they also had internal dispute regarding territories and borders.
One such dispute was Indonesia-Malaysia conflict over the Borneo islands.
This conflict + the then ongoing Vietnam War raised fears of increased external
involvement in the newly independent states.
They feared that south east region would become a theatre of western vs.
communist ideologies
Hence they decided to form a common platform:
To resolve bilateral issues among themselves
Present a collective front to the world.
1967, five countries signed Bangkok declaration to form the Association of
Southeast Asian Nations (ASEAN), later another 5 joined. Thus today ASEAN
has 10 members
List of 10 ASEAN nations
1. Indonesia (ASEAN HQ is here, in Jakarta)
2. Malaysia
3. Philippines
4. Singapore
5. Thailand
6. Brunei
7. Cambodia
8. Laos
9. Vietnam
10. Myanmar
Musyawarah & Mufakat
ASEAN follows the principle of ASEAN way. Meaning,
1. Musyawarah And Mufakat [deliberation and consensus]
2. dont use force/confrontation
3. dont interfere in the internal matters of states
4. Informal discussion
5. minimal institutionalization
To achieve the ASEAN way, Treaty of Amity and Cooperation in Southeast Asia
(TAC) was signed.
TAC Treaty
It provides the guiding principles of ASEAN
1. theyll not interfere in the internal affairs of one another,
2. theyll not use threat or use of force to settle differences / disputes
3. theyll settle of differences or disputes by peaceful means,
4. Theyll effectively cooperate among themselves.
5. theyll mutually respect each others independence, sovereignty, equality,
territorial integrity and national identity
6. Every State has right lead its national existence free from external interference,
subversion or coercion,
India had signed TAC treaty with ASEAN in 2003.
Timeline: Growth of ASEAN since 90s
1994 ASEAN regional forum (ARF). already discussed in separate article click me
1997
ASEAN+3 is formed to increase regional integration. This includes
1. China
2. Japan
3. South Korea
2002 Treaty to control haze pollution in South East Asia
2006 ASEAN gets observer status in UNGA (General assembly)
2007 Cebu declaration for energy securities and renewable energy.
2010
Chiang Mai Initiative (CMI)
It is a currency swap agreement among ASEAN +3,
It provides emergency liquidity to those economies during crises.
2012
Asean Human Rights Declaration
21
st
ASEAN Summit in Phnom Penh Combodia with theme:ASEAN: One Community,
One Destiny
2013
22
nd
ASEAN summit in Brunei, theme: Our People, Our Future Together.
2015 ASEAN community will be setup.
ASEAN Community (2015)
Similar to European Union. will be setup in 2015 and will have three pillars
1. ASEAN Political Security Community
2. ASEAN Economic Community
3. ASEAN Socio-Cultural Community
ASEAN Performance: GOOD
ASEAN has a mixed record of achievements since its formation.
ASEAN performed well here:
Peace
Successfully maintaining peace in the region. e.g. during Thailand and Cambodia conflict
over Preah Vihear temple (2011)
Economy
Has made comprehensive deals like
ASEAN Free Trade Area (AFTA)
ASEAN Comprehensive Investment Area(ACIA)
Chiang Mai Initiative (CMI)
Aims to setup the ASEAN Economic Community 2015, having a single market and
production base.
ASEAN Performance: NOT so GOOD
ASEAN didnot perform well here
Economy ASEAN Failed to prevent the 1997 financial crisis.
Human
rights
ASEAN has been too soft on the authoritarian regime of Myanmar.
Despite call from international community it didnt suspend Myanmar or put
economic sanction on it during the military regimes crackdown on peaceful
protestors.
2012: ASEAN released declaration on Human rights. But led to lot of protests
from civil society and NGOs. They terms it as just another piece of paper.
Environment
In 2002, ASEAN came up with Treaty to control haze pollution in South East
Asia. still there were outbreaks of Haze in 2005 and 06.
ASEAN also has mechanism for wildlife protection. Yet it hasnt drastically
reduced the illegal trade in endangered species (especially for medicine).
Chinese Arm twisting
ASEAN is becoming a victim of Chinese assertiveness/pseudo-bullying. for example
in the the meeting of ASEAN (Dec 2012@ Phnom Penh), no joint communique was
issued-for the first time in the 45 years of history of ASEAN Summits. WHY?
Because
Cambodia (host of the summit) is an ally of China
China did not want the joint communique text to mention South China Sea as a
standing conflict.
but other gang members- Vietnam, Philippines, Malaysia and Brunei wanted
the text to contain their respective grievances regarding territorial issues with
China.
In wake of such unprecedented influencing of China into the ASEAN matters,
the ASEAN is looking towards India like never before.
India is being seen as the counter balance to China at the ASEAN platform.
Now, lets focus on:
India-ASEAN Relations
Combined Population ~1.8 billion = ~1/4
th
of total world population
Combined GDP ~4 trillion USD
Two way investment 40+ billion dollars in past decade
India is actively contributing to ASEAN+1, the ASEAN Regional Forum
(ARF), the East Asia Summit (EAS) and the ASEAN Defense Ministers
Meeting (ADMM) Plus etc.
We have institutionalized annual summits, ministerial consultations; and nearly
25 mechanisms for dialogue and cooperation.
Timeline of India-ASEAN relations
1990 India starts engaging with ASEAN, part of Look East Policy.
1992 India becomes a sectoral dialogue partner of ASEAN
1996 India becomes full dialogue partner of ASEAN
2002 India starts having annual summits with ASEAN
2003
India accedes to the Treaty of Amity and Cooperation in Southeast Asia (TAC)India signs
counter-terrorism declaration with ASEAN.
2009
FTA* in goods signed
This established Free Trade Area established between India-ASEAN.
2010
FTA in goods becomes effective
2012
20
th
Anniversary of ASEAN-India Dialogue.
ASEAN India Commemorative Summit is held.
Now India becomes a strategic partner of ASEAN
FTA* in services and investment- talks concluded
2014 FTA in services and investment signed- by all ASEAN nations with India. Except Philippines.
Why ASEAN important for India?
Strategically
1. ASEAN nations are at the intersections of major land and sea routes.
2. The Future architecture of Asia is going to be shaped by the US, China and
India.
3. Maritime boundary disputes between China and a number of ASEAN
countries; claims over South China Sea hence those ASEAN countries look
towards India as a counterbalance against China.
4. For India, a stronger posturing at ASEAN provides its stature as a global
power. After all, without becoming a strong regional player first, we cannot
dream of becoming global power!
Energy
1. ASEAN countries, particularly Myanmar, Vietnam and Malaysia can
potentially contribute to Indias energy security.
2. Oil and natural gas deposits in the South China Sea region.
3. India and several ASEAN countries are net importers of hydrocarbon. They
need to develop alternative energy sources. But R&D in renewable =need
truckload of ca$H hence regional cooperation essential for financing those
projects.
Economy
1. In terms of income, India-ASEAN community is roughly the size of the EU
2. In terms of Trade, India-ASEAN community NAFTA.
3. The ASEAN is Indias fourth-largest trading partner after the EU, the US and
China.
4. India ASEAN is slated to grow faster than the rest of the world due to a
favorable demographic profile and growing market for goods and services.
5. Indias trade relations are shifting from West economies towards the East,
comprising of Japan, China, Korea and ASEAN.
6. India-ASEAN linkage provides for large-scale movement of people, capital,
ideas and creativity.
For Indian States
1. The coastal states: West Bengal, Orissa, Andhra Pradesh and Tamil Nadu are
looking to rebuild maritime links with ASEAN nations to boost their own trade
and economy.
2. Union government is also building infrastructure while in the Northeastern
states so they can engage in commerce with South East Asian nations.
Diseases
Pandemics and disease are no longer limited to national boundaries and have assumed
a trans-national dimension. SARS and H1N1 virus have in recent times afflicted the
region. Hence cooperation is essential between India-ASEAN.
Now lets take a look @India-ASEAN trade relations
India-ASEAN FTAs: A Timeline
Timeline of India ASEAN FTAs
2009 India ASEAN FTA in goods signed.
2010 India-ASEAN FTA in goods became effective.
2012 India ASEAN FTA in services and investment-talks concluded.
2013,
December
Indian Cabinet approved FTA in services. (Those ASEAN nations need to get such FTAs
approved from their respective parliaments.)
2014, Sep
Nine out of ten ASEAN countries have signed FTA in services and investment,
with India.
Only Philippines remains. Philippines opposed saying itll harm their domestic
service sector given the Indias expertise (and cheapness) in the services
sector.

Trade volume
Year Trade /expectation (USD)
2012 75 billion
By 2015 100 billion
By 2022 200 billion
India ASEAN FTA in Goods
1. Signed in 2009, effective from 2012.
2. Before this agreement, the India-ASEAN annual trade was ~30 billion but
quickly jumped to ~75 billion$ in 2012.
3. Main products: metal parts and components, electronic components,
processed fruits, ceramics, gloves and knittings, fertilizers, chemicals like fatty
alcohol, coconut and vegetable oil, refined glycerine.
4. But did India benefit from this? Answer is no.
5. Cheaper palm oil from ASEAN = hurting local producers in Kerala.
6. Our groundnut and pepper farmers also suffering due to cheaper ASEAN
imports.
7. Hence over all, the goods import from ASEAN nations increased but our
exports did not increase. Consequently, trade deficit between India-ASEAN
widened.
8. Thus India did not benefit much from FTA in goods.
9. However, FTA in services may help in reducing trade deficit with ASEAN,
because weve comparative advantage over them in education, healthcare, IT-
software, Accountancy and consultancy services.
India ASEAN FTA in services and investment
This Trade agreement in services and investment =follows 8+1+1 pattern.
Meaning, agreement provides 3 separate arrangements for:
1. For 8
countries
= all ASEAN countries except Indonesia and Philippines
2. For
Indonesia
10. Special terms because services sector is vital for their economies, and theyre
worried their local service sector will be hurt while competing with Indias
strong services sector.
11. Philippines most worried because ~50% of their workforce in IT sector*
3. For
Philippines
*recall we are facing similar issue in FTA in Goods, because of cheaper
plantation products from ASEAN
Although India is not putting all eggs in one FTA basket. Were also doing
bilateral trade agreements with individual countries in the region. for example
FTA already done
1. Singapore (CECA in 05)
2. Malaysia (CECA in 11)
In process
1. Indonesia
2. Thailand
Benefits of FTA in services and investment?
1. Will facilitate the moment of manpower and investment between India and
ASEAN.
2. Will help reducing our trade deficit with ASEAN. (Because in the goods sector,
we are importing more and exporting less. Service sector will be reverse.)
3. Will boost the trade between India and ASEAN to $100 billion by 2015.
4. Provides joint review, dispute settlement and other mechanisms to iron out
problems.
5. Contains an annex on Movement of Natural persons- Business Visitors,
Managers, Executives Specialists and Contractual Service Suppliers. This
annex will help provide facilitate movement of Indian service professional in
ASEAN countries.
6. This will be a stepping stone in moving towards the regional comprehensive
economic partnership (RCEP) pact.
7. RCEP is to be signed between ASEAN and its six Australia, China, India,
Japan, South Korea and New Zealand.
8. The agreement will also facilitate investments in both regions
Indian investors want to enter ASEAN for ASEAN investors want to enter India for
1. IT
2. automobiles
3. engineering
4. Pharmaceuticals
1. construction services
2. Transportation services.
3. engineering services
4. shipping
Mock Questions for Mains
Write a note on following, 200 words each:
1. The ASEAN way of musyawarah and mufakat resonates with Indias foreign
policy and world view. Elaborate
2. Explain the importance of ASEAN for Indias look east policy
3. Enumerate the strategic and economic interests of India in South East Asia.
How can ASEAN help achieving them?
4. A healthy relation with ASEAN nations can help transform the Indian economy
in general and Northeast India in particular. Explain
5. There is tremendous scope for India to leverage its soft power in South East
Asia. Elaborate.
6. Chinese assertiveness in ASEAN is both an opportunity and a challenge for
India. Comment.
7. While India had signed a FTA in goods with ASEAN in 2009, the two sides
have recently concluded a FTA in services. Examine the impact of 2009 FTA
in goods and analyze the future potential of FTA in services and investment.
8. Provide an account of Indias increasing involvement in the South East Asian
region.
9. Write a note on Indian Diaspora in South East Asia.
10. India ASEAN vision 2020
.

Published on 24/09/2014 @ 8:44 pm under Category: Diplomacy
URL to article: http://mrunal.org/2014/09/diplomacy-india-asean-relations-fta-
free-trade-agreement-in-goods-services-investment.html