As part of
India's "Look East" policy (LEP), India signed a Comprehensive Economic Partnership Agreement (CEPA) with Japan on Feb. 16 and a Comprehensive Economic Cooperation Agreement (CECA) with Malaysia on Feb. 18. The agreements embody India's deepening interests in Southeast and East Asia, especially following the signing of $15 billion in business deals with Indonesia in January. While New Delhi's relationship with Malaysia is primarily economic with a security component, its relations with Japan have a distinctly strategic cast. The two-decade-old LEP originated in the economic turmoil that followed the collapse of India's former patron and main trade partner, the Soviet Union. India adopted a foreign policy initiative of embracing its East Asian neighbors as a new source of growth. Over the past decade, India's exports to the Association of Southeast Asian Nations (ASEAN) member states have boomed, making the block an Indian trading partner roughly equal in size to China. The
LEP is not about economics alone, however; it also encompasses efforts to deepen security ties. India intensified its LEP in light of China's rise, a rise that has sounded alarms in New Delhi and throughout Southeast and East Asia. China has become more obtrusive in the region in the past two years especially, prompting India to move faster. While the ASEAN states want to continue trading and expanding economic integration with China, they have begun to deepen their relationships with larger powers, particularly the United States, as a hedge against the threat of
being overwhelmed by China. The United States, which has
renewed its engagement with the region, has encouraged its allies in Asia to strengthen economic and security ties among each other to shape and constrain China's rise. India's eastward drive meshes relatively well with both ASEAN's search for alternate options and the United States' goals for the region's economic and security architecture.
Malaysia
As part of India's LEP, Malaysia has participated in India's Milan naval war games since 1997, and in 2008 the Indian air force began a two-year commitment to train Malaysian pilots to operate the Russian-made Sukhoi Su30-MKM Flankers. But the Indo-Malaysian CECA is an alliance of convenience in which each side hopes to promote economic growth. The bilateral agreement builds on the 2009 India-ASEAN free trade agreement covering goods. By contrast, CECA will cover goods, services and investments, with the expectation that it should boost bilateral trade from $8.5 billion in 2010 to $15 billion by 2015 by removing red tape and cutting tariffs on more than 90 percent of goods. Malaysia hopes to boost trade along the lines of what happened when India and Singapore signed a CECA in 2005. Malaysia, India's second-largest trade partner in ASEAN, needs to reboot its exports and attract investment after suffering massive capital flight during the global recession. The coalition that has ruled Malaysia throughout its modern history has lived in fear since it lost a parliamentary supermajority in national elections in 2008; it worries it will suffer a further erosion of popular support in upcoming elections if it cannot deliver economic growth. This desire has helped it overcome previous reservations it had about ASEAN's developing a deeper relationship with India. Of course, a potential sore spot in Indo-Malaysian relations is that Malaysia has a large Indian diaspora of approximately 2 million. This group is poorer than the average majority Malay and capable of swinging to support the opposition to
Malaysia's ruling party as it did in 2008. Malaysia will thus hope that better ties with India bring economic benefits while helping to manage, or at least not complicating, this aspect of its domestic politics.
Japan
While India's relationship with Japan has economic dimensions, there is a decidedly more strategic substance to it. Recently, Japan expressed its desire to rejuvenate its outward economic strategy by signing more trade deals with partners like India and increasing high-tech exports. Despite its size and wealth, Japan takes in roughly the same share of India's exports as Malaysia does. India and Japan occupy economic niches that do not conflict, as India is a large service, information technology and agricultural economy and Japan concentrates on high technology and machinery manufacturing. Neither India nor Japan is particularly comfortable exposing protected areas of their economy, such as retail and agriculture for Japan or agriculture and manufacturing for India, to foreign competition or influence. The underlying lack of economic threat from each other and their mutual economic needs have given more impetus to signing their deal, however. While both countries' legislatures still need to ratify the deal, which could be a deliberate process, the trade agreement would eliminate tariffs on 90 percent of Japanese exports to India, such as electric appliances and auto parts, and on 97 percent of imports from India by 2021. It also would allow Japanese companies to acquire controlling stakes in Indian corporations and establish franchises in India. In return, tariffs on Indian fisheries, mining and some agricultural products will be lifted. Notably, the two are discussing lifting employment restrictions to allow Indians to work in Japan as caregivers and nurses. Japan has a rapidly aging population and needs the labor, but it has a strong political aversion to immigration — thus, this element of the deal may imply that Japan is becoming more willing to make compromises in order to sign trade deals. On the security front, in the past decade Japan has sought to enhance its supply line security through a greater naval presence in the Indian Ocean. Consequently, Japan has envisioned a greater security relationship with India as a means of accessing this ocean. India welcomes Japanese involvement, knowing that China's push into its periphery continues apace. Both India and Japan share an interest in preventing China from becoming an overbearing regional power, yet neither poses a direct threat to the other, enabling them to work together out of their self-interested desires to distract China's energies. The
United States has recently taken to encouraging India's eastward drive and stronger Indo-Japanese coordination. But even without American urging, Japan and India would be inclined to take advantage of each other as a means of undercutting China.
Assessment
There are constraints to India's LEP, however. Although India historically projected power into Southeast Asia, it is a relative latecomer to the contemporary Southeast Asian game. Moreover, India's deepest concerns lie in its own periphery. Pakistan remains the greatest security threat. Unlike China, Japan, South Korea and others, India does not depend on Southeast Asian sea-lanes for its vital supplies, though it has taken a much greater interest in sea-lane security due to its growing trade with the region and desire not to cede space to China. Ultimately, while agreements like CEPA and CECA are not paradigm-shifting moments, they mark the advance of India's LEP at a time when Southeast and East Asia are evolving in rapid and potentially volatile ways.
