India–ASEAN Trade Relations: Examining the Trends and Identifying the Potential

Abstract

The Association of South East Asian Nations (ASEAN) is an important trading partner for India. Through its Act East Policy, India seeks deeper economic integration with ASEAN. In this article, we investigate the pattern of trade between India and ASEAN, using comparative advantage by country (CAC) and market comparative advantage (MCA) as criteria, which are more appropriate measures for showing comparative advantage in a specific market. These measures indicate some major Indian exports to ASEAN are not competitive. When domestic industries are not competitive, governments protect them through tariffs and non-tariff barriers, which act counter to deeper economic integration. We also identify the sectors in which India has the potential to become competitive but is not because of distortionary domestic policy measures. These domestic constraints prohibit Indian firms from participating in the ASEAN supply chain network, an important factor in developing deeper economic integration. Two such sectors—namely aluminium automotive components and the ready-made garment industry—are examined as case studies. Notwithstanding these distortionary policy measures, India still offers a bigger market to do business. The ability to supply lower cost chemicals and affordable pharmaceutical products at the time of COVID-19 is an added plus.