India sets its foot firm on ground to turn ‘Look East’ policy a reality

India’s “Act East” policy is Indian Prime Minister Narendra Modi’s revamp of the decades old “Look East” policy, which aimed to strengthen economic and strategic relations in the region. It looks to counter China’s strategic and aggressive economic investments, much like the US’ “Pivot to Asia” policy.

To put forth this idea to ground reality, the Indian government is setting up a project development company to facilitate investment in Cambodia’s private sector by Indian firms

Indian Finance Minister Arun Jaitley, while presenting India’s annual budget speech in parliament, said that India is looking at setting up manufacturing hubs in Cambodia, Myanmar, Laos and Vietnam as part of its “Act East” policy .He also stated that the aim was to use $161,000, an initial budgetary allocation, to create a project development company that will make strategic investments in the region.

He added that in order to catalyse investments from the Indian private sector in this region, a project development company will, through separate special purpose vehicles, set up manufacturing hubs in CMLV countries, namely, Cambodia, Myanmar, Laos and Vietnam.

Debasish Pattnaik, president of the Indian Chamber of Commerce in Cambodia, said the major focus, at least in the short term, will be on Myanmar and Vietnam, as they are strategically more attractive investment destinations, whereas Cambodia and Laos would be looked at in the medium term.
The move will see the Indian government acting as a catalyst to direct investment to the region. The government will take the first step of setting up critical infrastructure before asking Indian companies to set up factories and manufacturing plants.

The Indian ambassador said the government was playing an active role in this process as there was still limited knowledge about the CLMV region, and some amount of “handholding” would be required.

According to Dinesh Patnaik, who is also the Indian ambassador to Cambodia ,a special purpose vehicle will be set up by the Export-Import Bank of India, , which recently completed a study of the region and will take its findings back to India.

He put forth his views saying that it won’t benefit Indian businesses specifically, but it would bring in Indian investments into Cambodia and hence benefit the economy there. He added that Indian businesses will likely invest in agro-based industry, Cambodia’s garment manufacturing sector, mining, and oil and gas.

Indian exports to Cambodia for 2014 were around $85 million, with textiles, pharmaceuticals and leather goods being the major contributors. Indo-ASEAN trade, as of December 4, 2014, was $68 billion, a meagre 2.7 per cent of ASEAN’s total global trade.

These investments will also look to tap the large China market, which currently imposes non-tariff barriers on Indian exports. India’s trade deficit with China topped $40 billion for 2013-2014, with that tally projected to only rise in the future.

The Indian ambassador said that it would not be easy to circumvent those barriers, but that by setting up in CLMV countries, coupled with the impending ASEAN Economic Community integration, it should open up the ASEAN market, including China adding that these investments can be expected in 2016.