SIT Journal of ManagementISSN: 3478-9123

India- Thailand Trade Relations: An Assessment

Asim Husain, M. Afaq Khan

Abstract

India’s economic relations with Thailand are set to undergo major changes as the Indo Thai FTA has come into force since 9 October 2003.As such this paper aims to describe the trade relation between India and Thailand and to study the changes outcome after the signing of FTA. Thailand is a major developing exporting country from Asia .on the other hand, India is consolidating its position with strong domestic and external demand The developing countries studied are making efforts to develop their exports through different paths with direct and indirect influence of government through innovative policies and trade liberalization programme. Thailand has aimed to plug the gaps in the exports through a focused investment promotion scheme. India is also making an effort to develop indigenous strategy through giving focus in R&D and tightening the IPR regime. The study India Thailand trade assessment related to export import scenario with respect to Free Trade Agreement focusing on overall trade performance of these two countries .Also very less past research has tried to bring out these dimensions insights into FTAs effect on overall trade volume performance. The paper is based on the review of the existing literature on India Thailand Free trade agreement focusing on Indian Thailand overall trade volume.FTA between Thailand and India has resulted in lowering of tariff of the specific components mentioned in Early Harvest Scheme but whether it has really promoted overall trade between the two countries remains a cause of concern. Which country has better trade effects? The study is based on the secondary data and hence may not cover the latest trend of the industry.

Introduction:India and Thailand share age-old bonds of cultural affinity, commercial interests and common perceptions on various issues. These geographically proximate neighbors need to take advantages of the conducive setting or the context that is provided by the history and geography between them for mutually beneficial economic cooperation. Whether it is the economics of neighborhood or the importance of cooperation in the competitive global environment the economic logic suggests that both the countries must strengthen their economic ties in the realms of trade, investment, technology and human resources. The complementarities on different dimensions need to be exploited so as to jointly take advantage of the globalization process in a more effective and WTO-consistent manner. In an effort to promote trade and investment cooperation between the two countries, a Joint Working Group (JWG) was set up at the behest of the Prime Ministers of both the countries for getting a Feasibility Study conducted on India-Thailand FTA. The First JWG Meeting was held in New Delhi, India during April 2002. At this meeting, the JWG adopted its Terms of Reference and finalized the broad structure of the feasibility study. The meeting also agreed on a work program. The present study is the outcome of this process Economic relation between Thailand and India received another push when India and Thailand

signed a Comprehensive Economic Cooperation Agreement to enhance trade and investment ties between them. As per agreement, the tariff concessions on 84 items of EHS (Early Harvest scheme) list began from 1.9.2004 and have become zero for both sides from 1.9.2006. , it was expected to increase the trade between the two countries. Thailand is India’s second largest source of foreign direct investment, 3rd largest consumer of its merchandise exports and its largest trading partner among ASEAN states. For Thailand, India is one of its fastest growing trading partners among major economies. India and Thailand comprise a free trade agreement on trade of goods and services, a bilateral agreement on investment promotion, protection and cooperation and an improved double taxation avoidance agreement. It also includes Mutual Recognition Agreements on quality certification of goods and services, liberalized visa rules for professionals, and undertakings to cooperate on several sectors like customs, dispute settlement, intellectual property rights, education and e-commerce. CECA were the first of its kind of trade agreement signed by India and has ushered in a new model for our future bilateral and regional economic alliances.

Though it was seen that the previous level of India Thailand trade was low, it was increasing over time. India’s total trade with Thailand has increased after the framework agreement for a free trade agreement between the two countries was signed. Imports from Thailand have been increasing at a faster rate than the increase in exports. India has enjoyed a trade surplus since 2002 - 03 to 2004 - 05 after which imports have been more predominant. Thailand’s import demands are high and India has great capacity to meet export supply for a large number of commodities of Thailand’s import demands. Thailand’s Ratio of exports to GDP is 58.8 and Ratio of imports to GDP is 61.( 5ASEAN statistics as of 30 April 2008) Thailand also experienced the severe financial crisis in late nineties. Its economic growth fell in negative to (-) 10.5% in 1998 from (-) 1.4% in 1997; the economic growth recovered to 4.4% in 1999 and 4.6% in 2000. (6ASEAN Statistical Yearbook, 2003; Table IV.2., pp 32.) Currently, India and Thailand do Bilateral trade impressively in 2011 it was $8.19 billion, Indian government data shows, Thailand Prime Minister Yingluck Shinawatra said India-Thailand trade had seen a quantum jump from $1 billion to $7 billion in the last ten years, helped by „Early Harvest' pact, limited to 82 items. Thailand Prime Minister Yingluck Shinawatra said that India and Thailand would work to double the bilateral trade to around $14 billion by 2014 (the Hindu economics times 25,26 jan 2012). From Thailand’s side, the FTA was advantageous such as providing a good destination for Thailand investors (India being one of the fastest growing economies worldwide), opening up one of the world’s largest markets to its manufacturers, and also to fill the chronic shortage of workers in the city-nation through India’s large base of cost effective and skilled workers (in IT and other professions). Some sectors set to benefit from FTA, management consulting, IT-related fields, education and financial services including banks and asset management firms. , we are expected to gain considerably in the long term due to inclusion of services into the FTA and investment commitments from Thailand. This paper examines the trade relations between India and Thailand, focusing on cooperation in the areas of export and import between the two countries. , Further, the paper also examines how much trade is increasing after this FTA between India and Thailand. What needs to be done more to strengthen the trade relation between India and Thailand?

Literature review:Free trade generates immense competitive challenges for most developing countries (Dhar, 2008). Since the mid-1990s, many studies have estimated the impacts of Free trade on economic growth, employment, poverty, income distribution and the survival of local firms. Nonetheless, the real impact of Free trade on the global economy remains a much debated and controversial subject (Tambunan, 2011) .According to Falvey & Kim (1992) at an aggregate level, the broad benefits that are generated from international Free trade reform include the following:

a) Improved resource allocation

b) Access to new and better technologies

c) Inputs and intermediate goods

d) Economies of scale and scope

e) Greater domestic competition

f) The availability of favorable growth externalities, such as the transfer of know-how.

According to Greenaway (1998), Free trade is the removal of tariff, or any other intervention which restores the free trade set of relative prices ,changes in government policy which reduce anti-export bias and move the relative prices of tradable towards neutrality; the substitution of more efficient for less efficient forms of intervention. India represents compelling macroeconomic story, with potential to sustain high economic growth rates. Some analysts are perhaps over-optimistic in projecting the emergence of India as the third largest economy in 2003 dollars by the year 2050, only behind China and the US (Morgan Stanley,2003; Wilson and Purushothaman, 2003).India’s domestic-led development is considered to be sustainable, spawning several globally competitive firms (Khanna and Huang, 2003). A consequence of India’s liberalization and rapid growth is the growing involvement of Indian companies abroad (Goswami, 2003; Merchant, 2004; Ramakrishnan, 2004). India’s GDP has been increasing over the last few decades. It has recorded an annual average growth rate of above 5 percent approximately during the last decade. However, its Gross National Income per capita which stood at around US Dollar 450 in year 2000 is considerably lower than Thailand’s Gross National Income per capita which was US Dollar 2000 in the same year (World Bank, 2002).This has expanded India’s capacity to pursue its “Look East” Policy initiated in the early 1990s with vigor (Sridharan, 1996).

A framework agreement for the creation of a free trade area (FTA) with Thailand was signed in October 2003. Under this agreement, 84 items can be imported from Thailand from April 2004 at 50 % of the normal rate of duty prevailing in India. India has been engaged in negotiations to form a Comprehensive Economic Cooperation Agreement (CECA) with Singapore. Sub-regional cooperation betweenIndia and some of the ASEAN members such as Vietnam, Thailand, Myanmar, and Laos has also accelerated (Gaur, 2003; Suryanarayana, 2003).India is also an active participant in Thailand’s initiative, Asian Cooperation Dialogue (ACD), which has representation from all parts of Asia. India has contributed US$ 1 billion to another initiative by Thailand on the Asian Bond Fund (ABF) (Rajan, 2004)

Objectives To examine the trade relations between India and Thailand.

To examine how much trade is increasing after FTA between India and Thailand.

To identify the effects on India’s other trading partners outside the FTA.

India-Thailand Trade Relation:

An Overview before and after Free Trade Agreement (FTA) India has trade relation with Thailand since independence. Thailand is an important trading partner of India. Thailand ranked 20th in terms of India’s exports (during 2000) while its rank was 24th in terms of India’s import basket. The amount of India’s total exports to Thailand, in 1999, amounted to US $547 million while the corresponding value of India’s imports from Thailand was US$ 622 million. India’s trade (around 1 per cent) with Thailand accounts for a modest proportion of India’s total global trade and the same is true from Thailand’s point of view as well. India’s exports to Thailand (as a proportion of India’s total global exports) have

Table 1: India’s Export and Import with Thailand 1980-2000 (In million US $)

Decreased between the periods 1995-1998 but have increasing trend afterwards. But India’s imports from Thailand (as a proportion of India’s total imports) have consistently increased during 1990s (except during 1994). The level of India’s exports to Thailand was higher than the level of India’s imports from Thailand till 1998. It shows that India always had significant trade surplus with Thailand, but in 1999 equation was reversed. In terms of Thailand’s global exports (and global imports) by countries, India’s share more or less has increased during the 1990s although India is not an important market for Thailand, the latter integration with India has been increasing overtime. India has been one of the

important markets for Thailand’s foreign direct outflow till 1997. Thailand has made total foreign direct investment (approved) of Rs.24591.96 million in India.

Trade Over view After Free Trade Agreement It was disclosed that India was Thailand’s 17th largest trading partner and the 11th largest export destination in 2010. In addition last year, India’s Department of Commerce listed Thailand as the 28th largest trading partner of India, with trade valued at 6.7 billion US dollars.

Fig. 3 reflect that the average rate of growth of export to Thailand from period 2006-07 to 2010- 2011 had 20.64 percent while the average rate of growth of import to Thailand had25.82 percent over the same period. The average growth of total trade with Thailand had 23.38 percent which shows the increasing trend. Export - Import Analysis India is one of Thailand’s fastest growing trade partners among major economies. With the initiation of FTA, there has been a significant growth in trade flows between the two countries. India was Thailand’s 17th largest trading partner and the 11th largest export destination in 2010. Since the Thailand-India Free Trade Agreement Framework was concluded in October 2004, bilateral trade between them has tripled. However, The amount of India’s total exports to Thailand, in 2004 — 05, amounted to US $ 0.90 billion while the corresponding value of India’s imports

from Thailand was US .$ 0.87 billion. By 2008 — 09, the exports have crossed over US $ 1.9 billion and imports over US $ 2.7 billion. Following Tables and Chart show the recent trend in Indo — Thailand trade. Thus, an overall trend in the growth of exports and imports between India and Thailand shows

that the growth in both exports and imports has been at faster rate after the framework agreement was signed between the two nations.

Though it is seen that the present level of India — Thailand trade is low, it is increasing over time. India’s total trade with Thailand has increased especially since 2003 — 04 during which the framework agreement for a free trade agreement between the two countries was signed. Imports from Thailand

have been increasing at a faster rate than the increase in exports. India has enjoyed a trade surplus since 2004— 05 after which imports have been more predominant. Thailand’s import demands are high and India has great capacity to meet export supply for a large number of commodities of Thailand’s import demands. Thailand’s Ratio of exports to GDP is 58.8 and Ratio of imports to GDP is 61.5. Thailand also experienced the severe financial crisis in late nineties. Its economic growth fell in negative to (-) 10.5% in 1998 from (-) 1.4% in 1997; the economic growth recovered to 4.4% in 1999 and 4.6% in 2000.6. Fig. 4 showing the India’s export and import with Thailand. During 2003-04 export increased from US $ 831.68 million to 2792.80 in 2010-11 .This was largely due to trade openness, reduction in tariff and more

openness to foreign investment and FTA agreement between the two countries. However, on the import side, during 2003-04 the import increases from US $ 609.65 million to 4272.09 million I US $ n 2010-11.

Fig 6 clearly indicate that in the earlier period the ratio between export and import is higher as the FTA progress it become to 0.65 increasing. This may be the reason Thailand investing more in India vis-a-vis India importing more than the exports.

Fig. 7 explores the trade deficit between the two countries. Although, in 2004-05 export increased by 16.94 percent, but rise in import by 60.75 percent resulted in the trade surplus to be of the order of 222.03 US million $. This situation become fall down and India import much more than it exports to Thailand shows the continue trade deficit.

The above table reflects that Thailand is Indi Major source of export and imports in ASEAN. India’s exports to Thailand, however, appear to be entering a phase of moderate growth. During the period 2006-07 and 2007-08 the rate of growth of to Thailand increased by 25.27 percent while during the last two years that is ,2008-09 and 2009-10 the annual rate of growth of Indian exports (in US$ value) to Thailand showed a declining trend. From the high rate of growth Indian exports to Thailand shows a decline trend and became 10.22 percent of negative growth rate in 2009-10. It is difficult to say at this juncture whether the declining growth trend for Indian exports to Thailand will perpetuate in the medium term. However, compared to the other ASEAN countries, Thailand is also a leading source of India’s import followed closely by Indonesia and Singapore It is interesting to note that, while Thailand isfar ahead of other ASEAN countries as a market for India’s exports, as sources for India’s imports, it has close competition from within ASEAN. This is clearly reflected in India’s import data. India’s import to Thailand was 31.65 percent in the year 2006-07 which decline to 17.51 percent in the year 2007-08 and further recorded a declining growth rate to 8.42 percent. Recent Developments and Some Important Issues in Reference to Thailand India and Thailand have already cut duties on 82 products, including fruits, vegetables, wheat, diamonds and some metals, under a framework agreement that came into operation in September 2004. India and Thailand are aiming to abolish duties on goods traded between the two countries by 2010. Thailand, which used to run a deficit in its trade with India, has registered a US $ 140 million trade surplus in 2005 — 06, even before tariffs on 82 items covered under the scheme

were brought to zero. According to government sources, Thailand wants greater market access in natural rubber, being a major exporter of the product. However, natural rubber is expected to be a part of India’s negative list. In the negotiations of goods, India has agreed to eliminate tariff on more than 4000 products in a phased manner, while 500 others will be in the sensitive list, which will see partial duty cuts, over a period of time. Nearly 500 other items in the negative list will not be subject to any tariff cut, so as to protect the interests of the domestic industry.

Overall, the balance of trade has tilted in favor of Thailand with India’s exports growing at an average of 26% for the past three years since 2004 — 05 till 2007 — 08 and Indian imports growing at 38% during this period. India needs to improve the quality of infrastructure facilities with a view to become more competitive vis-a-vis imports from Thailand. High rates of taxes and duties, low labor. Productivity and procedural complexities are impacting the competitiveness of Indian industries. Indian business can also take the advantage of Thailand’s liberal attitude towards foreign investment as the Thai government recognizes the important contribution of foreign investment to the domestic economy. Thailand has sought more Indian investment in IT and pharmaceuticals — the two areas in which India has proven expertise. India and Thailand have injected a new vigor into their bilateral trade in recent years, with bilateral trade increasing six-fold over the past decade. The current bilateral trade figure of $7.5 billion is itself set to double by 2015.

Conclusion:This paper indicates that the pattern of trade between India and Thailand has shown sign of a change after signing the FTA. At present, India’s imports from world are US$ 50434 million as compared to Thailand’s imports of around US$ 56915 million .Both these countries have captured a Small market of each other. There is lot of scope that exploring FTA will lead to significant increase in bilateral trade between India and Thailand. It should be remembered that the present level of India-Thailand trade is low, but is increasing overtime. This increase has been noticed particularly in India’s imports from Thailand. Consequently, the trade gap, which has traditionally been heavily in India’s favor, has reduced considerably. Thailand’s import demands are quite high and India will be able to meet export supply for a large number of commodities of Thailand’s import demands. The present level of Thailand’s imports from India is small; hence India will be able to capture a large portion of Thailand’s market for these commodities. Thailand is relatively a more open economy than India. Although Thailand is an important trading partner of India, The amount of India’s total exports to Thailand during 2000 was US$ 547 million, while the corresponding amount of India’s imports from Thailand was US$ 622 million, resulting in a trade deficit of US$ 75 million.

In earlier years, India had had consistent trade surplus with Thailand. India’s imports from Thailand have been shown more or less an increasing trend -both in terms of value as well as percentage share (of its global imports). Almost similar trend has been noticed for India’s exports to Thailand. The above analysis also indicates that since 2004-05, India has had a negative trade balance with Thailand,. However, with export growth falling and import growth rising, the trade balance is likely to become negative. A negative trade balance might have implications for India’s overall trade balance and the current account of its balance of payments. Further it is also clear from the above discussion that the changing pattern of trade between India and Thailand might be result of the FTA. But it is too early to comment on FTA

lets time to grow it and will see the actual impact in the future. Therefore its clear from above assessment Thailand became an ideal trading partner for India to liberalize its economy and sought to integrate itself into the global economy. Conversely, Thailand recognized India’s enormous economic potential and eagerly engaged with India.