China Fear Spurs Duty Gift to Asean.

New Delhi, : Duty cuts in the budget favouring Asean seem to be the outcome of a desire to neutralise a Chinese threat and quickly sew up a deal on service and investment with the 10-nation economic bloc.

Known to being tight-fisted on duty cuts, the finance ministry has been extraordinarily generous in reducing the import levies on a host of items such as ornamental fish, green pepper, chemicals and paper — all from the Association of South East Asian Nations (Asean) and much to the chagrin of Indian industry.

One reason for the munificence could be the need to counter China’s aggressive security postures.

India, increasingly wary of China’s naval access to its neighbouring countries, has decided to get closer to Asean that also treats Beijing with suspicion.

Asean nations such as Indonesia, the Philippines and Vietnam have felt threatened by China claiming island outposts which they had long held as theirs.

Last week, Chinese naval boats tried to scare away a Philippines energy exploration vessel off Reed Bank in South China Sea, part of the nine islands of the energy-rich Spratley’s Group, which Manila claimed was part of its Kalayaan region.

Asean wants to push trade with India to $70 billion by next year from $50 billion now and wants to balance its previous engagement with China by greater trade, investment and security ties with New Delhi.

Beijing is uncomfortable with India and Indonesia’s attempts to jointly check piracy in the busy sea lanes of Southeast Asia through which almost 70 per cent of China’s oil imports flow.

Udai Bhanu Singh, of the Institute of Defence Studies and Analysis, said, “At one time, Asean nations were concerned about India’s naval development, but now we have a situation where countries such as Indonesia want greater naval co-operation. Asean, like India, is conscious of China’s rising power.”

The other reason for the duty cuts is to try to make Asean sign a free trade arrangement in service and industry.

Indian industry finds the duty cuts lopsided in favour of the Southeast Asian countries and wants a more balanced approach.

However, the waivers are likely to facilitate a free trade pact to cover services and investments — an agreement that India has been seeking for long. India and Asean had signed an agreement to free trade in goods in October 2009, the basis for the wide range of duty cuts in the latest budget.

Till now, Asean was unwilling to do deals on these counts, but its trade ministers have indicated that they would like to wrap it up as early as next year.

Besides IT and engineering consultancy services, health care, accountancy and legal, financial and banking services are expected to be big money spinners for India. Service now contributes about 54 per cent of India’s GDP (gross domestic product) and is considered to be the country’s real economic strength.

Asean members, for whom service accounts for roughly 40 per cent of their GDP, are net service importers.

North Block officials say opening up of services and investment can be the game changer.

Customs duty cuts, which have made chambers unhappy, will fade into the background once trade in service gets underway.

Opening up of investment, which would give investors from each side national treatment, will accelerate the trend of Indian firms investing in Asean.

Source : telegraphindia.com