Law & Finance article(s)
October 20, 2014
India tomb
India's economy is a key component of intra-Asia trade, with some estimates of growth up to 5.5 percent this year, well above the GDP growth for other BRICS nations.

Asian economies and intra-Asian trade can extend the gains of recent years if governments and business work together to reduce tariffs and non-tariff trade barriers, and improve logistics and transport infrastructure says a new Asian Development Bank (ADB) report, the Asian Development Outlook 2014 Update.
The Bank forecasts regional growth is will pick up from 6.1 percent in 2013 to 6.2 percent this year 2014 and go further with 6.4 percent in 2015.
This broadly corroborated by big industry players who report similar increases in cargo.
“The intra-Asia trade has been overall quite stable with we have similar expectations for the coming years,” Naresh Potty, chief commercial officer for intra-Asia shipping line MCC Transport told Asia Cargo News. “For 2014 we expect intra-Asia trade to grow by 5 to 6 percent.”
Potty points out three trends supporting continued growth in this area. The first two are rising income levels and consequently consumption amongst Asian consumers and regional trade agreements (ASEAN and other FTAs) which help facilitate trade.
The third is a reminder that intra-Asian trade does not take place in a vacuum and is linked improving economies elsewhere in the world.
“Recent uptake in long-haul trades has a positive flow-on effect in intra-Asia trade as semi-finished goods move within the Asian geography to support the production of finished goods. We remain confident on the overall trade growth in intra-Asia,” added Potty.
Underlining this is what is going on the air cargo sector where international demand is “relatively robust” and witnessing growth of around 5% compared to the same period last year, according to Andrew Herdman, director-general of regional trade body the Association of Asia Pacific Airlines.
“Intra-Asian air cargo flows are being boosted by shipments of components and sub-assemblies supporting global manufacturing supply chains. We are seeing particularly strong growth in markets including major flows between China, Japan and Southeast Asia as a result,” Herdman told Asia Cargo News.
Of the region’s two mega economies, China and India, the ADB notices divergent paths.
For China steady consumption and improved external demand nudged second quarter growth up to 7.5 percent where the Bank reckons it will stay for this year slipping fractionally to 7.4 percent in 2015.
By contrast, India shows new promise of a turnaround. The report said that “a new government better positioned than the old to pursue the reform necessary to unlock the economy’s growth potential.” (Among the long-delayed reforms the Bank mentioned were those dealing with investment bottlenecks, fiscal imbalances and other structural deficiencies.)
Anyone doubting that should consider the very public words of India’s new prime minister, Narendra Modi.
“l pursue this mission by eliminating unnecessary laws and regulations, making bureaucratic processes easier and shorter, and ensuring that our government is more transparent, responsive and accountable,” he said in a recent edition of the Wall Street Journal – not the forum nor the readership to treat lightly.
“We will create world-class infrastructure that India badly needs to accelerate growth and meet people’s basic needs. ‘Make in India’ is our commitment – and an invitation to all – to turn India into a new global manufacturing hub. We will do what it takes to make it a reality,” he added.
Tellingly, the ADB maintains its 5.5 percent growth forecast for India for 2014 but upgrades, by 0.3 percentage points to 6.3 percent, the forecast for 2015, when reform can begin to bear fruit.
The real point, though, might be longer term, as India starts to become an economy of note. True, there are problems, as Modi acknowledges, but India’s scale and resources mean that South Asia could have within it what East Asia had with China.
If India follows a similar trajectory to China, the pattern of intra-Asia trade will change dramatically in the coming years.
It is already happening according to Thai research house KResearch, which believes that India’s economy will grow by 5.5 percent this year, which it says is well above the GDP growth for other BRICS members Brazil, Russia, China and South Africa.
Thai businesses will benefit from India’s new policies, KResearch said, mentioning especially agro-processing, consumer products and trade. It expects Thai shipments to India will grow 5.5 percent year-on-year in 2014, to between US$5.36-US$5.56 billion in total.
What is needed to achieve the region’s potential, according to the ADB, is a clump of measures impacting both hardware and software.
“Better logistics and transportation infrastructure may cut trade costs even more than tariff reduction,” the report notes at one point. “Infrastructure investment can ease port congestion and speed inland transport. Streamlining customs procedures to eliminate paperwork further trims shipping times.”
The report illustrates this well, referring to the combination of poor infrastructure and red tape as “deadly.”
The example the ADB gave is highly revealing. Exporters in East or Southeast Asia need to complete six documents on average, while exporters in Central and South Asia must deal with nine. Exporting standard cargo takes only 18 days from Southeast Asia or 19 from East Asia, but a nearly three times that – nearly fifty days – from Central Asia.
Once again there is support for this from industry players who worry about both infrastructure and how it is run.
One source pointed out Thailand’s plans for upgraded rail networks, which is widely seen as having limited usefulness if customs procedures on either side of the border are not reformed at the same time.
What is needed is not just more mega-infrastructure, but more local pieces.
“Opportunities in the intra-Asia trade would come from the continued development of second tier ports. This is both a consequence of congestion in the main ports but also due to changing supply chain patterns away from a centralised distribution system to supplying products to end markets,” MCC’s Potty told Asia Cargo News.
Not that Big-Infra is finished with. Far from it as BCIM (the Bangladesh, China, India and Myanmar Forum for Regional Cooperation) testifies.
What is envisaged is a multi-modal network which will connect China’s Yunnan province with the Indian states of West Bengal, Bihar and the north as well as Bangladesh and just-opening Myanmar. One estimate sizes it at 1.65 million square kilometers with a population of 440 million people.
“The establishment of BCIM-EC will materialize in the foreseeable future,” Qu Guangzhou, China’s charge d’affaires said at a recent public forum in Dhaka. He advised taking a long view.
“Priority areas and early-harvest projects may include infrastructural connectivity, trade and investment facilitation, industrial cooperation and cultural and people-to-people exchanges,” he added.
Press reports in India suggest that Indian authorities are warming to the idea, with an influential report due out early in 2015.
But the issue is not just about hardware as various sources point out. Great infrastructure can be, and indeed often is, hampered by poor process and too many regulations.
“Greater efforts are needed to streamline customs procedures, including accelerating the adoption of electronic processing of shipping documents, especially for air cargo where speed and efficiency are critically important,” AAPA’s Herdman told Asia Cargo News.
“As an industry, we would like to see more efforts to harmonize requirements, and mutual recognition of respective national security regimes, including airlines and the broader supply chain of trusted freight forwarders and shippers,” added Herdman.

By Michael Mackey
Southeast Asia Correspondent | Bangkok

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