Manmohan Singh sells his vision of pan-Asian FTA

HYDERABAD: Prime Minister Manmohan Singh has called for the creation of a pan-Asian free trade area (FTA), making it clear that India was already moving in this direction.

Elaborating on India’s integration process with the rest of Asia, Singh said the country had concluded free trade agreements with the Saarc nations in South Asia, apart from Singapore and Thailand. It was working for similar agreements with the Association of South East Asian Nations (Asean), Japan, China, and South Korea.

“This web of arrangements may herald an eventual free area in Asia covering all major economies, and possibly extending to Australia and New Zealand”, he said.

Speaking at the annual meeting of the Asian Development Bank in Hyderabad on Friday, the prime minister said the pan-Asian FTA would open up new growth avenues for India’s own economy.

The ADB could study the benefits of such an economic agglomeration in Asia, Singh said, adding that India is determined to carry forward the India-Asean partnership to an enlarged domain.

With this vision in mind, India has already pursued external liberalisation as part of its “Look East” policy by cutting down customs duties, with the peak brought down to 12.5%, which is quite close to Asean levels. India has announced a policy objective of aligning rates with Asean, he said.

According to Bloomberg, the prime minister’s pan-Asian FTA idea takes aim at the leaders of the 10-member Asean, plus Japan, South Korea and China, who said at the inaugural East Asia Summit in Kuala Lumpur in December that they alone would set the “future direction’’ for building a regional zone with fewer trade restrictions.

Singh wants excluded countries like India, Australia and New Zealand to also be involved.

“A broader common market will intensify trade in the region.’’ At stake is whether an Asian free-trade area would be able to eventually transform itself into a European Union-style bloc stretching from New Delhi to Wellington, or become a narrower 13-country grouping. Asean includes Singapore, Malaysia, Indonesia, Thailand, the Philippines, Brunei, Laos, Myanmar, Vietnam and Cambodia.

In his speech, Manmohan Singh also called attention to spiralling oil prices and growing global financial imbalances.

He put international financial institutions on notice for their perceived sluggishness in handling international economic crises in the past and their preparedness to handle them in the future.

Calling for quick, proactive and adequate action by them in predicting and tackling crises to ensure that the process of economic development in the region is not derailed, Singh called for a comprehensive security framework for Asia.

The international financial institutions have to play a major role in formulating such a response mechanism, he said, listing out threats related to terrorism, energy security, environmental degradation, and food and livelihood security as prime concerns.

In this context, steeply rising oil prices came in for special mention by Singh. It was incumbent on international financial institutions to devise strategies to enable the world economy to cope with the increased unpredictability and volatility of energy prices and their impact on the processes of economic growth.

An important lesson from the Asian crisis of 1997 is the need for effective, quick and credible responses from international financial institutions in the event of a crisis, he said.

“Half hearted measures do not resolve the problem, they only aggravate it further”, he warned, harking back to the criticism in the past that international financial institutions had not acted quickly enough.

Elaborating on what was needed, he said international institutions have to inject large enough funding to economies in crisis to assure stability. Secondly, the Asian crisis had demonstrated that financial crises can be contagious, thanks to the imperfections in capital markets.

Therefore, the financial institutions have to be ahead of the curve and identify potential victims in good time. Their role becomes even more relevant in the context of growing global imbalances reflected in the huge disparities in the current account positions of different countries.