India’s Act East policy was launched in 2014. As pointed out by Prime Minister Modi, it rests on four pillars: Culture, Commerce, Connectivity and Capacity. The policy was nothing but an action-oriented upgrade of the Look East policy that was launched by Prime Minister Narasimha Rao in 1991-92, soon after India had embraced globalisation by dumping its command-control based Nehruvian economic structure that had kept growth under a stranglehold ever since independence. Circumstances then forced India to direct its gaze eastward, and circumstances again forced India to refocus and re-strengthen its engagement with the east. In 1991, the old-world order was crumbling fast.
The Berlin Wall had fallen, the Soviet Empire had imploded and disintegrated and the Cold War was over. Barriers that defined the pre-1991 world we’re giving away to integration, command was replaced by contracts, and control by liberalisation. These structural changes also forced the Indian economy to liberalise and globalise, saving it from imminent collapse, and its foreign policy to become multidimensional replacing its earlier USSR-centric approach. India then started seriously engaging with the USA, discarding its earlier attitude defined by mutual hostility and contempt to one of cooperation and closeness, culminating in the civil nuclear cooperation agreement of 2008.
But engagement with the USA still lacked wholesome trust, the Russian Federation remained weak, and the USSR on which the Indian economy depended much existed no more. India’s relations with SAARC countries, though old and with shared historical and cultural roots, were also fraught with lack of trust; besides the region was economically backward and could not offer much scope for trade and investment. Meanwhile, the Gulf War had imposed heavy costs upon the economy through rising fuel costs and import bills to finance which there was no foreign exchange whose reserves had fallen to an abysmally low level of $1.2 billion in June 1991, which looks absurd today in comparison with our current reserves of $700 billion.
The economy was on the brink, and the country was forced to liberalise and globalise its economy. There was also an urgent need to develop strategic relations with new friends in a world that was turning friendless for India. Thus, in 1991, we started to look at the east ~ towards southeast Asia and the Asia-Pacific region ~ not only for trade, investment and economic collaboration, but also for security and defence co-operation as well as building strategic relationships with the Asian Tigers. China and Japan, the two biggest economies in the world, had already established their footprints in the Asean region by setting up manufacturing bases and India could no longer ignore them.
The economic engagement was to be based on boosting trade, investment and technological exchanges with Southeast and East Asian countries, to tap into their fast-growing economies and integrate with regional production networks and value chains. Thus, India signed Comprehensive Economic Cooperation Agreements (CECA) in 2009 with the 10-member Asean block, with Singapore (2005), Malaysia (2011) and similar Comprehensive Economic Partnership Agreements (CEPA) with Japan (2011) and South Korea (2009). It also signed a Free Trade Agreement (FTA) with Thailand in 2003. Building strategic partnerships was focussed on enhancing diplomatic relations and security cooperation including military and maritime ties with countries like Japan, South Korea, Singapore, Vietnam, and the Philippines. India became a dialogue partner with Asean in 1992 and gradually engaged in Asean-led institutional mechanisms like the Ase a Regional Forum (ARF) and East Asia Summit (EAS).
Over time, as India forged partnerships with several countries in the region, it also promoted connectivity along with common economic and strategic interests. Meanwhile, the world kept on changing and by 2014, it had become almost unrecognisable to the world that existed in 1991. One major goal of the Look East policy was to leverage India’s north-east to enhance its historical ties with neighbouring countries, to encourage people-to-people exchanges and reinforce the historical trade relations between them in order to develop and transform the economically backward north-eastern states. This did not happen due to the inadequacy of infrastructure and internal security challenges in the region. Also, China’s muscular approach was becoming a constant threatening feature that heightened regional tension in the Indo-Pacific and South China Sea.
India was now no longer a third world country known as the “Sick man of Asia”. It was one of the fastest growing economies in the world, with increasing political, economic and military heft. It was necessary for its own security to strengthen security and defence collaboration with its eastern friends, like Japan, Vietnam, Australia, Indonesia, and the Philippines through engagement on joint exercises, arms exports, and strategic partnerships to respond to the changing regional dynamics. The rising economic opportunities in the region offered further incentives to modify the Look East Policy to a refocused, proactive Act East Policy, more comprehensive in scope and outreach.
To support a free and open IndoPacific, India formed the Quadrilateral Security Dialogue (the Quad) with the USA, Japan, and Australia and kept on making this engagement deeper and stronger, to the chagrin of China which has already extended its influence and penetrated deeply into the region through its BRI projects. To enhance connectivity with eastern neighbours and Asean, India took on initiatives such as the India-Myanmar-Thailand Trilateral Highway and Kaladan MultiModal Transit Transport Project to boost regional trade and access to Southeast Asian markets.
The idea was to connect India through creation of physical and digital infrastructure with Southeast Asia and beyond. Going beyond ARF, EAS and BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation), and the Quad, the Act East Policy also focussed on the Indian Ocean Rim Association (IORA) countries through the ambitious SAGAR (Security and Growth for All in the Region) project launched in 2015 to help strengthen India’s role in shaping regional security, rule of law, and open sea routes. SAGAR aims at promoting collaboration with the 23-member IORA not only to address shared challenges such as maritime security, economic connectivity and sustainable development, but also in countering China’s “String of Pearls” strategy, by enhancing India’s own connectivity and security partnerships with Indian Ocean nations.
Prime Minister Modi indeed gave a new thrust to intensify economic, strategic and diplomatic relations with countries that share common concerns with India on China’s growing economic and military strength and its implications for the evolving regional and the global order. It has brought an “IndoPacific” perspective into our foreign policy, partnering with the Quad, IORA and ASEAN nations. India now conducts joint military exercises and maritime security cooperation with several countries, like SIMBEX with Singapore, IND-INDO CORPAT with Indonesia, and JIMEX with Japan. On the economic front, India entered into a FTA with Asean in Goods in 2009 (Asean-India Trade in Goods Agreement, or AITIGA) which reduced or eliminated tariffs on thousands of goods traded between India and Asean countries, followed by an FTA in Services and Investment in 2014.
These FTAs are part of the Asean-India CECA, which seeks to deepen economic integration and cooperation between India and Asean in goods, services, and investment. India’s trade with ASEAN countries has grown from $76 million in FY 2015 to $121 billion in FY 2024. India’s major Asean trading partners include Singapore, Indonesia, Malaysia, and Thailand, with varied trade balances across member nations. In the same period, India’s global trade increased from $758 billion to $1.1 trillion, which means that Asean countries toge – ther account for only around 10- 11 percent of our global trade which is not increasing, despite the far larger potential that exists in one of the world’s largest free trade areas with more than 2 billion people and a combined GDP of US$ 7.4 trillion as of 2023, and home to the next highest number of unicorns in the world after USA, China and India. We also run a trade deficit which is now equivalent to around one third of our total trade. However, Indian investment flows to Asean countries have increased significantly. In 2014- 15, India’s outward FDIs to Asean stood at $1.23 billion, with the majority directed towards Singapore, which has long been India’s top investment destination within Asean. The Asean-India Investment Agreement signed in 2014 to ensure protection of investments and non-discriminatory practices coupled with Asean-India FTAs saw an upswing in direct investment inflows into Asean, which reached $5.6 billion out of total FDI outflows of $13.3 billion from India in 2023. Though FDIs into Asean are dominated by the USA, China and Japan, India today ranks within the top ten sources of FDIs into the region. Alongside economic engagements, cultural exchanges and connectivity also received a boost through many collaborative student and youth exchange programmes, fellowships and scholarships including at the Nalanda University. The number of tourist arrivals from India to Asean increased from 2.39 million in 2022 to 4.29 million in 2023. In 2023, 6.5 lakh Asean tourists visited India. Asean is much more important now to India than our old home block SAARC, with whom we traded only $30 billion in 2023- 24, of which $25 billion comprised of exports from India. Of course, border and trade barriers have reduced the trade potential, but the situation is unlikely to im – prove any time soon. SAARC is in hibernation since 2016 following the Uri terrorist attack sponsored by Pakistan, and is no longer a part of India’s larger strategic vision.
(The writer is a commentator, author and academic. Opinions expressed are personal)