ADBI Working Paper Series India’s Emerging Connectivity with Southeast Asia: Progress and Prospects Prabir De No. 507 December 2014 Asian Development Bank Institute Prabir De is a professor at the Research and Information System for Developing Countries, New Delhi, and coordinator at the ASEAN-India Centre. The author is grateful to Michael Plummer, Saby Mitra, Peter Morgan, and Jenny Balboa for their insightful comments on the earlier version of this paper. Comments from the participants of the ADBI workshop on “Connecting South and Southeast Asia: Technical Conference,” held in Manila on 6–7 November 2013, where an earlier version of the paper was also presented, were useful in revising the paper. The author is also grateful to Ambassador Shyam Saran, Chairman at RIS and India’s former foreign secretary, for his visionary thoughts on India’s connectivity. The author acknowledges ADBI’s support in carrying out this study. 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India’s Emerging Connectivity with Southeast Asia: Progress and Prospects. ADBI Working Paper 507. Tokyo: Asian Development Bank Institute. Available: http://www.adbi.org/working-paper/2014/12/19/6520.india.connectivity.southeast.asia/ Please contact the author for information about this paper: Email: [email protected] Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5 Kasumigaseki, Chiyoda-ku Tokyo 100-6008, Japan Tel: +81-3-3593-5500 Fax: +81-3-3593-5571 URL: www.adbi.org E-mail: [email protected] © 2014 Asian Development Bank Institute ADBI Working Paper 507 De Abstract Connectivity is the key building block of convergence and cohesion in any regional integration initiative. Development of connectivity across any region—especially of transportation linkages, energy pipelines, and information and communication technology— contributes to integration by reducing transaction costs and facilitating intraregional trade and investment. The potential gains from closer connectivity between South Asia and Southeast Asia are no doubt large. India’s regional integration with Southeast Asia has been advancing well and several projects are being implemented at present. India’s regional connectivity with Southeast Asia has been evolving on two pillars: northeast India for multimodal and intermodal operations, and southern India for multimodal operations. This paper presents India’s broad proposals on connectivity projects with Southeast Asia and policy recommendations to strengthen connectivity throughout Asia, in particular between India and the Association of Southeast Asian Nations. Enhancing connectivity between South and Southeast Asia is a multifaceted task that will require the implementation of strong policy initiatives. Development of connectivity in Southeast Asia and South Asia will bring significant opportunities for industrial development in India and trade potential with South and East Asian countries. JEL Classification: F15, O24 This paper was produced as part of the ADB–ADBI flagship project on “Connecting South Asia and Southeast Asia.” ADBI Working Paper 507 De Contents 1. Introduction ................................................................................................................ 3 2. India’s Look East Policy and Trade and Investment with Southeast Asia ................... 4 2.1 Trade in Parts and Components .................................................................. 10 2.2 India’s Trade Potential with ASEAN ............................................................. 11 2.3 India’s FDI Policy and FDI Inflows ................................................................ 14 3. Connectivity-induced Production Networks between India’s Northeast Region and ASEAN .................................................................................................................... 16 4. India’s Connectivity Projects with Eastern Neighbors and ASEAN ........................... 18 4.1 India–Myanmar–Thailand Trilateral Highway ............................................... 19 4.2 Delhi–Ha Noi Railway Link ........................................................................... 20 4.3 Kaladan Multimodal Transit Transport Project .............................................. 21 4.4 Mekong–India Economic Corridor ................................................................ 22 4.5 Stilwell Road ................................................................................................ 23 4.6 Tiddim–Rih–Falam Road ............................................................................. 23 4.7 India–Bhutan Connectivity ........................................................................... 23 4.8 India–Nepal Connectivity ............................................................................. 25 5. Future Connectivity Projects between India and Southeast Asia .............................. 26 5.1 India–Myanmar–Lao PDR–Viet Nam Corridor and the Sittwe Industrial Zone .. .................................................................................................................... 27 5.2 Bangladesh–PRC–India–Myanmar Economic Corridor ................................ 27 5.3 MIEC–SKRL Interlink ................................................................................... 27 6. Major National Connectivity Projects in India ........................................................... 28 6.1 National Highway Development Program Phase VI ..................................... 28 6.2 Chennai–Ennore Port Road Connectivity Project ......................................... 29 6.3 Delhi–Mumbai Industrial Corridor ................................................................. 30 6.4 Chennai–Bangalore Industrial Corridor ........................................................ 31 6.5 Bangalore–Mumbai Economic Corridor ........................................................ 32 6.6 East Coast Economic Corridor ..................................................................... 32 6.7 Amritsar–Delhi–Kolkata Industrial Corridor................................................... 32 6.8 Dedicated Freight Corridors ......................................................................... 32 6.9 High Speed Rail Corridor ............................................................................. 33 6.10 Road Networks in Northeast India ................................................................ 33 7. Policy Recommendations ........................................................................................ 34 7.1 Financing Infrastructure ............................................................................... 34 7.2 Strengthening Institutional Arrangements .................................................... 35 7.3 Completion of Major Cross-border Corridors ................................................ 35 7.4 Extension of the Trilateral Highway .............................................................. 35 7.5 Establishing a Link between SKRL and MIEC .............................................. 36 7.6 Accepting Transit and Paperless Trade ....................................................... 36 7.7 Setting up Single Window ............................................................................ 37 7.8 Implementing the ASEAN–India Regional Trade Facilitation Program ......... 37 ADBI Working Paper 507 De 7.9 Development of Port Infrastructure and Shipping Networks ......................... 38 7.10 Setting up an ASEAN–India Economic Zone ................................................ 38 7.11 Building a Stronger Coordination Mechanism .............................................. 39 8. Concluding Remarks ............................................................................................... 39 References ......................................................................................................................... 41 Appendix ............................................................................................................................. 42 ADBI Working Paper 507 De 1. INTRODUCTION Connectivity is the key building block of convergence and cohesion in any regional integration initiative. Development of connectivity, especially of transportation linkages, energy pipelines, and information and communication technology (ICT) across any region, contributes to regional integration by reducing transaction costs and facilitating intraregional trade and investment. Cooperation on connectivity may lead to a reduction in trade costs and result in welfare gains well in excess of the gains from mere tariff liberalization. The potential benefits