The 47th Association of Southeast Asian Nations (Asean) summit is underway in Kuala Lumpur, Malaysia, and it offers India a chance to undertake discussion on the review of the free trade pact with the bloc, which hasn’t worked in the country’s favour so far.
The Asean summit includes a wide array of high-level meetings, with Asean Plus One summits that will include key dialogue with partners like the US, China, and India. Prime Minister Narendra Modi will attend the summit virtually, while external affairs minister S. Jaishankar will represent India in person.
Against the backdrop of the US’ rapidly changing trade policies and demand for concessions in the ongoing trade deal, it has become necessary for India to diversify its export markets. Asean is one such market, but it will require more equitable adjustments in the ongoing free trade pact.
Varying benefits
Merchandise trade between India and Asean has more than doubled to $123.1 billion in 2024-25, from $56.2 billion in 2010-11, on the back of the Asean-India Trade in Goods Agreement (AITGA) that came into effect in 2010. The trade is largely concentrated in five nations—Singapore, Indonesia, Malaysia, Vietnam and Thailand—that accounted for 95% of India’s total Asean trade.
This rise in trade, however, has come mainly from Asean nations increasing their exports to India, while India’s exports to Asean nations have declined over the years.
During the signing of the pact, it was expected that India would benefit from the lower tariffs and other concessions. But that didn’t turn out to be the case. Between FY11 and FY24, India’s exports grew at a 3% compound annual growth rate (CAGR), while imports rose more than twice as fast, at 7.5% CAGR, expanding India’s trade deficit from $5 billion to $45.3 billion in FY25.
Trade dynamics
Asean is an important trade and strategic partner of India. Overall, some of the key products exported to Asean (the top five trading partners) in FY25 include petroleum products ($8 billion), electrical machinery ($4.6 billion), transport equipments ($3.5 billion), metals (ferrous and non-ferrous) ($2.1 billion), organic and inorganic chemicals ($1.6 billion) and gems and jewellery ($1.3 billion).
However, experts point out that they have faced multiple non-tariff barriers to enter the Asean markets. “India’s manufacturing and agricultural sectors have been unable to cope with the product/process standards that are increasingly being used by the Asean members to ensure product quality.” said Biswajit Dhar, trade economist and former professor at Jawaharlal Nehru University.
Top imported items include coal, vegetable oils, electronic components and computer hardware, many of which make India import-dependent for both domestic use (vegetable oil, coal) and exports (electronic components and computer hardware).
Since India depends on these imports to meet its crucial requirement, cutting down on shipments from Asean nations may not be possible. The other way is to increase exports to these nations.
Import check
An analysis of official trade data bears out India’s import dependence. Over 50% of India's imports from Asean comprise vegetable oil, coal and other raw materials. For instance, in FY25, 37.2% of India’s imports from Indonesia were coal and its forms (such as coke and briquettes). Indonesia accounted for nearly 30% of India’s imported coal last fiscal, though its share has fallen in the last three years from a high of 50.3% in FY23.
Similarly, over a fourth of India’s inbound shipments from Malaysia was vegetable oil, a major ingredient in fast-moving consumer goods (FMCG). Four Asean nations—Indonesia, Malaysia, Thailand Singapore—account for 47.4% of India’s vegetable oil needs, underscoring concentrated imports.
India keeps hiking duties on edible/vegetable oils but it has not curbed imports due to the heavy reliance on Asean nations. Vietnam, with strong electronics manufacturing capabilities, is India's key source for telecom instruments. Thailand accounts for 55.8% of India’s base metal imports and is a big exporter in the jewellery industry to India.
Dragon’s influence
Paving the way for Indian exporters in a more substantial way will not be easy due to China’s heavy presence in the region. When the US tariff hit, China banked on Asean nations to keep its exports from declining sharply. Between April and September, China’s exports to Asean averaged $57 trillion—up 17.3% year-on-year, even as shipments to the US fell 25.5% on-year to $34 trillion average per month.
Over the years, China has steadily deepened its economic and political influence in Southeast Asia through policies like the Belt and Road Initiative (BRI). India has even raised the issue of Asean nations becoming a dumping ground of cheap Chinese raw materials and intermediaries products, which then make a way to India easily due to the trade pact.
Asean nations do tend to tilt towards China. A recent survey by Singapore’s ISEAS–Yusof Ishak Institute found that many Southeast Asian opinion leaders would align more closely with Beijing than Washington. While dragon offers a lesson in export diversification, charting a way to Asean will require competing with China.
Tariff asymmetry
The main reason India has not benefited from the trade pact is the unsuccessful experiment. Under the AITGA, India offered elimination of tariffs for 74.2% of tariff lines (list of products), while a reduction in tariffs was agreed for an additional 14.2% of tariff lines.
On the other hand, India had to contend with varying offers, with Indonesia being the least liberal, offering elimination on only 50.1%, Vietnam 69.7%, and Thailand 75.6%, according to an analysis by Global Trade Research Initiative (GTRI) in January 2024. It highlighted that India’s import liberalisation was broad, but reciprocal gains were uneven.
Moreover, key countries such as Singapore, Malaysia already were allowing a substantial part of their global imports under low-to-zero most-favored nation (MFN) duty. This is a tariff rate that a country applies to all its trading partners equally.
This meant that India gained little competitive benefit due to the FTA as “most imports happen at zero or low MFN duties”. The US policies and the need for export diversification now need more than ever to revisit the trade deal with Asean.
“Products, both manufacturing and agricultural sectors, that have the potential to propel India’s exports to the Asean region need to be identified through government-industry partnerships,” Dhar said.