With the India-ASEAN FTA concluded, one may argue that India has achieved the first milestone of its Look East Policy in its attempt to match China's well-established economic dominance in ASEAN. The FTA in place, it would seem that India is poised to capitalize on the benefits associated with greater economic integration and potentially counter Chinese economic hegemony in the region. A comparison of India and China's economic competitiveness in ASEAN is apt at this juncture in order to gain a critical insight into the opportunities and challenges that exist for India.

As it stands, India's external sector is far weaker than China's especially in terms of exports, FDI and foreign exchange reserves. Thus, India's economic integration with ASEAN has begun with a lagging competitiveness in the external sector. For India, the FTA is the first such trade agreement with ASEAN while China has been far more prolific in formulating trade and economic partnership agreements with ASEAN. This has ensured that China has greatly consolidated its competitive position in ASEAN, creating a disadvantaged starting position for India.

China's total trade with ASEAN stands at a whopping US$160 billion compared to only US$30 billion for India, proof of China's lead in developing extensive trade relations with the region. While machinery, mechanical appliances, oils and rubber products account for more than 25 per cent of ASEAN's exports to both China and India, its trends in imports from the two countries are strikingly disparate. About 30 per cent of ASEAN's imports from China consist of manufactured parts of equipment and machinery along with iron, steel and processed chemicals. On the other hand, its imports from India based on manufactured products are almost negligible with the greater share consisting of primary commodities and jewels and gems.

The majority of ASEAN's exports, consisting of manufactured products, arise from countries individually adding value at various stages of the assembly process. This has given rise to a sort of factory-line model of trade integration. With Chinese exports also largely consisting of manufactured products, both China and ASEAN have been able to gain tremendously from a complementary trade orientation, a fact that has ensured strong economic and trade consolidation between the two. Indian exports largely consist of primary goods with a further specialization in the services sector. In this regard, India is inadequately poised to take advantage of the existing trade framework as it exists in ASEAN. A FTA in goods as it presently stands, thus, does not significantly bolster India's trade potential in ASEAN vis-a-vis China.

Nonetheless, the two major trading countries in ASEAN, Singapore and Malaysia, account for more than 60 percent of the bloc's imports. Their economies are the largest in ASEAN and are largely oriented towards trade in value-added products. India, having established its prowess in IT services, pharmaceuticals and technology, stands to gain tremendously through trade with an ASEAN characterized by heterogeneity in its economic and trade structures. In this regard, it can hope to leverage on the favourable trade orientation of the two chief players within the regional block.

In the area of FDI, ASEAN is more closely linked with China with the net FDI inflow being more than three times that from India. Further, while India continues to receive increasing FDI inflows from developed countries, the share from ASEAN countries is still very low. India needs to further open up its economy in order to attract greater FDI from ASEAN countries, a presently untapped economic resource. A clearer FDI policy will allow greater financial linkages between India and ASEAN and will foster deeper economic integration through transfer of technology and expertise. As compared to China, India has an advantage in terms of a more market-oriented economy, robust regulatory structures, and thorough statistical systems. In the long run, it thus stands to gain tremendously from such favourable attributes provided it consciously pursues reforms in its FDI policy.

Potentially, India stands to gain tremendously through greater economic integration with ASEAN provided cooperation goes beyond free trade of goods and commodities. Tremendous opportunities exist in areas of media and entertainment, tourism and technology services. With Indian manpower being technically and professionally competitive, India possesses a distinct leverage over China's largely labour- and manufacture-oriented human resource. However, its prospects of competing in industrial and manufactured goods stand greatly diminished in light of China's towering prowess in the same.

India's competitiveness in ASEAN appears more encouraging in the long term than in the short term characterized by the advent of the India-ASEAN FTA in goods. The immediate competitive advantages seem limited for India as long as cooperation remains in the sphere of goods. India's success rests primarily on the services sector and it should thus lay priority in formulating a further FTA in services if it intends to obtain any significant economic gains from integration and cooperation with ASEAN.