Business Relations between India and Thailand

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In the era of Globalization when economics is the primary deciding factor on the basis of which the status and power equation in Global politics is decided of any country, it is but inevitable that the success of bilateral terms between countries would also be gauged by the quantum of trade they engage in. The Indo- Thai relationship is no exception to this fact.

India adopted the liberalization model of trade from the 1990s. Thai business from day 1 has turned out to be a cooperative partner to this effect. India and Thailand, located in each other’s extended neighborhood, share a maritime boundary in the Andaman Sea at the Bay of Bengal.

India and Thailand have been culturally linked for centuries and India has had a deep influence on Thai culture. Even economically, Indo-Thai relations have hit an upward curve. Recent legal and economic developments have increased the appeal of Thailand as an investment jurisdiction for Indian companies. Trade relations between India and Thailand, the second-largest economy in the Southeast Asian economic group, in ASEAN, has grown by leaps in recent times.

Thailand’s exports to India was US$7.06 Billion during 2019, according to the United Nations COMTRADE database on international trade, whereas, India’s exports to Thailand market economy was US$4.36 Billion during 2019. The balance of trade is positively tilted towards Thailand by nearly 40% as it is a manufacturing base of various products, and technologically, and logistically much better placed than India.

Indo-Thai Trade Over the Years

  1. Thailand owes its close trade and diplomatic ties with India to historic, cultural and social reasons. The primary religion in Thailand, Buddhism as well as the script used for its language, has Indian roots. In addition to fostering strong economic, commercial and cultural links, are also regular, people to people contact and also-complementary economic ideology – India’s Government over years has had various diplomatic policies directed at the region- “Look East” and “Act East” policy and Thailand its own “Look West”, “Act West” philosophy.
  2. In ASEAN, Thailand ranks as India’s fifth-largest trading partner after Singapore, Vietnam, Indonesia and Malaysia. Fourth-place Malaysia’s bilateral trade with India stands at USD 15 billion in 2018 and is expected to be a touch lower in 2019. India’s trade with Thailand is expected to overtake Malaysia in the next two to three years if it continues at the current growth trajectory.
  3. Foreign direct investments (FDI) from Thailand board of investment into India has also grown significantly from just USD 11.55 million in 2012 to USD 92.22 million in 2018 (CAGR 34.6 per cent), and with about USD 90 million already committed in the first six months of this year, this is expected to continue to grow strongly. These investments have been mostly in infrastructure, real estate, food processing, chemicals and hospitality. However, FDI from Thailand to India has been on a steady decline over the years. It was USD 63.45 million in 2014 and USD 13.34 million in 2018.
  4. What is going to boost investment and business opportunities in the coming years is the ASEAN Economic Community (AEC) blueprint 2025. The ultimate aim of the AEC blueprint is to achieve the ASEAN common market with intermediate steps taken to gradually bring greater integration among member countries.The benefits of this blueprint to countries doing business with ASEAN will be in the form of seamless movement of goods, tariff rationalization and a more open and predictable investment regime in all ASEAN countries. This makes it possible for Indian companies to access the USD 2.8 trillion ASEAN markets through Thailand. An ASEAN common market has huge potential for anyone trading with it. Economists predict it to become the fourth-largest economy in the world by 2030 surpassed only by the US, China and the EU.
  5. It is with this in mind that an MOU between the Indian port of Krishnapatnam located in Nellore District of Andhra Pradesh and Ranong Port in the South Western part of Thailand was signed in recent times. Under the MOU, a new maritime route will be promoted in the Andaman Sea which will reduce travel time between India and Thailand from 10-15 days to seven. Currently, cargo from Krishnapatnam Port has to travel to Laem Chabang Port in Chon Burior Bangkok Port in Bangkok via Malaysia.The development of Ranong Port is part of the Thai government’s Southern Economic Corridor (SEC) infrastructure development plan where about USD 3.5 billion will be spent over 4 years.
  6. Major exports from Thailand to India include exports of machinery, nuclear reactors, boilers which was worth US$1.23 Billion during 2019. This is closely followed by Plastics worth $837.36 million, electrical, electronic equipment worth $783.03 million, Pearls and precious stones worth $628.09 million. Other exports include organic chemicals, vehicles, rubber, copper, articles of Iron and Steel, and clocks and watches.
  7. Imports from India include pearls, precious stones and metals worth $918.98 million, followed by machinery, nuclear reactors, and boilers worth $ 688.82 million. Among others crude oil, chemicals, machinery, coffee, tea , spices, iron and steel products, fish, and pharmaceutical goods.
  8. Indian managed Thai business: Thailand’s legal system allows foreigners to set-up a limited company, taking into consideration the country’s foreigner legislation. Depending on the type and scope of business activities, such a venture needs a business license. Manufacturing in Thailand opens the doors to a customs-free distribution within the whole ASEAN region under the protection of the ASEAN Economic Community which had been implemented in 2015. Also, under the ASEAN-China Free Trade Agreement, it is possible to source semi-finished products and raw materials customs-free as well. Traditional target industries for Indian investments in Thailand are auto parts, agro and food processing, IT and software, textile and pharmaceutical.
  9. Thailand Board of Investment: Thailand offers a generous investment promotion for Indian investments. With effect from January 1, 2015, Thailand re-invented its investment promotion legislation as a substantial part of its overall national industrial policy, political control and economic governance.
  10. Acquisition of Thai companies: In Thailand, there are several production facilities which base on German and European technology and product engineering and might be a rewarding target for Indian company buyers. They could even consider moving the trademarks, technologies and production facilities to India.
  11. Property investments in Thailand: The land of smile is a preferred investment market for real estate. Although there are some limitations for foreign buyers, the acquisition can be structured in a way to circumvent the restriction to assure a sustainable investment.
  12. Energy and infrastructure: Compared with other Southeast Asian countries, Thailand has the highest electricity demand, with plans for increased imports from neighboring countries. Investment in renewable energy is one of the country’s priorities, given its goal to reduce its energy imports. This invites Indian alternative energy companies to invest in Thailand’s energy sector for a handsome reward. The India-Thailand Asian superhighway is part of AH 1 (Asian Highway No. 1) and runs from Moreh in India to Thailand’s Maesot via Myanmar’s Tamu, Mandalay, and Myawaddy.
  13. Blockchain and digital assets: While India bans nearly all types of blockchain ventures, cryptocurrency and digital asset businesses, Indian Bitcoin entrepreneurs, Blockchain engineers, and the whole digital asset industry needs a new playground and crypto-friendly environment. Thailand is under various aspects of perfect safe haven jurisdiction.

Thailand & India Trade in light of Covid 19

UNCTAD estimates that the COVID-19 pandemic will lead to a drastic contraction in FDI globally by almost 40 percent in 2020. Post 2005, the pandemic will cause global FDI to fall under the $1 trillion mark for the first time. Projections indicate that FDI in developing Asia will decrease up to 45 percent.

Both Thailand and India have been touted as beneficiaries of the protracted trade war between the US and China. With no sign of this abating any time soon, many businesses are planning to or are already in the process of re-siting their manufacturing facilities to other locations including India, Thailand and Vietnam (which is an ASEAN country).

As this happens, the movement of goods will increase between ASEAN and India and port pairs like Krishnapatnam and Ranong will almost certainly become busier. China’s manufacturing accounts for 12 percent of the world’s GDP growth. The strained economic diplomacy due to the allegations against China over its handling of the COVID-19 crisis, and counter arguments of China refuting the same have divided the globe on economic and trade lines, resultantly also having caused foreign investors to consider shifting their manufacturing activities from China to other South and Southeast Asian countries.

However, India though is promoting its ‘Make In India’ campaign with all fervor, it is unable to generate much interest amongst the investors Rather Thailand has been quite successful in projecting itself as a suitable replacement for the coveted post of becoming the globe’s manufacturing hub.

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