An analytical study of trade deficits in India Thailand Trading by Dr. Aasim Hussain

1. SIT Journal of Management
ISSN: 3478-9123
India- Thailand Trade Relations:AnAssessment
Asim Husain, M. Afaq Khan
Abstract
India’s economic relations with Thailand are set to undergo major changes as the Indo Thai FTA has
come into force since 9 October 2003.As such this paper aims to describe the trade relation between
India and Thailand and to study the changes outcome after the signing of FTA. Thailand is a major
developing exporting country fromAsia .on theotherhand,India isconsolidating its position with strong
domestic and external demand The developing countries studied are making efforts to develop their
exports through different paths with direct and indirect influence of government through innovative
policies and trade liberalization programme.Thailand hasaimed to plug the gaps in the exports through
a focused investment promotion scheme. India is also making an effort to develop indigenous strategy
through giving focus in R&D and tightening the IPR regime. The study India Thailand trade assessment
related to export import scenario with respect to Free Trade Agreement focusing on overall trade
performanceof thesetwo countries .Also very less past research has tried to bring out these dimensions
insights into FTAs effect on overall trade volume performance. The paper is based on the review of the
existing literature on India Thailand Free trade agreement focusing on Indian Thailand overall trade
volume.FTA between Thailand and India has resulted in lowering of tariff of the specific components
mentioned in Early Harvest Scheme but whether it has really promoted overall trade between the two
countriesremainsa causeof concern. Which country has better trade effects? The study is based on the
secondary data and hence may not cover the latest trend of the industry.
Introduction:
India and Thailand share age-old bonds of cultural affinity, commercial interests and common
perceptionsonvariousissues.These geographicallyproximate neighborsneedtotake advantagesof the
conducive setting or the context that is provided by the history and geography between them for
mutually beneficial economic cooperation. Whether it is the economics of neighborhood or the
importance of cooperationinthe competitive global environmentthe economiclogicsuggeststhat both
the countries must strengthen their economic ties in the realms of trade, investment, technology and
humanresources.The complementaritiesondifferentdimensions need to be exploited so as to jointly
take advantage of the globalizationprocessinamore effective andWTO-consistentmanner.Inaneffort
to promote trade and investmentcooperationbetweenthe twocountries,aJointWorking Group (JWG)
was set up at the behest of the Prime Ministers of both the countries for getting a Feasibility Study
conductedonIndia-ThailandFTA.The FirstJWGMeetingwasheldinNew Delhi,India during April 2002.
At this meeting, the JWG adopted its Terms of Reference and finalized the broad structure of the
feasibilitystudy.The meetingalso agreed on a work program. The present study is the outcome of this
processEconomicrelation betweenThailandandIndia received another push when India and Thailand

2. signed a Comprehensive Economic Cooperation Agreement to enhance trade and investment ties
betweenthem.Asperagreement,the tariff concessions on 84 items of EHS (Early Harvest scheme) list
began from 1.9.2004 and have become zero for both sides from 1.9.2006. , it was expected to increase
the trade between the two countries. Thailand is India’s second largest source of foreign direct
investment, 3rd largest consumer of its merchandise exports and its largest trading partner among
ASEAN states.ForThailand,Indiaisone of itsfastestgrowingtradingpartners among major economies.
India and Thailand comprise a free trade agreement on trade of goods and services, a bilateral
agreement on investment promotion, protection and cooperation and an improved double taxation
avoidance agreement.ItalsoincludesMutual RecognitionAgreements on quality certification of goods
and services,liberalized visa rules for professionals, and undertakings to cooperate on several sectors
like customs,dispute settlement, intellectual property rights, education and e-commerce. CECA were
the first of its kind of trade agreement signed by India and has ushered in a new model for our future
bilateral and regional economic alliances.
Thoughit wasseenthat the previouslevel of India Thailand trade was low, it was increasing over time.
India’s total trade with Thailand has increased after the framework agreement for a free trade
agreement between the two countries was signed. Imports from Thailand have been increasing at a
faster rate than the increase in exports. India has enjoyed a trade surplus since 2002 - 03 to 2004 - 05
after which imports have been more predominant. Thailand’s import demands are high and India has
great capacityto meetexportsupplyforalarge numberof commodities of Thailand’s import demands.
Thailand’s Ratio of exports to GDP is 58.8 and Ratio of imports to GDP is 61.( 5ASEAN statistics as of 30
April 2008) Thailandalsoexperiencedthe severe financial crisisinlate nineties.Itseconomic growth fell
in negative to (-) 10.5% in 1998 from (-) 1.4% in 1997; the economic growth recovered to 4.4% in 1999
and 4.6% in 2000. (6ASEAN Statistical Yearbook, 2003; Table IV.2., pp 32.) Currently, India and Thailand
do Bilateral trade impressively in 2011 it was $8.19 billion, Indian government data shows, Thailand
Prime MinisterYingluck ShinawatrasaidIndia-Thailand trade had seen a quantum jump from $1 billion
to $7 billion in the last ten years, helped by „Early Harvest' pact, limited to 82 items. Thailand Prime
Minister Yingluck Shinawatra said that India and Thailand would work to double the bilateral trade to
around $14 billion by 2014 (the Hindu economics times 25,26 jan 2012). From Thailand’s side, the FTA
was advantageous such as providing a good destination for Thailand investors (India being one of the
fastest growing economies worldwide), opening up one of the world’s largest markets to its
manufacturers, and also to fill the chronic shortage of workers in the city-nation through India’s large
base of cost effective andskilledworkers(inITandotherprofessions).Somesectorsset to benefit from
FTA, management consulting, IT-related fields, education and financial services including banks and
asset management firms. , we are expected to gain considerably in the long term due to inclusion of
services into the FTA and investment commitments from Thailand. This paper examines the trade
relations between India and Thailand, focusing on cooperation in the areas of export and import
betweenthe twocountries. , Further, the paper also examines how much trade is increasing after this
FTA betweenIndiaandThailand.Whatneedstobe done more to strengthenthe trade relationbetween
India and Thailand?

3. Literature review:
Free trade generatesimmense competitivechallengesformostdevelopingcountries(Dhar,2008). Since
the mid-1990s, many studies have estimated the impacts of Free trade on economic growth,
employment,poverty,incomedistributionandthe survival of local firms. Nonetheless, the real impact
of Free trade on the global economy remains a much debated and controversial subject (Tambunan,
2011) .According to Falvey & Kim (1992) at an aggregate level, the broad benefits that are generated
from international Free trade reform include the following:
a) Improved resource allocation
b) Access to new and better technologies
c) Inputs and intermediate goods
d) Economies of scale and scope
e) Greater domestic competition
f) The availability of favorable growth externalities, such as the transfer of know-how.
According to Greenaway (1998), Free trade is the removal of tariff, or any other intervention which
restoresthe free trade setof relative prices,changesingovernmentpolicywhichreduceanti-exportbias
and move the relative prices of tradable towards neutrality; the substitution of more efficient for less
efficient forms of intervention. India represents compelling macroeconomic story, with potential to
sustain high economic growth rates. Some analysts are perhaps over-optimistic in projecting the
emergence of Indiaasthe thirdlargesteconomyin2003 dollarsbythe year2050, onlybehindChinaand
the US (Morgan Stanley,2003;Wilsonand Purushothaman, 2003).India’s domestic-led development is
consideredtobe sustainable,spawning several globally competitive firms (Khanna and Huang, 2003). A
consequence of India’sliberalizationandrapidgrowth is the growing involvement of Indian companies
abroad (Goswami, 2003; Merchant, 2004; Ramakrishnan, 2004). India’s GDP has been increasing over
the last fewdecades.It has recorded an annual average growth rate of above 5 percent approximately
duringthe lastdecade. However, its Gross National Income per capita which stood at around US Dollar
450 in year 2000 is considerably lower than Thailand’s Gross National Income per capita which was US
Dollar2000 inthe same year(WorldBank,2002).This has expanded India’s capacity to pursue its “Look
East” Policy initiated in the early 1990s with vigor (Sridharan, 1996).
A frameworkagreementforthe creationof a free trade area (FTA) with Thailand was signed in October
2003. Under this agreement, 84 items can be imported from Thailand from April 2004 at 50 % of the
normal rate of duty prevailinginIndia. Indiahasbeenengagedinnegotiationstoforma Comprehensive
EconomicCooperationAgreement(CECA)withSingapore.Sub-regional cooperation betweenIndia and
some of the ASEAN memberssuchasVietnam, Thailand,Myanmar,and Laos has alsoaccelerated(Gaur,
2003; Suryanarayana,2003).Indiais alsoan active participantinThailand’sinitiative, Asian Cooperation
Dialogue (ACD), which has representation from all parts of Asia. India has contributed US$ 1 billion to
another initiative by Thailand on the Asian Bond Fund (ABF) (Rajan, 2004)

4. Objectives
 To examine the trade relations between India and Thailand.
 To examine how much trade is increasing after FTA between India and Thailand.
 To identify the effects on India’s other trading partners outside the FTA.
India-Thailand Trade Relation:
An Overviewbefore and after Free Trade Agreement(FTA) Indiahas trade relation with Thailand since
independence.Thailandisanimportanttradingpartnerof India.Thailandranked20th intermsof India’s
exports(during2000) while itsrankwas24th in termsof India’s import basket. The amount of India’s
total exportstoThailand,in1999, amountedtoUS $547 millionwhile the correspondingvalue of India’s
importsfromThailandwasUS$ 622 million.India’strade (around1 per cent) with Thailand accounts for
a modest proportion of India’s total global trade and the same is true from Thailand’s point of view as
well. India’s exports to Thailand (as a proportion of India’s total global exports) have
Table 1: India’s Export and Import with Thailand 1980-2000 (In million US $)
Decreased between the periods 1995-1998 but have increasing trend afterwards. But India’s imports
fromThailand(asa proportionof India’stotal imports) have consistentlyincreasedduring1990s (except
during1994). The level of India’s exports to Thailand was higher than the level of India’s imports from
Thailand till 1998. It shows that India always had significant trade surplus with Thailand, but in 1999
equationwasreversed.Intermsof Thailand’s global exports (and global imports) by countries, India’s
share more or less has increased during the 1990s although India is not an important market for
Thailand, the latter integration with India has been increasing overtime. India has been one of the

5. importantmarketsforThailand’sforeigndirectoutflowtill 1997. Thailand has made total foreign direct
investment (approved) of Rs.24591.96 million in India.

6. Trade Over view After Free Trade Agreement It was disclosed that India was Thailand’s 17th largest
tradingpartnerand the 11th largestexportdestinationin2010. In additionlastyear,India’sDepartment
of Commerce listedThailandasthe 28th largest tradingpartnerof India, with trade valued at 6.7 billion
US dollars.
Fig. 3 reflect that the average rate of growth of export to Thailand from period 2006-07 to 2010- 2011
had 20.64 percent while the average rate of growth of import to Thailand had25.82 percent over the
same period. The average growth of total trade with Thailand had 23.38 percent which shows the
increasing trend. Export - Import Analysis India is one of Thailand’s fastest growing trade partners
amongmajor economies.Withthe initiation of FTA, there has been a significant growth in trade flows
betweenthe twocountries. IndiawasThailand’s17thlargesttradingpartnerandthe 11th largestexport
destination in 2010. Since the Thailand-India Free Trade Agreement Framework was concluded in
October2004, bilateral trade betweenthemhastripled.However,The amountof India’stotal exportsto
Thailand,in2004 — 05, amountedtoUS $ 0.90 billionwhilethe corresponding value of India’s imports
from Thailand was US .$ 0.87 billion. By 2008 — 09, the exports have crossed over US $ 1.9 billion and
imports over US $ 2.7 billion. Following Tables and Chart show the recent trend in Indo — Thailand

7. trade. Thus, an overall trend in the growth of exports and imports between India and Thailand shows
that the growthin bothexportsandimportshasbeenat fasterrate afterthe frameworkagreement was
signed between the two nations.
Thoughit isseenthat the presentlevel of India — Thailandtrade islow,itis increasingovertime.India’s
total trade with Thailand has increased especially since 2003 — 04 during which the framework
agreement for a free trade agreement between the two countries was signed. Imports from Thailand
have beenincreasingata fasterrate than the increase inexports.Indiahasenjoyedatrade surplussince
2004— 05 afterwhichimportshave been more predominant. Thailand’s import demands are high and
Indiahas greatcapacity to meetexportsupplyfora large number of commodities of Thailand’s import

8. demands. Thailand’s Ratio of exports to GDP is 58.8 and Ratio of imports to GDP is 61.5. Thailand also
experiencedthe severe financialcrisisinlate nineties.Itseconomicgrowthfell innegative to(-) 10.5%in
1998 from (-) 1.4% in 1997; the economic growth recovered to 4.4% in 1999 and 4.6% in 2000.6. Fig. 4
showingthe India’sexportandimportwithThailand. During 2003-04 export increased from US $ 831.68
million to 2792.80 in 2010-11 .This was largely due to trade openness, reduction in tariff and more
openness to foreign investment and FTA agreement between the two countries. However, on the
import side, during 2003-04 the import increases from US $ 609.65 million to 4272.09 million I US $ n
2010-11.

9. Fig6 clearlyindicate thatinthe earlierperiodthe ratio between export and import is higher as the FTA
progressitbecome to 0.65 increasing.Thismaybe the reasonThailand investing more in India vis-a-vis
India importing more than the exports.
Fig. 7 explores the trade deficit between the two countries. Although, in 2004-05 export increased by
16.94 percent, but rise in import by 60.75 percent resulted in the trade surplus to be of the order of
222.03 US million $. This situation become fall down and India import much more than it exports to
Thailand shows the continue trade deficit.

10. The above table reflects that Thailand is Indi Major source of export and imports in ASEAN. India’s
exports to Thailand, however, appear to be entering a phase of moderate growth. During the period
2006-07 and 2007-08 the rate of growth of to Thailand increased by 25.27 percent while during the last
two years that is ,2008-09 and 2009-10 the annual rate of growth of Indian exports (in US$ value) to
Thailand showed a declining trend. From the high rate of growth Indian exports to Thailand shows a
decline trend and became 10.22 percent of negative growth rate in 2009-10. It is difficult to say at this
juncture whether the declining growth trend for Indian exports to Thailand will perpetuate in the
medium term. However, compared to the other ASEAN countries, Thailand is also a leading source of
India’simportfollowed closelyby Indonesiaand Singapore It is interesting to note that, while Thailand
isfaraheadof otherASEAN countriesasa marketfor India’sexports,assourcesforIndia’simports,ithas
close competition from within ASEAN. This is clearly reflected in India’s import data. India’s import to
Thailand was 31.65 percent in the year 2006-07 which decline to 17.51 percent in the year 2007-08 and
further recorded a declining growth rate to 8.42 percent. Recent Developments and Some Important
Issues in Reference to Thailand India and Thailand have already cut duties on 82 products, including
fruits, vegetables, wheat, diamonds and some metals, under a framework agreement that came into
operationinSeptember2004. Indiaand Thailandare aimingtoabolishdutieson goods traded between

11. the two countriesby2010. Thailand,which used to run a deficit in its trade with India, has registered a
US $ 140 milliontrade surplusin2005 — 06, evenbefore tariffs on 82 items covered under the scheme
were brought to zero. According to government sources, Thailand wants greater market access in
natural rubber,beingamajor exporterof the product.However,natural rubber is expected to be a part
of India’s negative list. In the negotiations of goods, India has agreed to eliminate tariff on more than
4000 products in a phased manner, while 500 others will be in the sensitive list, which will see partial
duty cuts, over a period of time. Nearly 500 other items in the negative list will not be subject to any
tariff cut, so as to protect the interests of the domestic industry.
Overall, the balance of trade has tilted in favor of Thailand with India’s exports growing at an average of
26% for the past three years since 2004 — 05 till 2007 — 08 and Indian imports growing at 38% during
this period. India needs to improve the quality of infrastructure facilities with a view to become more
competitive vis-a-vis imports from Thailand. High rates of taxes and duties, low labor. Productivity and
procedural complexities are impacting the competitiveness of Indian industries. Indian business can also
take the advantage of Thailand’s liberal attitude towards foreign investment as the Thai government
recognizes the important contribution of foreign investment to the domestic economy. Thailand has
sought more Indian investment in IT and pharmaceuticals — the two areas in which India has proven
expertise. India and Thailand have injected a new vigor into their bilateral trade in recent years, with
bilateral trade increasing six-fold over the past decade. The current bilateral trade figure of $7.5 billion is
itself set to double by 2015.
Conclusion:
This paper indicates that the pattern of trade between India and Thailand has shown sign of a
change after signing the FTA. At present, India’s imports from world are US$ 50434 million as
compared to Thailand’s imports of around US$ 56915 million .Both these countries have
captured a Small market of each other. There is lot of scope that exploring FTA will lead to
significant increase in bilateral trade between India and Thailand. It should be remembered that
the present level of India-Thailand trade is low, but is increasing overtime. This increase has
been noticed particularly in India’s imports from Thailand. Consequently, the trade gap, which
has traditionally been heavily in India’s favor, has reduced considerably. Thailand’s import
demands are quite high and India will be able to meet export supply for a large number of
commodities of Thailand’s import demands. The present level of Thailand’s imports from India
is small; hence India will be able to capture a large portion of Thailand’s market for these
commodities. Thailand is relatively a more open economy than India.
Although Thailand is an important trading partner of India, The amount of India’s total exports
to Thailand during 2000 was US$ 547 million, while the corresponding amount of India’s
imports from Thailand was US$ 622 million, resulting in a trade deficit of US$ 75 million.
In earlier years, India had had consistent trade surplus with Thailand. India’s imports from
Thailand have been shown more or less an increasing trend -both in terms of value as well as
percentage share (of its global imports). Almost similar trend has been noticed for India’s
exports to Thailand. The above analysis also indicates that since 2004-05, India has had a
negative trade balance with Thailand,. However, with export growth falling and import growth
rising, the trade balance is likely to become negative. A negative trade balance might have
implications for India’s overall trade balance and the current account of its balance of

12. payments. Further it is also clear from the above discussion that the changing pattern of trade
between India and Thailand might be result of the FTA. But it is too early to comment on FTA
lets time to grow it and will see the actual impact in the future. Therefore its clear from above
assessment Thailand became an ideal trading partner for India to liberalize its economy and
sought to integrate itself into the global economy. Conversely, Thailand recognized India’s
enormous economic potential and eagerly engaged with India.