Murthy IndiaSingaporeDynamic 2009

India and Singapore: Dynamic Economic Partners
Author(s): Gautam Murthy

Source: Indian Foreign Affairs Journal, Vol. 4, No. 2 (April-June, 2009), pp. 38-62
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Indian Foreign Affairs Journal Vol. 4, No. 2, April-June 2009, 38-62
India and Singapore: Dynamic Economic Partners
Gautam Murthy
Introduction
The city-state of Singapore is located strategically at an intersection of

international commerce and in the geo-strategic vicinity of India and China.
It commands attention on the international stage as a dynamic economy.
Michael Leifer describes it as an "exceptional state".
India's links with Southeast Asia go back to centuries. India has left the
imprint of its great civilisation all over the region - in religion, culture, arts
and literature. However, during the first four decades after independence,
India turned inward. Its priority being self-sufficiency rather than
interdependence, these historical links weakened. But India is once again
opening up and rediscovering the region with new-found confidence. India's
trade with Southeast Asia has multiplied by six times in the last ten years.
India's "Look-East" policy and economic liberalisation efforts coincided with
Singapore's régionalisation strategy of investing in emerging economies,
providing a common ground for cooperation.
Many high-level visits have been exchanged between the two countries.
Singapore also played a leading role in India, becoming a member of the
ARF (ASEAN Regional Forum) and the ASEAN+1 Summit. Among the
ASEAN states, Singapore has gone the farthest to improve both bilateral
and associational ties. India's Prime Minister P.V Narasimha Rao, in his
path-breaking Singapore lecture of September 1994, which set in motion
India's "Look-East" policy, had said:
. . . Asia-Pacific could be the springboard for our leap into the global
marketplace. I am happy to have had this opportunity to enunciate
my belief in this vision of a new relationship between India and
Asia-Pacific from Singapore, which I consider the geographic and
symbolic centre of Asia-Pacific.
The author is Associate Professor of Economics, Centre for Indian Ocean Studies, Osmania
University, Hyderabad.
India and Singapore : Dynamic Economic Partners 39
Since then, Singapore has been the key country for India's engagement
with Southeast Asia. It was the country coordinator for ASEAN-India
Dialogue. Singapore's exertions on behalf of India are openly acknowledged
by the Indian policymaking community. During his visit to Singapore in
August 2003, India's Minister of External Affairs noted: "... in the
development of our ties with ASEAN, few countries have been as creative
and proactive as Singapore. We are grateful to our many friends here, in
particular Prime Minister Goh Chok Tong, for his vision and leadership in
bringing India and ASEAN closer."
This has been made possible by virtue of the strong bilateral relationship
that India and Singapore have built over the years. Prime Minister Lee Hsien
Loong, in a speech in New Delhi in July 2005, noted:
. . . India's influence is being felt all over Southeast Asia. In Singapore

alone, there are more than 1500 Indian companies. Many are regional
headquarters, some even overseeing operations in the Indian market.
Thousands of Indian professionals work in Singapore in IT, financial
services and other fields. Bollywood movies enjoy a strong following
... the stage has been set for a burgeoning bilateral relationship
between Singapore and India, and wider and deeper cooperation
between India and Southeast Asia. With greater collaboration and
integration between the people of both sides, and continued reforms
by those in government, we can look forward to a vibrant and
dynamic future for Asia.
The increasingly close relations between India and Singapore in recent

years have been underpinned by a dramatic growth in bilateral trade and
investment links. Singapore's economy complements that of India and does
not threaten India's sensitive sectors. The recently concluded Comprehensive
Economic Cooperation Agreement (CECA) between the two countries creates
a conducive environment for a strong bilateral relationship and wider
cooperation.
With an investment of US$ 1.29 billion, Singapore has emerged as the

third-largest foreign investor in India. Most of these investments are
channelled through three major agencies - Government of Singapore
Investment Corporation (SGIC), Monetary Authority of Singapore, and
Temasak Holdings. Many Indian companies, mainly in trading and software,
have set up joint ventures and subsidiaries in Singapore. Indian tourists
40 Gautam Murthy
have become the highest spenders among the tourists to Singapore.

Incremental interactions have taken place across a wide spectrum, ranging
from defence production, education and culture. Singapore is also keen that
India plays an appropriately creative role in maintaining security along the
Straits of Malacca.
Economic Boosters
A former colonial trading port serving the regional economies of maritime

Southeast Asia, Singapore aspired to be a "global city" serving the world
markets and major multinational corporations. A quarter century after
independence in 1965, the city-state had become a manufacturing centre
with one of the highest incomes in the region. As one of Asia's four "little
dragons" or newly industrialising economies, Singapore along with the
Republic of Korea (South Korea), Taiwan, and Hong Kong was marked by
an export-oriented economy, relatively equitable income distribution, trade
surpluses with the United States and other developed countries, and a
common heritage of Chinese civilisation and Confucian values. Singapore
had no resources other than its strategic location, and the skills of its
approximately 2.7 million people. Working within these limitations, Singapore
claimed a set of economic superlatives in the 1980s, such as: the world's
busiest port; the world's highest rate of annual economic growth (11 per
cent); and the world's highest savings rate (42 per cent of income).
Ever since its founding in 1819, Singapore has lived by international

trade and operated as a free port with free markets. Its small population
and dependence on international markets meant that its regional and world
markets were larger than domestic markets, which presented both business
managers and government policymakers with distinctive economic challenges
and opportunities. The value of Singapore's international trade was more
than three times its gross domestic product (GDP). With this underpinning
factor, Singapore's year-to-year economic performance fluctuated
unpredictably with the cycles of world markets. Its dependence on, and
vulnerability to international markets shaped the economic strategies of
Singapore's leaders.
Singapore's economy rests on five major sectors: (i) regional entrepot

trade; (ii) export-oriented manufacturing; (iii) petroleum refining and shipping;
(iv) production of goods and services for the domestic economy; and
(v) provision of specialised services for the international market, such as

banking and finance, telecommunications, and tourism. The spectacular
growth of manufacturing in the 1970s and '80s had a major impact on the
economy and society, but tended to obscure what carried over from the
economic structure of the past: international trade and sale of services. As
an entrepot , Singapore was essentially a provider of services such as
wholesaling, warehousing, sorting and processing, credit, currency
exchange, risk management, ship repair and provisioning, business
information, and the adjudication of commercial disputes. The 1980s
assembly of electronic components and manufacture of precision optical
instruments were evolutionary steps from the nineteenth-century sorting
and grading of pepper and rubber. But in essence, the transformation depended
on the skills of Singaporeans to add value to commodities produced and
consumed elsewhere.
The dependence on external markets and suppliers pushed Singapore

towards economic openness, free trade, and free markets. In the 1980s,
Singapore was a free port with only a few revenue tariffs and a small set of
protective tariffs scheduled for abolition in the 1990s. It had no foreign
exchange controls or domestic price controls. There were no controls on
private enterprise or investment, nor any limitations on profit remittance or
repatriation of capital. Foreign corporations were welcome, foreign
investment was solicited, and 70 per cent of the investment in manufacturing
was foreign. The government provided foreign and domestic enterprises
with high-quality infrastructure, efficient and graft-free administration, and
a sympathetic concern for the problems of businesses. Consequently, the
economy was characterised by adherence to free trade and free markets in
paradoxical combination with a dominant government role in macroeconomic
management and government control of major factors of production such
as land, labour, and capital. The extraordinarily high domestic savings rate
provided reserves to weather such economic storms as trade recessions,
and generated a pool of domestically controlled capital that could be invested
to serve Singapore's long-term interests rather than those of foreign
corporations.
Singapore ensured a high savings rate with carefully formulated

programmes, including a compulsory contribution of up to 25 per cent of
all salaries to a government-controlled pension fund. The government held
about 75 per cent of the country's land, was the largest single employer,
42 Gautam Murthy
controlled the level of wages, and housed about 88 per cent of the population
in largely self-owned apartments. It also operated a set of wholly government-
owned enterprises and held stock in additional domestic and foreign firms.
Government leaders continually stressed the need for the citizens to master
high levels of skills and to subordinate their personal wishes for the good of
Singapore Inc.
With a limited domestic market and almost no natural resources,
Singapore was forced to integrate into the global economy early in its
development. When Singapore separated from Malaysia, it lost its hinterland.
It had no choice but to swiftly shift to an export-driven industrialisation
policy, slashing trade barriers and actively seeking foreign investment. This
change in orientation brought Singapore an average growth rate of 10 per
cent from 1965 to 1979. In 1965, when Singapore became independent, its
total trade amounted to SG$ 6.8 billion. Today, Singapore is the fifteenth-
largest trading nation in the world, with its total merchandise trade in 2004
amounting to SG$ 580 billion, three times Singapore's GDP. Singapore's
scintillating economic development owes much to its open trade regime,
clearly directed economic management, and its position in the centre of a
dynamic regional market. Political stability and a well-developed infrastructure
combined with very high rates of savings and investment, and attractive
investment incentives have contributed to make the economy one of the
strongest in the world.
Singapore has a highly industrialised economy. Financial and business

services and manufacturing account for 26.9 per cent, and 27.2 per cent of
GDP respectively. Electronics manufacturing directly accounts for 52.5 per
cent of manufacturing export. The contribution of agriculture and mining
to GDP is close to zero. As much as 90 per cent of food consumed in
Singapore is imported.
By tapping into the global grid of trade, investments, and capital,

Singapore recorded an average annual growth rate of 7.3 per cent, and the
nominal value of its non-oil domestic exports has grown by an average of
12 per cent per annum. Singapore's trade-to-GDP ratio is the highest in the
world, at nearly 360 per cent since 1999. The Singapore economy recovered
in 1999 and 2000 from the effects of the Asian financial crisis to register
GDP growth of 6.9 per cent and 9.7 per cent respectively. This growth
was fuelled by growth in IT spending as a result of the dot-com boom.
Singapore's key economic statistics are given in Table 1.
India and Singapore: Dynamic Economic Partners 43
Table 1: Key Indicators of Singapore
GDP Purchasing power parity $ 1 09.4 billion (2004 est.)

GDP - real growth rate 1.1% (2004 est.)
GDP per capita Purchasing power parity - $23,700 (2004 est.)
GDP composition by sector Agriculture: negligible Industry: 32.2%
Services: 67.8% (2004 est.)
Investment (gross fixed) 24.9% of GDP (2004 est.)
Inflation rate (consumer prices) 0.5% (2004 est.)
Labour force 2.2 million (2004 est.)
Labour force by occupation Manufacturing 18%, construction 6%,
transportation and communication 11%,
financial, business, and other services 49%,
others 16% (2003)
Unemployment rate 4.8% (2004 est.)
Budget Revenues: $14.15 billion Expenditures: $15.61
billion, including capital expenditures of $5.6
billion (2004 est.)
Public debt 106.4% of GDP (2004 est.)

Agriculture products Rubber, copra, fruits, orchids, vegetables,
poultry, eggs, fish, ornamental fish
Industries Electronics, chemicals, financial services, oil

drilling equipment, petroleum refining, rubber
processing and rubber products, processed
food and beverages, ship repair, offshore
platform construction, life sciences, entrepot
trade
Industrial production growth rate 2.8% (2004 est.)

Electricity production 30.48 billion kWh (2001)
Electricity consumption 28.35 billion kWh (2001)
Oil consumption 700,000 bbl/day (2001 est.)
Natural gas consumption 2.5 billion eu m (2001 est.)
Natural gas imports 2.5 billion cu mNote: from Indonesia and
Malaysia (2001 est.)
Current account balance $26.15 billion (2004 est.)
Exports $142.4 billion f.o.b. (2004 est.)
[Table 1. Contd.
44 Gautam Murthy
Contd. Table 1]
Exports - commodities Machinery and equipment (including

electronics), consumer goods, chemicals,
mineral fuels
Exports - partners Malaysia 15.8%, US 14.3%, Hong Kong 10%,

China 7%, Japan 6.7%, Taiwan 4.7%, Thailand
4.3%, South Korea 4.2% (2003)
Imports $121.6 billion (2003 est.)

Imports - commodities Machinery and equipment, mineral fuels,
chemicals, foodstuffs
Imports - partners Malaysia 16.8%, US 14.1%, Japan 12%, China

8.7%, Taiwan 5.1%, Thailand 4.3% (2003)
Reserves of foreign $95.75 billion (2004 est.)

exchange & gold
Debt - external $15.06 billion (2004 est.)
Currency code SGD (Singapore dollar)
Exchange rates - SGD per US$ 1.7422 (2003), 1.7906 (2002), 1.7917 (2001), 1.724
(2000), 1.695 (1999)
Fiscal year 1 April - 31 March

Source : CIA Factbook - Singapore Statistics, 2005.
As a small economy accounting for only 1.2 per cent of East Asia's
GDP and 0.3 per cent of world GDP, the economy of Singapore is highly
dependent on external demands. Manufacturing accounted for 26.3 per cent
of Singapore's GDP, and services accounted for 63 per cent of GDP in
2003. The services sector accounts for 75 per cent of employment.
Agriculture contributes less than 0.1 per cent of Singapore's GDP; only
about 2 per cent of the land area is used for agriculture.
Ttade Performance and Policy Options
Following a 22.9 per cent expansion in 2000 after the Asian financial crisis,
Singapore's external trade contracted sharply by 9.4 per cent during the
2001 recession, but has stayed positive since 2002, with a 9.6 per cent
expansion in 2003, and 22.5 per cent in 2004. Malaysia, the US, EU, Japan,
and China accounted for 59 per cent of trade in 2004. Singapore's trade in
services increased steadily from 51 per cent of GDP in 1998 to approximately

63 per cent in 2003. Its top ten trading partners accounted for more than
three-fourths of Singapore's trade in services in 2003. The export of services
grew annually at 9.4 per cent during 1998-2002, but slowed down to 2.8
per cent and 2.9 per cent in 2001 and 2002 respectively. The two most
important components of services imports were transportation and travel.
Singapore's trade policy directions are underpinned by several factors:

• Constraints of a small domestic market with limited natural resources.
• Dependence on the global economy.

• Dependence on free access to markets around the world.
Investment Climate and Policies
Singapore has seven free trade zones (FTZs), six for seaborne cargo and
one for air cargo. The FTZs offer free 72-hour storage for import/export
cargo. Restrictions on investment exist in armament manufacturing, news
media, telecommunications, broadcasting and domestic banking. Moreover,
there can be no foreign ownership of public utility services.
India- ASEAN Relations
In pursuance of India's "Look-East" policy, the dialogue has moved from a

limited sectoral partnership (1992) to a full dialogue partnership (1995) and
membership of the high-profile strategic ARF in 1996, culminating in ASEAN+
India summits since 2002. An FTA between India and ASEAN is in the
offing, and India is committed to aligning its peak tariff to East Asian levels
by 2007.
Indo-ASEAN two-way trade grew by 30 per cent from US$ 7.6 billion
in 1999 to $16 billion in 2005 which, however, accounted for only 1 per
cent of ASEAN's global trade. India's trade to ASEAN countries still hovers
around 9 per cent of its global trade. India's merchandise exports to ASEAN
have more than tripled from about US$ 1.0 billion (5.7 per cent of its world
exports) to $3.4 billion in 2001-2 (7.7 per cent of its world exports). In
balance of trade with ASEAN-5, India posted deficits in every year since
1994. This trend is attributed to the pattern of the relatively higher deficits
with Singapore and Malaysia, and India's simultaneous inability to generate
matching surpluses elsewhere in the region even when the balance of trade
46 Gautam Murthy
is in its favour. The share of ASEAN-5 in India's global exports and imports
is given in Table 2.
Table 2: Share of ASEAN-5 in India's Global Exports and Imports, 1991-2001
Share in India's Global Exports (%)
1991 1996 2001

Indonesia 1.3 2.7 1.2
Malaysia 1.6 2.3
Singapore 2.3 3.1 2.5
1.7
Philippines5.2
Thailand 0.4 2.0
2.5 1.5
0.5
Indonesia 0.3 1.5 2.5
Share in India's Global Imports (%)
Malaysia 1.6 3.4 3.2

Singapore 5.1 5.7 5.6
Philippines 0.1 0.5 0.1
Thailand 0.3 0.7 1.0
Source: ASEAN Statistical Yearbook , ASEAN Secretariat.
Investment relations between ASEAN and India have remained rather

limited. Only Singapore, and to some extent Malaysia, have significant
investments in India; Indian companies have had limited capacity to invest
abroad until recently. The share of ASEAN-6 in India's total approved foreign
direct investment (FDI) inflows increased nearly fourfold from 2 per cent
to about 8 per cent between 1996 and 1998.
The motivation for the current and future Indian investments abroad is
economic efficiency and profitability criteria (pull factors), rather than to
escape restrictive business environment at home (push factors). Over the
past few years, over 150 firms from India have located in Singapore. Indian
companies are also poised to invest in Thailand (auto components sector),
Indonesia and Vietnam (motor vehicles and energy sector), and in the
Philippines (ICT sector). These opportunities arise from substantial
complementarities that exist between India and ASEAN in factor
endowments, economic structure, skills and capabilities. The experience
and competencies of Malaysia and Singapore in infrastructure development

complement India's needs for physical infrastructure, particularly in the
area of roads, industrial parks and housing estates.
India-Singapore Trade
Singapore is the largest market in ASEAN for India's merchandise exports,

followed by Malaysia, Thailand, Indonesia, and the Philippines. It is also
India's largest trading and investment partner in ASEAN. India is looking
for infrastructure investments, critical technologies and export markets.
Singapore has surplus capital and could be a useful partner in infrastructure
development in India as well as a source of investment in Indian companies.
The major items of India's exports to Singapore in 2005 were crude

petroleum, refined motor spirit, petroleum oils, polished diamonds for
jewellery, polished industrial diamonds, articles of jewellery, aluminium
(unwrought), aluminium sheets, parts and accessories of computers,
synthetic fabrics, silk fabrics, embroidery/table linen of manmade fibres,
combed cotton, knitted t-shirts, vests, benzene, dyes, acids, insecticides,
fungicides, household articles of stainless steel, corrugated products of iron
and steel, forged/stamped articles of iron and steel, bars and rods of iron
and steel, parts of boring or sinking machinery, X-ray tubes, medical/surgical/
dental/veterinary instruments/appliances, penicillin, rice, sugar, cashew nuts,
essential oil, crabs live/dried, fish (fresh/chilled/dried), titanium ore, menthol,
diesel/semi-diesel generating sets, static converters, valves/taps/cocks for
pipes, boilers, tanks etc., bus/lorry tyres, tobacco. These items in value
terms constitute over 70 per cent of India's exports to Singapore.
The major items of India's imports from Singapore in 2005 were parts
and accessories of computers and computer peripherals, integrated circuits,
cellular phones, CD-ROMs, styrene, p-xylene, o-xylene, polypropylene, vinyl
acetate, topped crudes, parts of boring and sinking machinery, nickel, tin
(unwrought), lead (unwrought), aluminium (unwrought), zinc (unwrought),
waste and scrap of iron and steel, photographic chemicals, sewing machines,
ball/roller bearings, parts for bulldozers, parts of aeroplanes/helicopters, parts
for audio/video recorders, medical instruments and appliances, parts of cellular
phones, parts of motor vehicles, cigarettes, pigments, parts of cathode ray
tubes, auto parts, parts for electrical machines and apparatus. These items in
value terms constitute over 60 per cent of India's imports from Singapore.
48 Gautam Murthy
Total trade between India and Singapore increased by 3.22 per cent in
2001 over the previous year to S$6.88 billion and decreased by 1.16 per
cent in 2002. In 2003, total trade went by 16.20 per cent. India's imports
from Singapore increased by 14.22 per cent and exports to Singapore by
21.25 per cent. Over a period of five years till 2003, India's imports from
Singapore increased by 26.88 per cent, and exports by 100.8 per cent. Re-
exports constituted slightly over 50 per cent of Singapore's exports to India
(see Table 3).
Table 3: India-Singapore Trade, 1999-2003
Year Singapore's Of which Singapore's Total

to India India
Export Re-exports Imports from Trade
(SG$ (US$ (SG$ (US$ (S$ (US$ (SG$ (US$

bn) bn) bn) bn) bn) bn) bn) bn)
1999 4.24 2.50 2.28 1.35 1.25 0.74 5.49 3.23
2000 4.80 2.74 2.71 1.54 1.86 1.06 6.66 3.81
2001 4.87 2.76 2.87 1.63 2.00 1.13 6.87 3.90
2002 4.71 2.67 2.79 1.58 2.08 1.18 6.79 3.85
2003 5.38 3.16 2.89 1.70 2.51 1.48 7.89 4.64
The balance of trade has remained in favour of Singapore since 1999.

However, despite growth in bilateral trade, the balance of trade in favour of
Singapore has more or less remained the same in value terms (in SG$; see
Table 4). Indian exports to Singapore have been steadily increasing, growing
in SG$ terms by 48.8 per cent (2000), 7.52 per cent (2001) and 3.5 per
cent (2002), and 21.25 per cent (2003).
Table 4: Trade Balance Between India and Singapore, 1999-2003 (in SG$ billion)
1999 2000 2001 2002 2003

India's Import from Singapore 4.24 4.80 4.84 4.72 5.38
India's Export to Singapore 1.25 1.86 2.00 2.07 2.51
Balance of Trade -2.99 -2.94 -2.84 -2.65 -2.87
Between January 1991 and May 2003, approvals for FDI from Singapore
to India (excluding NRI and euro issues/portfolio investment) amounted to
Rs. 53 billion (approximately US$1.2 billion), making Singapore among the
largest foreign investors in India. The annual break-up since 1995 of
Singapore's investment and share of total FDI (excluding NRI and portfolio
investment) in India is given in Table 5.
Table 5: Approvals for FDI in India, 1995-2003
Year Total World FDI* Singapore FDI Singapore FDI
1995 301725 9910 3.28

(in Rs. million) (in Rs. million) as % of Total
19% 286923 3198 1.11

1997 485720 8619 1.77
1998 268392 7673 2.86
1999 246855 8259 3.35
2000 156183 3232 2.07
2001 203319 3799 1.87
2002 111398 3722 3.34
2003 (up to May) 17436 1254 7.2
Total (since 1991) 2280399* 53604 2.35%
* (Excluding NRI/ Euro issues)
Source: SIA News Letter , June2003.
Some of the projects of Singapore government-linked corporations

(GLCs) include Ascendas' IT Park in Bangalore, the participation of the
Port of Singapore Authority (PSA) in both equity (40 per cent) and
management of Piparav Port, Gujarat, PSA's thirty-year contract for operation
and management of the Tuticorin Port, SingTel's joint venture with Bharti
Telecom, and Singapore Technologies Telemedia's joint venture with
ModiCorp. The SGIC has registered itself in India as a financial institutional
investor, and has committed Rs. 119 million in HDFC Ltd. apart from
investing in other stocks and equities.
SGIC is also one of the largest foreign institutional investors in India.

The SGIC along with other investors has invested Rs. 1 1 billion (SG$ 407
million) for a 13.6 per cent stake in India's ICICI Bank as its strategic
50 Gautam Murthy
partners. In December 2003, Temasek Holdings, Singapore Government's

investment arm, acquired a 5.2 per cent stake of SG$ 342.2 million in
ICICI Bank. In January 2004, Temasek Holdings bought a 14 per cent
equity stake in Matrix Laboratories, Hyderabad, for SG$ 114.7 million.
Singapore's private sector companies have made small-scale investments

in healthcare, real estate, and tourism. Favourable experience and profitability
of Singapore's technology park in Bangalore has created a positive
environment for investments by Singapore in India. The majority of the
MNCs in Singapore have used Mauritius to route investments to India
because of its favourable double taxation treaty with India. Thus, the official
figures of inflows of FDI from Singapore to India are understated as they
exclude investments routed via Mauritius.
Temasek and Stanchart Bank formed the Merlion-India Fund of US$

100 million for investing in mid- to late-stage Indian companies. The fund
does not cover investment in infrastructure, real estate and trading. This
fund was set up for Singapore companies, investing in Indian companies
expanding in India and abroad. In December 2003, the fund invested SG$35
million for a 5.46 per cent stake in Aurobindo Pharma, Hyderabad.
The Singapore Business Federation (SBF), which is the government-

guided amalgamation of different chambers of commerce and industry, is
also likely to open an office in India. Individual chambers of commerce
associated with SBF such as the Chinese, Malay and Indian chambers might
also open their own separate offices.
While Singapore's manufacturing base centering on electronics and

petrochemicals, and its role as an entrepôt centre will continue to sustain
the merchandise trade; the emerging opportunities are largely in the services
sector, particularly in Information and Communication Technology (ICT),
logistics services, business and financial services, tourism, and health
services. This is more so as Singapore plans to develop itself into a service
hub and improve its capabilities in areas where considerable
complementarities with India exist. The opportunities are not only in trade
in services transactions (such as used by Singapore Airlines in India as a
base for some of its IT-enabled services), but also in investments (presence
of Indian ICT, pharmaceutical, and trading companies in Singapore, and
Singapore's investments in India's ICT, tourism and health services, besides
in port development and logistics). The probable involvement of Singapore's
India and Singapore : Dynamic Economic Partners 5 1
polytechnics in technical education in Tamil Nadu, and perhaps other states,

could further strengthen bilateral linkages.
The Info Comm Development Authority of Singapore (IDA) has signed

an MoU with India's premier IT training company, National Institute of
Information Technology (NUT) to persuade IT professionals to locate in
Singapore from anywhere in the world. As Indian professionals are
internationally competitive and culturally compatible, a significant proportion
is likely to be sourced from India. This could create a dynamic Indian
diaspora with positive externalities for both countries. The investments by
SingTel in India's telecom sector in partnership with India's Bharti
Televentures to take advantage of India's huge potential domestic telecom
and Internet market is also another example in this sector.
Being the highest spenders, Indian tourists have become the fourth-
largest revenue generating market. Singapore tourism authorities have also
been actively involved in promoting select areas in India as a tourism
destination for Singaporeans, through a joint marketing by the Government
of India tourism office already established in Singapore.
Singapore Airlines and Silk Air of Singapore have quite liberal rights to
fly to several destinations in India. They could, however, take greater
advantage of India's open sky policies concerning air cargo. In the logistics
sector, the PSA's involvement in port development and management in
Tuticorin in Tamil Nadu and Piparav in Gujarat signifies the potential for
major investment opportunities for other Singapore firms in the logistics
sector. Negotiations between Singapore's largest supermarket operator, NTUC
Fairprice, which has close links with the government, and India's Apollo
Group, one of Asia's largest hospital and healthcare management companies,
to set up a pharmacy and retail chain of convenience stores numbering in
the hundreds at petrol stations run by the Indian Oil Corporation also hold
promise for greater economic linkages. If the proposal materialises, it would
contribute to Singapore's food security and to its supply chain for other
essential household goods. Indian IT companies have recognised the
importance of Singapore as a marketing and development centre, and their
presence is growing.
Singapore intends to increasingly rely at the margin on investment income

from abroad. Its rather large reserves, conservatively estimated at about
US$ 90 billion, are mostly invested abroad through government holding
52 Gautam Murthy
companies. These holding companies could consider passive investments in

infrastructure projects in India. Setting up of a physical presence in India
by the SGIC and other such government investment companies merits serious
consideration. Currently, these holding companies do act in a limited way
as venture capitalists for Indian IT companies, but there is much greater
scope also in biotechnology, life sciences, and other areas. For these purposes
also, physical presence in India would be beneficial.
India-Singapore CECA
On 29 June 2005, India and Singapore signed a Comprehensive Economic
Cooperation Agreement (CECA), the first of its kind for India, concluding
two years of intensive negotiations. It is indeed "comprehensive" and covers
trade in goods and services, investment flows and encompasses a double
taxation avoidance agreement (DTAA).
For India, it seems, the gains driving the partnership with Singapore
would be in the area of services exports and in-bound FDI. The Singapore
government has in the past indicated its willingness to set up a $1 billion
fund to invest in India after the CECA came into force. Since the island-
nation is a free-trading port, most of the duties on its tariff lines are zero
and there is much it can offer by way of tariff concessions, though the
hope is that synergies in Indian manufacturing and Singaporean branding
expertise can be tapped to profit in the ASEAN market. One of the difficult
aspects of the negotiations was determining the rules of origin (ROO), by
which the nationality of goods is determined to ensure that only citizens of
the contracting country avail of trade concessions, as there were concerns
in India that exporters from third countries could use the Singapore route
to dump cheap goods in the country. A minimum of 40 per cent of value
must be added in Singapore for products to qualify for access under the
CECA's tariff schedule - a stipulation similar to that which has caused
friction in India's FTA negotiations with Thailand.
The Prime Minister of Singapore, Lee Hsien Loong, believes that the
main advantage for Singapore from the agreement is tariff-less access to
the Indian market for a large number of goods. Besides, some banks will
have access to the Indian market. For the Indian side, the big gain from the
agreement is on the movement of professionals. Also, inward investment
into India from Singapore has become very attractive.
The CECA with Singapore is an FTA-plus, and covers trade in goods

as also services, besides investment flows and "mutual recognition" clauses.
It is expected to help Singapore widen its frontiers of international
commerce. Singapore has close economic links with the US, Japan and
China, among others. The business communities in both countries could
now "leverage" on this win-win development.
In the services sector, Indian companies stand to benefit through

increased market access in distribution services, including retail trading,
business services, market research, legal, environmental management,
management consultancy, tourism, real estate, consultancy and advertising,
engineering, architecture and computer-related services. India was
Singapore's fourteenth-largest trading partner in 2004-5 and bilateral trade
has nearly tripled within the past decade, from SG$ 4 billion in 1995 to
SG$ 11.8 billion in 2004-5.
The provisions of the CECA are broad, aiming not only to liberalise
bilateral trade in goods and services but also to increase investment and
ease visa regulations. Under these provisions, Singapore will cut all duties
on goods made in India (except tobacco and automobiles), while India will
remove or reduce duties on a range of Singaporean products, covering
around four-fifths of its exports. As a first step, India would scrap duties
on 506 items immediately (from 1 August 2005), phase out tariffs on a
further 2202 items over the next four years, also reducing duties on another
2407 items by 2009. However, it will maintain the current level of duties on
a list of 6551 items from Singapore. The deal also includes agreements on
trade in services and a commitment to liberalise visa requirements for
professionals in 127 fields.
Trade Gains
Bilateral trade is surging, rising over 50 per cent in the fiscal year 2004-5
(April-March) to US$6.38 billion, according to India's Ministry of Commerce
and Industry. India's imports from Singapore were worth US$ 2.58 billion
in 2004-5, consisting principally of electronic goods (39 per cent of its
total imports from Singapore), organic chemicals (14 per cent), and transport
equipment (9 per cent). India's exports to Singapore totalled US$ 3.80 billion,
consisting largely of crude oil and petroleum products (46 per cent of its
total exports to India), gems and jewellery (15 per cent), and machinery
54 Gautam Murthy
and instruments (5 per cent). India's bilateral trade surplus was US$ 1.21
billion.
Given the diversity of products and services that make up trade between
India and Singapore, there is ample potential for the CECA to boost bilateral
commerce significantly. India has been granted more or less complete duty-
free access to Singapore, which is positioning itself (primarily through the
negotiation of bilateral FTAs) as Asia's trade hub. Singapore has signed
FTAs with six other countries (including Japan, Australia and the US) and
is negotiating for more.
Despite its limitations, the deal with Singapore does mark a watershed
in India's broader strategy of encouraging domestic economic growth
through promoting export-oriented industries. It was significant that India's
cabinet approved the deal just three days after the first meeting of the
revamped Board of Trade, a collaborative government/industry forum in
charge of developing a coherent national trade strategy. At this meeting the
commerce and industry minister, Kamal Nath, exhorted the body to come
up with ways to boost India's total trade to US$ 500 billion in the next four
years. (By comparison, India's trade in goods in 2004-5 was an estimated
US$173 billion.) With most of the rest of Asia committed to establishing
free-trade networks, rather than relying on the World Trade Organization
(WTO), the minister presumably had deals like the CECA in mind as a first
step to achieving this goal.
Investment Implications
The provisions of the CECA related to investment are equally significant for
India. As of December 2004, Singapore had invested US$ 6.41billion in
India, making it the ninth-largest investor in the country. (According to the
Indian commerce ministry, Singapore's investments in India grew 114 per
cent in fiscal year 2004-5 from 2003-4.) Singaporean institutional
investments in Indian technology, manufacturing, financial services and
aviation are to rise to US$ 5 billion within the first year of the CECA's
implementation, while Singaporean investment in India's infrastructure would
top US$ 2 billion.
The bilateral double-taxation-avoidance treaty that CECA revamps was

first signed in 1994 to give Singapore the same status as Mauritius (which
had hitherto been unique in that its companies could invest in India without
paying capital gains tax on profits earned there). The CECA provisions
liberalising trade in financial and other services - paving the way for an air-
services deal and an open-skies agreement, for example - are also likely to
boost business between the two countries.
The CECA allows Temasek Holdings and the SGIC each to invest 10
per cent stake in Indian companies, whereas previously they had been
restricted to acquiring 10 per cent between them. The CECA also opens up
India's financial services sector to Singaporean investment, allowing three
banks from the city-state - DBS Holdings, Overseas-Chinese Banking Corp
and United Overseas Banking - to set up branch operations in India. The
three may either set up wholly owned subsidiaries (in which case they will
be subject to local regulations) or set up regional branches.
Key Provisions of CECA

Avoidance of Double Taxation Agreement
A tax resident will not be entitled to the capital gains exemption if its affairs
are arranged primarily to take advantage of the benefits of the DTA. In
addition, a shell/conduit company with negligible or nil business operations
or with no real and continuous business activities in Singapore is disallowed
from enjoying the capital gains exemption. For the purposes of DTA, a
company is not a shell company if:
• It is listed on recognised stock exchanges of either state

• Its total annual expenditure on operations in the residence state is
equal to or more than SG$200,000 or Indian Rs 5,000,000 in the
respective state, in the immediately preceding period of twenty-
four months from the date the gains arise.
Trade in Goods
Tariffs on approximately 75 per cent of Singapore's domestic exports will

be eliminated or substantially reduced within five years through immediate
elimination, phased elimination, and phased reduction. The sectors benefiting
include electricals and electronics, instrumentation, pharmaceuticals, and
plastics. For goods in the phased elimination and phased reduction categories,
the reduction to the final tariffs will be phased in over five years. The
percentage reduction is expressed as a margin of preference over the most
favoured nation (MFN) applied rates (see Table 6). If, for example, India
56 Gautam Murthy
has an MFN rate of 10 per cent in May 2009, a 50 per cent reduction
under phased tariff reduction means that an import duty of 5 per cent
would be imposed on the Singapore-originating good entering India. Singapore
has committed to grant zero-tariff treatment on all imports from India as of
entry into force of the Agreement.
Table 6: Timeline for the Phased Tariff Concessions
Tariff reduction Tariff Tariff Tariff Tariff

by date CECA reduction reduction reduction reduction
enters into force by by by by
(1.8.2005) 1.4.2006 1.4.2007 1.4.2008 1.4.2009
Goods qualifying 10% 25% 50% 75% 100%
for phased tariff
elimination
Goods qualifying 5% 10% 20% 35% 50%

for phased
tariffreduction
Rules of Origin
The general ROO is a combination of 40 per cent local content and a change
in tariff classification at the four-digit level. CECA also takes into consideration
the unique production pattern of Singapore and provides for a list of products
that are exempt from the general rule. For each of these products, a specific
ROO (e.g. change in tariff classification only) has been crafted.
Customs
Under CECA, the customs authorities of India and Singapore will:
• Provide an advance ruling on the eligibility of originating goods for

preferential tariffs and tariff classification, upon the request of the
trader.
• Enhance the application of risk management to focus on high-risk

goods and facilitate the clearance of low-risk consignments. Both
authorities will also enhance transparency in regulations so that
traders would be fully aware of the requirements and procedures
in the respective countries.
Standards and Technical Regulations , Sanitary and Phytosanitary

Measures
CECA provides a framework for concluding mutual recognition agreements

(MRAs) to eliminate duplicate testing and certification of products to facilitate
entry of goods for sale in the respective markets. Of immediate benefit is
the food sector annex where Singapore has facilitated the import of egg
products, dairy products and packaged drinking water from India. India is
expected to make the necessary amendments to its legislation to implement
these MRA arrangements. Singapore will also be providing technical training
for Indian standards bodies to enable them to implement the MRA.
Investment : Key Features
• Beneficiaries : Citizens and enterprises based in Singapore or India.

Indian investors are not required to seek foreign investment approval
for coverage under the investment chapter.
• Broad Range of Investment Instruments : The chapter covers a broad

range of investment instruments and assets, such as equity and
debt instruments, intellectual property rights (IPR), and business
licences and permits. Investments in the nature of both FDI and
portfolio investments are covered.
• National Treatment : The chapter accords National Treatment to

investors from both countries. The market access feature of this
provision is subject to the commitments and reservations undertaken.
• Expropriation and Compensation : Neither country can expropriate

investments, directly or indirectly, without proper legal safeguards.
Expropriation must be premised on public purpose and compensation
based on market value. Land expropriation will be governed by the
domestic legislation of each country.
• Investor to State Dispute Settlement : To give investors greater

confidence in investing in either country, both countries have
committed to allowing investors, once the investment is established,
to take a dispute relating to an obligation under the chapter to an
international arbitration tribunal.
• Free Transfers : Both countries will allow the investors to freely

transfer funds related to their investments, such as capital, profits,
dividends and royalties.
58 Gautam Murthy
• Joint Ventures : India has agreed to bind its recent liberalisation

measures regulating the ability of current joint ventures to enter
into new joint ventures (India's Press Note 1 of 2005).
• Real Estate : India has agreed to bind its new regulations governing
investments in the real estate sector (India's Press Note 2 of 2005).
Trade in Services : Key Features
• Market Access : Neither country may restrict access into its services
market by imposing quantitative restrictions (e.g. numerical quotas
on services suppliers that are allowed in the market).
• National Treatment'. Services suppliers will be granted the same

treatment as local service suppliers, i.e., no discrimination.
• Domestic Regulation : The chapter ensures that domestic regulations

governing the provision of services are reasonable, impartial and
objective.
• Mutual Recognition Agreements ( MRAs ): Professional bodies in the

accounting and auditing, architecture, medical (doctors), dental and
nursing services sectors in both countries will negotiate agreements,
within a year of the signing of CECA, recognising each other's
educational and professional qualifications. Upon completion of these
MRAs, Indian and Singaporean professionals from these five
professions will be able to practise in either country. Other
professional bodies would also be encouraged to enter into
negotiations for MRAs.
The services commitments made by each country are in the Annexes

to the Services Chapter. There are additional disciplines pertaining to
Telecommunication Services and Financial Services in their respective
Annexes to the Services Chapter.
Both countries have committed to liberalise various services sectors beyond

their WTO commitments. The sectors to which Singapore gets preferential
access include business services, construction and related engineering services,
financial services, telecommunication services, tourism and travel related
services, and transport services. India would be able to enjoy preferential
treatment for sectors such as business services, distribution services, education
services, environmental services, and transportation services.
Air Services
Both countries will review and enhance further air services linkages through
the bilateral Air Services Agreement, in future.
Movement of Natural Persons : Key Features
• Business visitors who are holders of five-year multiple journey visa

will be permitted to enter and engage in business activities for up
to two months, which upon request may be extended by up to one
month.
• Short-term service suppliers will be granted temporary entry to

service their contracts for an initial period of up to ninety days in
the first instance.
• Professionals employed in 127 specific occupations will be allowed

entry and stay for up to one year or the duration of contract,
whichever is less.
• Intra-corporate transferees (i.e. managers, executives and specialists

within organisations) will be permitted to stay and work in India
and Singapore for an initial period of up to two years or the period
of the contract, whichever is less. The period of stay may be
extended for up to three years at a time for a total term not exceeding
eight years.
E-Commerce
The chapter on electronic commerce addresses fair treatment of digital

products, such as software, e-books and e-movies, coming from Singapore.
The agreement prohibits any imposition of customs duties on digital products
delivered electronically. In addition, both sides commit to ensuring
transparency by making all relevant laws and regulations affecting electronic
commerce available publicly.
Intellectual Property
The two sides agreed to undertake and promote mutually beneficial

cooperation in the fields of IP and Plant Variety Rights. These forms of
cooperation could include the joint organisation of training programmes,
60 Gautam Murthy
and collaboration on projects to promote the effective use and application

of IP. The two sides have specifically identified the IP Academy (Singapore)
and the Intellectual Property Training Institute (Nagpur) as initial partners
for cooperation.
Science & Technology
The Science and Technology cooperation chapter expands an earlier

agreement on science and technology signed in 1995. The agreement is
geared towards harnessing the complementary capabilities available in the
two countries. The areas of focus that have been identified for possible
cooperation are marine and agricultural biotechnology, space research,
advance materials and IT.
Education
One of the key mandates of the education cooperation chapter is to facilitate

joint postgraduate programmes between the Indian Institutes of Technology
(IIT) and Institute of Science (IISc), Bangalore, with the Singapore
universities. These programmes will focus on research and education with
clear industrial linkages to companies from both countries. Arising from
this, the National University of Singapore and IIT Bombay have recently
signed an MoU to establish a joint graduate engineering programme. The
programme will draw heavily on existing NUS and IIT-B infrastructure and
course modules. Both IIT-B and NUS professors will participate in joint
teaching and supervision of projects. The partnership is expected to yield
some forty MS and eight PhD graduates annually.
The chapter also provides that degrees specified by the University Grants
Commission of India or an Institution of National Importance in India, and
by universities in Singapore, shall be recognised for the purposes of admission
into the universities of both countries. This is in addition to all other admission
criteria that must still be satisfied.
A Joint Committee on Education will be established to emphasise the

key role that education will play in fostering the relationship between the
two countries. Its members will be drawn both from government and the
private sector.
Media
The media cooperation chapter offers a platform for the regulatory agencies
from both sides to work closely together. This will allow focus not only on
regulatory issues of mutual concern, but more importantly, on promoting
greater industry and private sector collaboration. Some of the areas of
collaboration that could be looked into are digital media and convergent
services, IPR, education and training, co-production of film and television
content, distribution and marketing, and research and development.
Dispute Settlement
Disputes are subject to consultations, negotiations, conciliation and arbitration

just like in the WTO.
Review
The Ministers of India and Singapore who are responsible for trade
negotiations will meet within a year of the date of entry into force of CECA
for a review. Subsequent reviews will be done biennially or otherwise as
appropriate.
Endnotes
1 Country Studies - Singapore. 2005.

2 Foreign Equity Investments in Singapore. 2001-2002. Department of Statistics,
Singapore.
3 Gare, Frederic and A. Mattoo. 2001. India and ASEAN: The Politics of India's Look
East Policy. New Delhi: Manohar.
4 Gaur, S. 2004. 'ASEAN-India Ties Entering a New Phase'. Business Times ,

Singapore.
5 Goh Chok Tong. 2005. 'Anchored in Singapore, Connected to the World'. Speech
at the International Enterprise Forum, Singapore. February.
6 India-Singapore CECA-Information Kit. 2005. Ministry of Trade and Industry,

Government of Singapore.
7 Jha, P.K. 2003. 'Reassessing India's Look East Policy'. World Focus , 287-8.
8 Jhunjhunwala, Bharat. 2005. 'Singapore FTA: Against Asian Unity?' Business Line ,
New Delhi.
62 Gautam Murthy
9 Kumar, N. 2002. Towards an Asian Economic Community : The Relevance of India.

RIS-DP #34.
10 Lee Hsien Loong. 2005. Speech delivered at the CII, FICCI, ASSOCHAM Joint
Forum, New Delhi.
11 Liang, Margaret. 2005. 'Singapore's Trade Policies - Priorities and Options'. ASEAN
Economic Bulletin . 22(1).
12 Mehta, Rajesh. 2003. Economic Cooperation between India and Singapore: A

Feasibility Study, RIS-DP #41.
13 Sharma, A. and P.K. Mehta. 2002. Exploring Indo-ASEAN Economic Partnership in

a Globalising World. New Delhi: Bookwell.
14 Say well, T. 2001. 'Singapore's New India Play'. Far Eastern Economic Review.
15 Sen, Rahul, M.G Asher, and R.S.Rajan. 2004. 'ASEAN-India Economic Relations
- Current Status and Future Prospects'. Economic and Political Weekly.
16 Singapore Economic Development Board Reports. 2003-2005.

17 Trade Policy Review : Singapore. 2004. Geneva: WTO.
18 US Country Commercial Guides - Singapore. 2004.
Iy Yearbook of Statistics. 2004. Department of Statistics, Singapore.
20 India-Singapore CECA-Information Kit, Ministry of Trade and Industry,

Government of Singapore.

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India and Singapore: Dynamic Economic Partners

Author(s): Gautam Murthy

India and Singapore: Dynamic Economic Partners

The city-state of Singapore is located strategically at an intersection of

. . . India's influence is being felt all over Southeast Asia. In Singapore

The increasingly close relations between India and Singapore in recent

With an investment of US$ 1.29 billion, Singapore has emerged as the

have become the highest spenders among the tourists to Singapore.

A former colonial trading port serving the regional economies of maritime

Ever since its founding in 1819, Singapore has lived by international

Singapore's economy rests on five major sectors: (i) regional entrepot

(v) provision of specialised services for the international market, such as

The dependence on external markets and suppliers pushed Singapore

Singapore ensured a high savings rate with carefully formulated

Singapore has a highly industrialised economy. Financial and business

By tapping into the global grid of trade, investments, and capital,

Table 1: Key Indicators of Singapore

GDP Purchasing power parity $ 1 09.4 billion (2004 est.)

Public debt 106.4% of GDP (2004 est.)

Industries Electronics, chemicals, financial services, oil

Industrial production growth rate 2.8% (2004 est.)

Exports - commodities Machinery and equipment (including

Exports - partners Malaysia 15.8%, US 14.3%, Hong Kong 10%,

Imports $121.6 billion (2003 est.)

Imports - partners Malaysia 16.8%, US 14.1%, Japan 12%, China

Reserves of foreign $95.75 billion (2004 est.)

Fiscal year 1 April - 31 March

Ttade Performance and Policy Options

services increased steadily from 51 per cent of GDP in 1998 to approximately

Singapore's trade policy directions are underpinned by several factors:

• Dependence on the global economy.

Investment Climate and Policies

India- ASEAN Relations

In pursuance of India's "Look-East" policy, the dialogue has moved from a

Table 2: Share of ASEAN-5 in India's Global Exports and Imports, 1991-2001

Share in India's Global Exports (%)

1991 1996 2001

Malaysia 1.6 3.4 3.2

Investment relations between ASEAN and India have remained rather

and competencies of Malaysia and Singapore in infrastructure development

Singapore is the largest market in ASEAN for India's merchandise exports,

The major items of India's exports to Singapore in 2005 were crude

Table 3: India-Singapore Trade, 1999-2003

Year Singapore's Of which Singapore's Total

(SG$ (US$ (SG$ (US$ (S$ (US$ (SG$ (US$

The balance of trade has remained in favour of Singapore since 1999.

1999 2000 2001 2002 2003

Table 5: Approvals for FDI in India, 1995-2003

Year Total World FDI* Singapore FDI Singapore FDI

1995 301725 9910 3.28

19% 286923 3198 1.11

Some of the projects of Singapore government-linked corporations

SGIC is also one of the largest foreign institutional investors in India.

partners. In December 2003, Temasek Holdings, Singapore Government's

Singapore's private sector companies have made small-scale investments

Temasek and Stanchart Bank formed the Merlion-India Fund of US$

The Singapore Business Federation (SBF), which is the government-

While Singapore's manufacturing base centering on electronics and

polytechnics in technical education in Tamil Nadu, and perhaps other states,