India-Singapore ties strong but the need for caution remains
THE reiteration of close economic ties between Singapore and India, by the prime ministers of both countries last week, will come as a relief for businessmen who are looking for increased trade linkages.
Given the backdrop of the sudden arbitration spat between Singapore Exchange and the National Stock Exchange of India over an offshore futures contract as well as scuppered talks on a cross-border trading link, this assurance is timely.
Indian Prime Minister Narendra Modi and his Singapore counterpart have agreed to deepen economic ties and build on defence cooperation. During Mr Modi's visit, a number of deals were discussed which are likely to take the cooperation between the two countries forward. The second review of the Comprehensive Economic Cooperation Agreement between the two nations has been completed and both leaders also announced that a third round of discussions on the pact would start soon and may include expanding the air services agreement between the two countries.
Singapore and India offer much to each other both strategically as well as economically. As India pivots towards Asia, it looks to Singapore as a strong strategic partner and also as an entry point into Asean. For Singapore, India offers an important hedge against economic over-dependence on China.
After a period of turbulence, India appears to be back on a growth path. In the January-March quarter, the economy grew 7.7 per cent, its fastest pace in two years. This figure surpassed China's growth rate of 6.8 per cent during the same quarter, confirming India, once again, as the fastest growing major economy. For the fiscal year that ended March 31, India reported 6.7 per cent growth, down from 7.1 per cent for the year earlier. Economists reckon growth during the current fiscal year will clock in at around 7.5 per cent.
Various initiatives by the Indian government - such as Digital India, e-payments, infrastructure building, enhancing quality of education and urban planning - play into Singapore's strengths. Singapore is also a favoured destination for Indian firms looking for a base for their international operations.
Singaporean businesses as well as investors, however, need to keep in mind that India is entering a rather turbulent phase over the next year. The country's national elections are to be held by May 2019. Meanwhile, there are several state assembly elections scheduled. Elections in India are by their very nature boisterous affairs and this generates a degree of political uncertainty which, in turn, could affect the nascent growth cycle that the country seems to have entered - particularly if no party or alliance emerges with a clear majority after next year's election.
The other worry is the increase in crude oil prices. There is already angst in India over petrol pump prices which are at historic highs. With most goods and services, including vegetables and foodgrains, being transported by road across the country, this could affect prices, resulting in inflation creeping up. On top of this, the Indian rupee is at a record low and the country's banking system is crippled by non-performing assets.
The negative news does not necessarily impact on the Indian growth story. There is money to be made both in the stock market as well as in business ventures. What investors need to do is make dispassionate assessments and decide on their risk appetite before venturing into India. Investing on hype would not be the right thing to do. A lot of strategic value can be derived from Singapore-India ties provided one remains aware of potential pitfalls.
