Trade between India and Singapore has doubled to S$35.4 billion in 2011 compared to 2005 when the two countries signed the Comprehensive Economic Cooperation Agreement (CECA). Indian companies are increasingly drawing on Singapore's status as a regional financial, trading and logistics hub. Yet, there is potential for greater trade and investment activity between the two countries, says Lim Hng Kiang, Singapore's Minister for Trade and Industry. In this recent interview in Singapore to a group of visiting Indian journalists, Mr. Lim, 57, an engineer from Cambridge University with a post-graduate degree from the Kennedy School, Harvard University, also diplomatically put across his country's demand to be treated on a par with Mauritius by India in the area of double taxation agreement. Excerpts:
Can you give us a brief of the proposed initiatives with India ahead of your Prime Minister's visit later this year?
Well, basically we are very happy with the trade, investment and economic cooperation that has been taking place since the signing of the CECA in 2005. Trade has doubled from 2005 till last year. While we are happy, the fact is also that there is potential to do more. We are having the second review of CECA now, the idea being that the agreement is kept up-to-date. We are also engaging India more actively in the ASEAN context and later at the end of the year when we expand ASEAN + 1 into a greater regional grouping we would like to see India participating actively in this forum.
What are the key areas of review of the CECA?
We were fortunate to have been one of the earliest to have signed an FTA (Free Trade Agreement) with India but we need to review the agreement to keep it in tune with the changing times. India has several ongoing negotiations with the EU, Canada and some ASEAN countries. We are watching these developments and whenever India is prepared to liberalise some sectors we will like to work with India to see whether we can avail ourselves of the same treatment for these sectors. The other area we are looking at is, of course, investment flows. I think there is a good flow of investment but there is scope to do more. Primarily, in urbanisation and infrastructure, there is huge potential for investments and we need to see how to actively involve the private sector.
Over the last decade and more, we have heard several times about the potential for investment by Singapore in India, yet nothing much has translated into reality. What are the bottlenecks?
First, I will mildly disagree with you because statistics show that Singapore is the second largest investor in India. It is an open secret that many of the investments go through Mauritius. Even though Mauritius is number one, I suspect, as many do, that some of the investments that go through Mauritius do so because of the very favourable Double Taxation Avoidance Agreement (DTAA) between Mauritius and India. Some of these funds could well have originated in Singapore. So, by and large, if you look at the actual flow of investments into India from Singapore, I think the absolute numbers are growing. I'm not saying that I'm happy with the situation because there is scope to do more. India has been encouraging investment in infrastructure. The challenge for us is to find the vehicle. On its own initiative, India has created SPVs (special purpose vehicles) to do that, they have liberalised some regulations but we all realise that there are some key challenges and one of them is land availability. So, the recent moves to streamline land acquisition will make land availability easier for investors. Singapore's forte is urbanisation and in infrastructure our core competencies are in airports, ports, water works, water and waste treatment.
There have been some talks between India and Singapore on renegotiating the double taxation agreement. What's the progress?
We take a pragmatic approach. Our approach with India vis-à-vis the DTAA under the CECA is that: “You have a current arrangement with Mauritius and we hope to have similar favourable conditions. If you change the conditions with Mauritius, we expect to be treated the same. You have a very favourable arrangement with Mauritius and then you have a less than favourable arrangement with us, then you cannot blame the investors for routing their investments through Mauritius.” We do advise Singapore investors to route their investments through the CECA but they will find the most conducive way if there are more favourable routes.
We understand that Singapore is keen to tap into the value chain from India's mineral trade with China, Indonesia and Australia. Could you throw some light on the strategy?
This is the approach we take by looking at trends. The G3 economies will slow over the next five years whereas Asia will still grow. So, we have to recalibrate our strategy. What does it mean? It can mean three things for us in Singapore.
One, growth will drive urbanisation, as you can see in China where the equivalent of two Singapores are created through urbanisation every year! Second, as Asia grows middle class will grow and we need to satisfy their aspirations. So we attract companies such as P&G, Unilever and Johnson & Johnson and help them set up facilities to develop products for Asian consumers. The Asian growth story means that there is going to be a great need for resources. So, how do we participate in this? Singapore itself has no resources but it is a trading hub. So we think we can develop ourselves as a trading centre for other commodities such as iron, coal or steel. Another area where we can participate is in logistics where Singapore companies have a core competence. Indonesia has coal and needs to move it to China. We can provide the logistics, the financing and so on.
The EU is one of your top trading partners and it is in turmoil. What does this mean for your economy?
The G3 — U.S., Europe and Japan — is very important to us and one limb of that is weak. Japan may show some growth because of the reconstruction but over the long-term it may not be strong because of its demographic profile. Among the three the best prospects I feel will be the U.S. So we have to look at the Asia growth story and also emerging markets in Latin America and Africa to balance the drop in the G3 market.
The Singapore currency has been hardening over the last few years. Are you comfortable with its current levels?
I must recite the Monetary Authority of Singapore mantra because I'm not entitled to say anything different. Singapore is a very open economy. We can only hope to influence the monetary policy through the exchange rate, through the basket of currencies that we trade with. It is a delicate balance and with interest rate so low, lot of funds are flowing into Singapore. The currency is strengthening because relatively speaking it is one of the havens that people put their money in. That, of course, causes problems for us in terms of export competitiveness but we tell our companies “you have very little choice because we cannot be intervening and making the currency cheap just so that you can export”.
The economy is growing and the strength of the Singapore dollar reflects that. What we can do is make sure that the path is less volatile and every six months we tell the market what we envisage the market to be. Since 2010, we have been saying that we expect the Singapore dollar to be on a gradually appreciating path and we'll keep it that way while minimising volatility.
People must expect that the currency will strengthen over this period and they know that if the economy is doing well you can expect the currency to strengthen over time. That is the track record of our currency. We can't change the way the market moves. There is no reason for us to be going against the market and losing our reserve money.
