Opinion                                                                                                                                              13.02.2024

By. Assoc. Prof. Dr. Ali Oğuz Diriöz

TOBB University of Economics & Technology, Ankara.

GROWING ECONOMIES IN SOUTH ASIA & PACIFIC; FOCUS ON INDIA FOR COOPERATION OPPORTUNITIES.

OECD report affirms that in FY 2025 significant economic growth will be observed in South Asia & Asia Pacific Region; Turkiye must not miss opportunities. India particularly consistently stands out with projections of over 6% anticipated annual growth.

On 05 February 2024, OECD Economic Outlook Interim Report February 2024 has been released. The report summarized economic growth in 2023 as well as expectations for 2024 and 2025. The anticipated slow global recovery in general, and by comparison relatively better recovery for India and Indonesia in particular is in line with the IMF projections. In the OECD report, it is observable that from 2023 to 2025 the global economic growth will be modest at around 3% (3.1% in 2023, 2.9% in 2024 and 3.0% for year 2025). The expected economic growth in the Euro-Area will be meager and with negative rates at – 0.6% in Germany for 2023. Turkiye has accordingly registered 4.1% growth in 2023, but expectations are anticipated around 3% annual growth for 2024 and 2025. Continued war in Ukraine and Gaza, as well as geopolitical instabilities on the Red Sea keep the prospects of economic growth rates relatively modest and recovery of trade slow. The OECD report affirms that in FY 2025 significant economic growth will be in South Asia & Asia Pacific Region; India particularly stands out with over 6% anticipated annual growth. Turkiye’s ‘Asia Anew’ policy should not be at the expense of traditional Euro-area but must not miss opportunities either.

While many countries, including Turkiye are expected to achieve a growth rate on par with the expected global growth rate of 3% annual growth, developed countries such as the United States, European countries, Japan and South Korea tend to perform below this annual 3% average rate. According to IMF and OECD reports, not all countries of the BRICS+ group would grow significantly above the global average (as of 2024, the BRICS+ group are Brazil, Russia, India, China, South Africa + Ethiopia, Egypt, Iran, Saudi Arabia and United Arab Emirates. Argentina, formally announced it would not join BRICS+). Major countries that positively stand out as economies with expected annual growth rate of 3% include Indonesia (around 5%), China (5.2% growth in 2023, but expected to slow to 4.7% for year 2024 – FY24 and 4.2% for year 2025 -FY25).  It is significant that India is positively standing out as an economy to have on average over 6% annual economic growth rate from 2023 to 2025 (as in table below; 6,7% FY23*, 6,2% FY2024* and 6,5% FY2025*).

              Moderate Global Growth is Projected by OECD.

*Note: India data for FY24, FY25 and FY26

Source: OECD , Table 1. Moderate Global Growth is projected (https://www.oecd-ilibrary.org/sites/0fd73462-en/index.html?itemId=/content/publication/0fd73462-en) (Accessed: 11.02.2024)

The tensions in the Middle East are considered as some of the main reasons for the slow recovery attributed to the Euro-area and the Middle East, whereas the South Asia and Southeast Asian countries, notably India and Indonesia in particular, are expected to be significant economies that would be performing relatively well. OECD outlook is that the GDPs of these populated countries will be rising by more than 6.2% and 5% per annum, respectively. In addition to economic growth, it is also encouraging that inflation is also expected to be improving. For the case of India, the world’s most populous country, inflation rates are expected to be in single digits, with inflation falling to 4.9% in FY25. Inflation is projected to continue to gradually fall over the next couple of years in rapidly developing emerging non-OECD economies such as Brazil, India, Indonesia, Mexico and South Africa by 2025. Furthermore, in line with the expected lower inflation, it is expected that Central Bank policy rates will also be lowered. The Reserve Bank of India is expected to possibly cut the policy rate to 6.25% in the June or August 2024.

Under these conditions, it is evident that India is an attractive market as well as an economic partner in the near future. India is increasingly receiving investment as an alternative to China as a production base. Indonesia and other South East Asian countries are also becoming important centers of the global supply chain as production bases. But India is also very prominent as a center for IT and for technology, as evident with the Indian space program successes. Hence India’s capacity is not only resting as a production base, but also growing in technologies and services.

For this reason, Turkiye should not miss the opportunitiesto develop cooperation with India. The private sector in both countries are interested in developing trade, and the search for developing geopolitical trade routes suggests that there is room for significant improvements in the relations. Following the G-20 Summit, one of the interesting developments was that Turkiye was left out of the India Middle East Europa (IMEC) Corridor. Turkish highest level officials and President Erdogan had reacted at the time by suggesting that no trade corridor bypassing Turkiye could likely be successful. The assumption was that the private sector would ‘naturally’ include Turkiye. However, following the war in Gaza and the instability in the Red Sea adversely affecting global trade, the prospect of the IMEC seems weak. Hence, both India and Turkiye could create significant synergy by revitalizing a trade corridor through the Arab Development Road and also connect it to Turkiye’s Middle Corridor (For collaboration in Central Asia and the New Silk Road). Collaboration on global trade routes would be a significant mutually beneficial common interest not only limited to bilateral Turkiye – India relations, but for global peace, prosperity and economic stability. One of the risks of reducing global trade and becoming inward looking would be to be detached from Globalization and thus inward looking (Europe is becoming too inward looking, as suggested by Alrawi M. on 8 February 2024 article on the National, “The West is turning inward. Here’s how the Brics+ countries can surpass it”: https://www.thenationalnews.com/opinion/comment/2024/02/08/the-west-is-turning-inward-heres-how-the-brics-countries-can-surpass-it/). Global trade also serves to enhance economic interdependency and thus reduce likelihood of intense competition and conflict over scarce resources. Economic cooperation between the Arab States in the Gulf and India, has been a major development consistent over several decades. Turkiye also aims to develop trade and economic cooperation with Gulf countries, and hence should also develop economic and political relations with other partners of the Gulf States; notably with India.    

Technology firms, Automobile firms, IT services, textile as well as film industry (Bollywood) are some obvious sectors that come to mind; India is also a world leader in logistics, steel, precious stones and natural stones. While inter-sectoral cooperation comes to mind for production and access to different markets each have access (Europe for India, South Asia and Pacific for Turkiye), India’s growing economy also means more opportunities to have companies from India as investors in other economies such as Turkiye. For instance, Adani group has invested to other ports in the Mediterranean, while Singapore investors have also invested to the port of Mersin. Hence, many joint investment opportunities may come up regarding logistics, supply chains as well as manufacturing and production. Turkiye has a customs Union with the European Union (EU), in addition to having the EU countries as major trade partners as well as investors in the Turkish economy. Turkiye traditionally tries to adopt EU regulations in order to have more compatible trade and economic relations with the EU. This is one of the main reasons why Turkiye is trying to adapt tothe EU Green Deal. Likewise, developing relations with a Turkiye that is adopting the EU Green deal would be eminent for other non-European firms in order to not have its trade disrupted by limitations from The EU’s Carbon Border Adjustment Mechanism (CBAM). Turkiye’s economic policy of having compatibility with the European Economic Area includes trade, finance, quality standards, and various diverse areas would make it an attractive trade partner not only for the Turkish market itself but also for its geo-strategic location for broader trade to Europe, Central Asia, Middle East and Africa. Hence, Turkiye could become an attractive destination for Indian companies trying to integrate with the European markets as well as other markets in Turkiye’s geographic proximity.

Overall, the economic relations between Turkiye and India are below their potential and can be developed further. Developing relations with India is not only an advantage but also a necessity in a stagnating global economy. Such opportunity should not be missed as part of the Asia Anew policy of Turkiye. However, developing relations with South Asia and Pacific should not be interpreted as if they are at the expense of existing partnerships for Turkiye; i.e. not at the expense of the Euro-area nor other partners in the region.