Singapore prime minister, Lee Hsien Loong is in India on a state visit that saw more than its share of straight talking to Indians about India. But he struck a delicate balance between inviting India to take on a greater international role in Asia and urging the Indian government to straighten up the mess inside the country. The candour of the head of state was only matched by his evident knowledge of the India and its system. In an interaction with some select journalists, Lee was clear about the consequences of India's mismanagement of its economy.
What is holding back the second review of CECA?
The CECA was completed and signed in 2005 between PM Manmohan Singh and me. We had one successful round and now the second round is underway. It is taking longer than we had expected but we have both agreed to instruct our people to expedite the matter. We hope to conclude and sign it before the end of the year when I will return for the India-ASEAN anniversary meeting. There is no specific difficulty in this regard.
What specific features in the new CECA do you think will help enhance bilateral trade?
On the Singapore side, we hope to have a more favourable tariff treatment of goods and on rules of origin. Improve market access for some services. On Indian side, there is interest in mutual recognition agreements on some professions e.g. nursing.
When you said the business environment is "complicated", what exactly were you referring to?
It's a range of matters that Singaporean companies have encountered while trying to do business in India. Specifics would vary from case to case. When a company invests in a project, in India particularly, it means long gestation, long operating periods, long pay-back period. In market risks, there will be ups and downs but if you can minimize regulatory risk and political risks, it will be much easier for companies to come in and invest. The rules in India are complex; you have many levels of government. The requirements sometimes vary. Sometimes it in unavoidable, at other times it causes considerable concern to companies which have already committed. And for those who have not yet committed, they will have to make an assessment whether they want to take the risk. It is hard to comment on individual companies but if you take the situation overall, the potential for investments to come in into areas where you desperately want them-infrastructure, for example, or manufacturing-exceeds what is actually happening. I think if some of these matters are resolved or at least mitigated it will help to bring in these projects. We have worked with Singapore companies and come up with a brief of issues that can be improved. I don't think it's helpful to wash dirty linen in public, but we have conveyed this to the Indian authorities and we are hopeful that they will look into the matter. Certainly when I met Prime Minister Manmohan Singh yesterday, this was one of the issues I mentioned.
There is concern in some quarters in India that Singapore is being used as a destination for money laundering and routing of black money. What is your stand on this?
We have no interest in being a money-laundering centre. We are a financial centre with good standing, good cooperation with other financial centres and regulators, good exchange of information, arrangements, OECD standards, and why should we want to do this shady business? With India we have a DTAA (double taxation avoidance agreement), which is one of the things we did back in 2005 when we did the CECA. It provides for rules for tax treatment of investments in India by Singapore companies or companies based in Singapore. To make sure that companies are bonafide companies and not just some shell companies formed to route money from one place to another. And there are stringent terms for that. So I don't think that shady money wants to come to Singapore. I think shady money would rather go somewhere else rather than risk being scrutinized by our regulators.
I know that there is some sentiment in India that how can so much investment come from Singapore, which is such a small country. In fact, investments from Singapore to India I think cumulatively has been about 13 billion Singapore dollars. Whereas the overall investment outflow from Singapore is more than $400 billion. So India is about 3% of that. It's not a disproportionate amount. Before we concluded CECA, this was one of the major focuses of the Indian side. They wanted to make sure that CECA would lead into a substantial increase in investments to India. And that has happened. I think it has happened to an extent that exceeds what the Indian side had then envisioned. And I think that is a good thing.
We were a bit surprised to read the white paper on black money published by the Indian government and find ourselves mentioned in the despatches there. To have it suggested that the amounts are disproportionate and there must be some round-tripping involved-I think it is not correct. We have demarched the Indian government on this matter to put this record straight and explain why this is not true and it has been mistaken. And yesterday when I met the PM I raised this with him and explained to him that we should see significant and big investments from Singapore as a good thing and we think this is bonafide. The PM acknowledged my point and he felt that he accepted the explanation and we should not have been cited in this way in that white paper. So I accept that. I think that is the correct position.
What are Singapore's investment opportunities in India?
I think the Indian economy is at a stage where it needs considerable investments. It needs a lot of infrastructure investments because the economy is expanding so rapidly that infrastructure bottlenecks are holding it back. Be it roads or ports or airports or IT parks or power generating companies, water treatment companies etc. The Indian government is talking about a trillion-dollar investment into infrastructure. Singapore has companies that has some capability in some of these areas and can do some of these projects.
I think India also needs a substantial amount of manufacturing investments. It has made great strides in services, IT, in BPOs and in call centres. But you cannot have a whole economy based only on IT and call centres. You have to have a comprehensive economy and you are going to have hundreds of millions of young people coming into the work force over the next decade. Manufacturing has to be one of the areas where they can find good jobs. That is the way Singapore has managed its economic development. That is the way China has done its economic development and that's also the way Vietnam has been attracting investments from Japan, Korea, Taiwan and western countries.
I think for India, too, this is an important part of its economic growth and I think it has not been as comprehensive or as strong as it could be. Some of it has to do with the business environment, which has complex issues that the Indian side has to manage. Some of it has to do with lack of infrastructure, like industrial parks. If you can have large parks that provide electricity, water, space and a prepared environment, it is easier for companies to come in. We have built such parks in China, Indonesia, and in Vietnam. We have some experience in doing that and we think there is potential for doing that in India also. We are in talks with some of the states to do such projects.
It will take some time because you must acquire the land, you must have the approvals, you must do the environment impact assessment, you must have the support of the state government. We think that if these hurdles can be overcome, we could build these parks faster and it could make a contribution to India in a strategic direction.
What are the next areas for defence cooperation with India and where do you stand on the South China Sea issue and did you discuss this with the PM?
In defence, we have good cooperation with all three services - Army, Air Force and the Navy - they exercise together. The army and the Air Force have bilateral agreements, which codify the rules under which they work together. Yesterday we renewed the Air Force bilateral agreement and the army agreement is due for renewal next year.
We also have a policy dialogue between our defence ministries. That has been in progress earlier this week and I think we had a good exchange on strategic presence, defence development and how we can do more. I think we also have cooperation in the field of defence science and technology and security cooperation. One of the common concerns is terrorism. Terrorists do not respect international boundaries. In the Mumbai attacks, there was a Singaporean lady who was a casualty. So that security work is in progress. Some of it is public and some of it is not.
In terms of the South China Sea, it is being discussed at the ASEAN foreign ministers' meet currently. This is a long-standing issue. The South China Sea has many overlapping claims by many ASEAN countries as well as China. These claims are not going to be resolved quickly because I don't think any country is going to compromise on what it has been asserting for a long time to be its sovereign and historical territory. Our view in Singapore is that this is an issue that should be managed peacefully and in accordance with international laws, especially the laws of the sea, and respecting freedom of navigation for all countries. We are not a claimant state ourselves, so we have no direct interest, but we do have an interest in freedom of navigation.
Because the actual claims cannot be resolved one way or the other, we have to manage this conflict and deal with it on an ongoing basis. We do not want to have an incident in the seas just because there are competing claims. An escalation of hostilities, or worse, an actual exchange of fire is not desirable for anyone. So because of that ASEAN has concluded a declaration of conduct in the South China Sea and we want to work on a code of conduct in the South China Sea, which can help manage the issue. The rules do not solve the overlapping claims but they will help manage the contention and prevent it from escalating further.
You came here seven years ago. Has your impression of India changed this time?
Our bilateral relations have grown considerably during this period, trade has tripled, our investments have grown considerably. People movement is much more. India itself has had seven years of rapid growth. Right now it is in a slow phase. There are some concerns over rapidly rising costs-food prices particularly. There is also some political concern about continuing steps to open up the economy, in which you can see the Indian government's steps and rethinks over the last few months.
We believe the potential in India is there and we hope that India will continue to move towards engaging Southeast Asia and Asia and be part of the regional story.
You have been an advocate of India playing a greater role in the East Asia Summit. What specifically would you like India to do?
We have the Nalanda project, which is a significant undertaking to share the common cultural heritage, which India actually contributed to Southeast Asia and East Asia. There is Buddhism, but really, it is broader than that.
Secondly, in the East Asia Summit, there are specific areas of priority, which we have been working on. Financial services, black money problem, disaster relief and humanitarian assistance etc. We also have cooperation on ASEAN connectivity project. We have a masterplan to connect ASEAN countries more closely through IT, telecom, air and roads. For India, IT is specifically an area of strength. In building infrastructure and roads, India has capabilities, too. So I hope that India will participate in this.
Beyond this, there is a new initiative that ASEAN is pushing and I think it is important for India to participate in. It is the Regional Comprehensive Economic Partnership, a scheme to promote economic integration and trade liberalization between ASEAN and its partners in the region. India is one. We think it is significant. The benefit is not just trade benefits or tariff benefits. We are really trying to shape the landscape and architecture of cooperation within Asia. This will be the basis on which countries within Asia will work together on a wide range of issues. It has been formed now and we hope India will be present and participate in from the beginning because it has a great contribution to make.
Did you take discuss this with the PM?
Yes, I did, and he agrees with me.
What is holding back the second review of CECA?
The CECA was completed and signed in 2005 between PM Manmohan Singh and me. We had one successful round and now the second round is underway. It is taking longer than we had expected but we have both agreed to instruct our people to expedite the matter. We hope to conclude and sign it before the end of the year when I will return for the India-ASEAN anniversary meeting. There is no specific difficulty in this regard.
What specific features in the new CECA do you think will help enhance bilateral trade?
On the Singapore side, we hope to have a more favourable tariff treatment of goods and on rules of origin. Improve market access for some services. On Indian side, there is interest in mutual recognition agreements on some professions e.g. nursing.
When you said the business environment is "complicated", what exactly were you referring to?
It's a range of matters that Singaporean companies have encountered while trying to do business in India. Specifics would vary from case to case. When a company invests in a project, in India particularly, it means long gestation, long operating periods, long pay-back period. In market risks, there will be ups and downs but if you can minimize regulatory risk and political risks, it will be much easier for companies to come in and invest. The rules in India are complex; you have many levels of government. The requirements sometimes vary. Sometimes it in unavoidable, at other times it causes considerable concern to companies which have already committed. And for those who have not yet committed, they will have to make an assessment whether they want to take the risk. It is hard to comment on individual companies but if you take the situation overall, the potential for investments to come in into areas where you desperately want them-infrastructure, for example, or manufacturing-exceeds what is actually happening. I think if some of these matters are resolved or at least mitigated it will help to bring in these projects. We have worked with Singapore companies and come up with a brief of issues that can be improved. I don't think it's helpful to wash dirty linen in public, but we have conveyed this to the Indian authorities and we are hopeful that they will look into the matter. Certainly when I met Prime Minister Manmohan Singh yesterday, this was one of the issues I mentioned.
There is concern in some quarters in India that Singapore is being used as a destination for money laundering and routing of black money. What is your stand on this?
We have no interest in being a money-laundering centre. We are a financial centre with good standing, good cooperation with other financial centres and regulators, good exchange of information, arrangements, OECD standards, and why should we want to do this shady business? With India we have a DTAA (double taxation avoidance agreement), which is one of the things we did back in 2005 when we did the CECA. It provides for rules for tax treatment of investments in India by Singapore companies or companies based in Singapore. To make sure that companies are bonafide companies and not just some shell companies formed to route money from one place to another. And there are stringent terms for that. So I don't think that shady money wants to come to Singapore. I think shady money would rather go somewhere else rather than risk being scrutinized by our regulators.
I know that there is some sentiment in India that how can so much investment come from Singapore, which is such a small country. In fact, investments from Singapore to India I think cumulatively has been about 13 billion Singapore dollars. Whereas the overall investment outflow from Singapore is more than $400 billion. So India is about 3% of that. It's not a disproportionate amount. Before we concluded CECA, this was one of the major focuses of the Indian side. They wanted to make sure that CECA would lead into a substantial increase in investments to India. And that has happened. I think it has happened to an extent that exceeds what the Indian side had then envisioned. And I think that is a good thing.
We were a bit surprised to read the white paper on black money published by the Indian government and find ourselves mentioned in the despatches there. To have it suggested that the amounts are disproportionate and there must be some round-tripping involved-I think it is not correct. We have demarched the Indian government on this matter to put this record straight and explain why this is not true and it has been mistaken. And yesterday when I met the PM I raised this with him and explained to him that we should see significant and big investments from Singapore as a good thing and we think this is bonafide. The PM acknowledged my point and he felt that he accepted the explanation and we should not have been cited in this way in that white paper. So I accept that. I think that is the correct position.
What are Singapore's investment opportunities in India?
I think the Indian economy is at a stage where it needs considerable investments. It needs a lot of infrastructure investments because the economy is expanding so rapidly that infrastructure bottlenecks are holding it back. Be it roads or ports or airports or IT parks or power generating companies, water treatment companies etc. The Indian government is talking about a trillion-dollar investment into infrastructure. Singapore has companies that has some capability in some of these areas and can do some of these projects.
I think India also needs a substantial amount of manufacturing investments. It has made great strides in services, IT, in BPOs and in call centres. But you cannot have a whole economy based only on IT and call centres. You have to have a comprehensive economy and you are going to have hundreds of millions of young people coming into the work force over the next decade. Manufacturing has to be one of the areas where they can find good jobs. That is the way Singapore has managed its economic development. That is the way China has done its economic development and that's also the way Vietnam has been attracting investments from Japan, Korea, Taiwan and western countries.
I think for India, too, this is an important part of its economic growth and I think it has not been as comprehensive or as strong as it could be. Some of it has to do with the business environment, which has complex issues that the Indian side has to manage. Some of it has to do with lack of infrastructure, like industrial parks. If you can have large parks that provide electricity, water, space and a prepared environment, it is easier for companies to come in. We have built such parks in China, Indonesia, and in Vietnam. We have some experience in doing that and we think there is potential for doing that in India also. We are in talks with some of the states to do such projects.
It will take some time because you must acquire the land, you must have the approvals, you must do the environment impact assessment, you must have the support of the state government. We think that if these hurdles can be overcome, we could build these parks faster and it could make a contribution to India in a strategic direction.
What are the next areas for defence cooperation with India and where do you stand on the South China Sea issue and did you discuss this with the PM?
In defence, we have good cooperation with all three services - Army, Air Force and the Navy - they exercise together. The army and the Air Force have bilateral agreements, which codify the rules under which they work together. Yesterday we renewed the Air Force bilateral agreement and the army agreement is due for renewal next year.
We also have a policy dialogue between our defence ministries. That has been in progress earlier this week and I think we had a good exchange on strategic presence, defence development and how we can do more. I think we also have cooperation in the field of defence science and technology and security cooperation. One of the common concerns is terrorism. Terrorists do not respect international boundaries. In the Mumbai attacks, there was a Singaporean lady who was a casualty. So that security work is in progress. Some of it is public and some of it is not.
In terms of the South China Sea, it is being discussed at the ASEAN foreign ministers' meet currently. This is a long-standing issue. The South China Sea has many overlapping claims by many ASEAN countries as well as China. These claims are not going to be resolved quickly because I don't think any country is going to compromise on what it has been asserting for a long time to be its sovereign and historical territory. Our view in Singapore is that this is an issue that should be managed peacefully and in accordance with international laws, especially the laws of the sea, and respecting freedom of navigation for all countries. We are not a claimant state ourselves, so we have no direct interest, but we do have an interest in freedom of navigation.
Because the actual claims cannot be resolved one way or the other, we have to manage this conflict and deal with it on an ongoing basis. We do not want to have an incident in the seas just because there are competing claims. An escalation of hostilities, or worse, an actual exchange of fire is not desirable for anyone. So because of that ASEAN has concluded a declaration of conduct in the South China Sea and we want to work on a code of conduct in the South China Sea, which can help manage the issue. The rules do not solve the overlapping claims but they will help manage the contention and prevent it from escalating further.
You came here seven years ago. Has your impression of India changed this time?
Our bilateral relations have grown considerably during this period, trade has tripled, our investments have grown considerably. People movement is much more. India itself has had seven years of rapid growth. Right now it is in a slow phase. There are some concerns over rapidly rising costs-food prices particularly. There is also some political concern about continuing steps to open up the economy, in which you can see the Indian government's steps and rethinks over the last few months.
We believe the potential in India is there and we hope that India will continue to move towards engaging Southeast Asia and Asia and be part of the regional story.
You have been an advocate of India playing a greater role in the East Asia Summit. What specifically would you like India to do?
We have the Nalanda project, which is a significant undertaking to share the common cultural heritage, which India actually contributed to Southeast Asia and East Asia. There is Buddhism, but really, it is broader than that.
Secondly, in the East Asia Summit, there are specific areas of priority, which we have been working on. Financial services, black money problem, disaster relief and humanitarian assistance etc. We also have cooperation on ASEAN connectivity project. We have a masterplan to connect ASEAN countries more closely through IT, telecom, air and roads. For India, IT is specifically an area of strength. In building infrastructure and roads, India has capabilities, too. So I hope that India will participate in this.
Beyond this, there is a new initiative that ASEAN is pushing and I think it is important for India to participate in. It is the Regional Comprehensive Economic Partnership, a scheme to promote economic integration and trade liberalization between ASEAN and its partners in the region. India is one. We think it is significant. The benefit is not just trade benefits or tariff benefits. We are really trying to shape the landscape and architecture of cooperation within Asia. This will be the basis on which countries within Asia will work together on a wide range of issues. It has been formed now and we hope India will be present and participate in from the beginning because it has a great contribution to make.
Did you take discuss this with the PM?
Yes, I did, and he agrees with me.
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