SINGAPORE PLAYS THE INDIA CARD

C O N F I D E N T I A L SECTION 01 OF 04 SINGAPORE 003294

SIPDIS

E.O. 12958: DECL: 11/18/2014
TAGS: PREL PGOV ECON ETRD SN IN EAIR
SUBJECT: SINGAPORE PLAYS THE INDIA CARD

REF: A. SINGAPORE 3027


B. STATE 171140

Classified By: Amb. Franklin L. Lavin, Reasons 1.4(b)(d)


1. (C) Summary: Singapore is actively cultivating a closer
political, military, and economic relationship with India.
The GOS values India's "strategic weight" and hopes it can
balance China's rising influence in the region. Singapore's
defense cooperation with India has taken off this year, with
the first-ever joint air exercise; new army exercises are
planned for next year. Both countries are on the verge of
signing a "Comprehensive Economic Cooperation Agreement,"
covering investment, services, and trade. Bilateral trade
and investment have also been growing rapidly in the last
several years and more Indian firms are using Singapore as a
regional base. Singapore has had temporary bouts of "India
fever" before, but this time the substance matches the
rhetoric. End Summary.

Making Friends
--------------


2. (C) Singapore is actively cultivating a closer political,
military, and economic relationship with India, which will
serve a number of different goals. As a small country with
large neighbors, Singapore tries to draw in outside powers
(such as the U.S.) to give them a stake in Singapore's
future. It also seeks a broad range of defense contacts and
exchange opportunities for its armed forces and is especially
interested in gaining access to training grounds given
Singapore's limited territory. For its economic development,
Singapore can not rely on its small domestic market and has
to gain and secure access to foreign markets for trade and
investment. It also wants to bolster its role as a regional
hub for trade, transport, and financial services. From the
Singapore perspective, India offers a potential strategic
counter-balance to growing Chinese influence in Southeast
Asia, a defense partner, a large potential trade and
investment market, and a user of Singapore's trade and
financial services.

(Another) Strategic Partner
--------------


3. (C) India is valued for its "considerable strategic
weight," according to Minister of Defense Teo Chee Hean. One
MFA official noted that Singapore hopes India can contribute
to regional peace and stability and use its weight to balance
China's growing economic and political clout in the region.
Singapore has also encouraged its ASEAN partners to look to
India as a source of "geopolitical balance" for Southeast
Asia and it took the lead in bringing India into the ASEAN
Regional Forum (ARF). The GOS is also concerned about
China's ability to dominate future regional groupings, such
as the proposed East Asia Community, and would prefer to
expand the membership to include India, among others. In
addition to its own bilateral FTA (see para 8 below),
Singapore is an enthusiastic supporter of the ASEAN-India FTA.

Accelerating Links
--------------


4. (SBU) Singapore's interest in India dates back to the
early 1990's, according to academic and MFA contacts. During
the Cold War, bilateral ties were limited due to India's
close ties with the Soviet Union and its support for
Vietnam's occupation of Cambodia, which ASEAN opposed. After
those impediments were removed, Singapore-India relations
started to improve. In 1994, then Prime Minister Goh Chok
Tong visited India, the first of five visits over ten years.
Indian PM Narasimha Rao returned the favor in 1994 and
announced India's growing interest in Southeast Asia in his
"Look East" policy. After that fast start, however, there
was little progress on deepening ties until the last two
years.

Defense Ties Take Off
--------------


5. (C) In 2003, India and Singapore signed a Defense
Cooperation Agreement to facilitate personnel exchanges,
visits, and training exercises. Both armed forces have
conducted joint naval exercises for the last decade, but the
scope of cooperation has expanded rapidly this year. In
October, the Singapore Air Force (RSAF) held its first air
exercise with India. Dubbed Sindex-04, the twenty day
exercise in Gwalior, India included six F-16 C/D jets from
Singapore and Su-30s, Mirage 2000s, Mig-29s and Mig-27s from
India. Chief of Staff (Air Staff) BG Ng Chee Khern told the
Embassy that Sindex-04 was the foundation for a long-term
relationship with India. The Indian Air Force plans to
earmark an air base in Jaipur, in northern India, for the
RSAF to carry out flight training and exercises but it would
not be a permanent facility for the RSAF, according to a
press report.


6. (C) During an October visit to India, Deputy Prime
Minister Tony Tan announced that the two armed forces would
conduct their first army exercises in India early next year.
Singapore is always interested in training opportunities in
other countries, noted one MFA official. India's Deputy High
Commissioner, Ravi Bangar, told us that India welcomes the
chance to practice in different environments and with
different types of equipment to promote inter-operability.
He added that there would be more ship visits by Indian naval
vessels and a joint naval exercise next year in the South
China Sea.

Law Enforcement
--------------


7. (C) India and Singapore established a joint working group
on terrorism and organized crime in 2003 (chaired at the
PermSec level),according to Bangar. Furthermore, both sides
are close to signing a Mutual Legal Assistance Treaty on
criminal cases. Bangar said the negotiations went very
smoothly with near completion in only three rounds of talks.
(Comment: The two sides share a common legal heritage since
they were both UK colonies and, at one time, Singapore was
administered from India. This undoubtedly helped the talks
and it is likely that the treaty is not as comprehensive as
the one we are negotiating with Singapore. India was
comfortable with Singapore's list-based approach to limiting
crimes covered under the agreement, said Bangar. End
Comment.)

Trade Agreement Coming Soon
--------------


8. (C) In 2002, Singapore proposed an FTA with India and last
year the two sides initiated negotiations for a
"Comprehensive Economic Cooperation Agreement" (CECA),which
covers investment and services in addition to trade. After
ten rounds of talks, the press reports, they expect to sign
the final agreement in the near future. (Note: Singapore
Minister for Trade and Industry Lim Hng Kiang recently told
the Ambassador they were not so close, commenting completion
could take another six months. End Note.) The remaining
stumbling block is the protection of foreign investment in
India. An MFA official complained that India's tariffs were
still too high and it was overly protective of its petroleum
sector, but these were not deal breakers. Given Singapore's
role as a major transshipment point, both sides eventually
agreed that goods shipped from Singapore would have to have
at least 40-percent value added to qualify for special
treatment.

Growing Trade and Investment Ties
--------------


9. (U) Bilateral trade and investment have grown rapidly in
the last several years, with India now Singapore's 12th
largest trading partner. In 1993, bilateral trade was only
USD 1.6 billion. In 2003, it reached USD 4.5 billion and
grew 16.2 percent compared with 2002. Through September,
this year's bilateral trade has already exceeded the total
for all of 2003. Singapore has consistently run a trade
surplus with India (USD 1.6 billion in 2003),with top export
items overwhelmingly high-tech related.


10. (C) With USD 1.3 billion in investments, Singapore
reportedly is one of India's larger foreign investors.
During a November visit to Singapore, GOI Trade Minister
Kamal Nath said he expected an additional USD 2 billion in
investment by Singapore next year in technology,
manufacturing, financial services, and aviation. As reported
in Ref A, Temasek Holdings has made a big splash in the India
market, especially in the past year. The GOS-owned
investment arm, run by Prime Minister Lee Hsien Loong's wife
Ho Ching, has plowed more than USD 500 million into Indian
firms, according to press reports. It has taken minority
stakes in banks, pharmaceutical firms, a hospital chain, and
a major rice exporter. Manish Kejriwal, managing director of
Temasek's India office said they were concentrating on
companies and sectors that would be proxies for the Indian
economy and those companies that could leverage India's
competitive advantages. Given its political links, Temasek's
aggressive move into the Indian market may be intended to
encourage more risk-averse investors to follow. Smaller
firms have been put off by India's high tariffs and red tape
and have usually looked to China first.
Gateway to SE Asia
--------------


11. (U) Singapore is marketing itself as a gateway to
Southeast Asia and beyond for Indian firms, pointing to its
financial and professional services, sound legal environment,
use of English, support network for expatriates, and
convenient air links. Emblematic of this rapidly increasing
interdependence, a new USD 100 million undersea fiber-optic
link between Singapore and Chennai came on-line November 3,
increasing Singapore's total connectivity to India by 60
percent, according to press reports, and strengthening its
position as an Asia-Pacific telecoms hub.


12. (U) Some 1,500 Indian firms are operating in Singapore,
up from 300 in 2001. Most of the firms are relatively small
operations and the expat Indian business community has not
coalesced to form its own chamber of commerce. Despite
Singapore's ethnic Indian community, firms from India do not
have significant business interactions with them, noted
Bangar. The firms from India deal more frequently with
ethnic Chinese Singaporeans or other multinationals. There
are approximately 70,000 Indian nationals working in
Singapore. While the majority are in blue collar positions,
perhaps 30-40 percent are professionals. Singapore is thus
an important source of remittances for India. India High
Commission First Secretary C. Rajendiran noted that more
Indian banks are entering the Singapore market aggressively
to provide remittance services, which in the past they
ignored.


13. (U) Still other indicators show diversifying ties. In
August, Meghmani Organics became the first Indian firm to
list on the Singapore stock exchange. It raised USD 16.5
million and the offer was over-subscribed three times.
Several other firms are reportedly looking at raising capital
through Singapore Depository Receipts. The Delhi Public
School opened a branch school in Singapore in April 2004 to
cater to children of Indian professionals. It has 900 slots
and follows in the footsteps of the Indian Central School
established in 2002, which already has 700 students.


14. (U) Air links have also been growing, despite the lack of
an open skies agreement. Singapore International Airways
(SIA) has increased its service to India from 23 flights a
week in 2003 to 38 in 2004. It now has daily flights to
Chennai and New Delhi, 12 flights a week to Mumbai, and three
a week to Bangalore, Calcutta, and Amritsar. (This still
falls short of its level of service to China. For example,
SIA has five daily flights to Guangzhou and Hong Kong, as
well as three daily flights to Shenzhen and Shanghai.)
Singapore is also a growing destination for tourists from
India. Approximately 400,000 Indian tourists visit every
year. Although their average stay is relatively short, they
are some of the highest per capita spenders, Bangar claimed.

Comment
--------------


15. (C) Singapore has had bouts of "India fever" before,
which faded when the substance failed to match the rhetoric.
In the last two years, however, Singapore and India have made
concrete progress in deepening their relationship -- in
defense cooperation, investment, and trade. The GOS is
sending a concerted message that India is both wanted and
needed in Southeast Asia to balance the rising influence of
China and to further expand regional economic prosperity. A
more robust Singapore-India relationship also serves USG
interests. It will demonstrate to ASEAN members that India
is a credible alternative economic and defense partner that
they can turn to in the face of China's growing power.
LAVIN