India-Singapore CECA at the center of bilateral strategic partnership

Indian Prime Minister Narendra Modi wrapped up his two-day state visit to Singapore on November 24th. This year marks the 50th anniversary of diplomatic relations between the two countries, and they have agreed to elevate their ties to a strategic partnership. It is being built upon a framework of agreements that include the 1994 Double Taxation Avoidance Agreement (DTA) and its various protocols, Defense Cooperation Agreements, and the Comprehensive Economic Cooperation Agreement (CECA).¹

Singapore is a major offshore financial hub for many Indian companies due to the presence of a large Indian diaspora, historic ties between the two business communities, strong air connectivity, and a pro-business environment. Over 6,000 Indian companies are registered in Singapore. There are up to 464 weekly flights between the two countries with direct connections between Singapore and 12 Indian cities.²

Scaling up trade and investment
The joint statement released on November 24th calls CECA the bedrock of economic partnership between the two countries. The partners have set an ambitious goal of doubling trade and Singaporean investment into India in the next few years. They also pledged to set up a Joint Working Group between their respective industry ministries to address bilateral trade and investment issues more effectively.

In order to achieve the ambitious investment targets, Prime Minister Modi pledged to make the Indian tax regime more transparent, stressed the importance of Singapore as a source of financing for infrastructure development through rupee bonds, and supported early conclusion of the CECA’s second review which is currently in progress.³

The benefits of CECA
Signed in 2005, CECA is the cornerstone of trade and investment ties between Singapore and India. Bilateral trade has grown almost fivefold from US$4.2 billion in 2003-04 to US$19.4 billion in 2013-14.⁴ Singapore, which has been the second largest source of FDI to India, edged out Mauritius last year with US$6 billion FDI compared to US$4.8 billion from Mauritius.⁵

CECA widened the scope of business between India and Singapore. It clarified taxation rules and opened up market access in a variety of manufacturing, services and financial sectors. It also created clear provisions for dispute resolution and encouraged cross border movement of people. Some of the benefits of CECA are discussed below:

Taxation
CECA updates and expands the 1994 DTA agreement. The agreement gives Singapore residents exemption under which capital gains can be remitted to Singapore free of Indian withholding tax. However, there are caveats to this exemption. Companies whose operations exist to take advantage of the DTA benefits are ineligible. Also, in order to be eligible, companies should have a total annual expenditure of S$200,000 in 24 months from the date of which capital gains arise.⁶

Market access
CECA enables Indian companies to access Singapore's capital markets to raise capital through a variety of financial instruments. For example, Flipkart, the Indian e-commerce website which counts GIC as an investor, has raised external funding in Singapore.⁷ Market access to Indian banks in Singapore has been a challenge.

Investment protection
Under CECA, India accords national treatment to Singaporean investors in areas such as manufacturing of textiles, paper and paper products, chemical products, and construction development projects. Meanwhile, Singapore gives national treatment to Indian investors on a negative list basis with beer and stout, drawn steel products, and chewing gum excluded.⁸ The countries cannot expropriate investments without proper legal safeguards. Also, CECA allows investors to directly initiate arbitration against a state without approaching its own government in case of a violation.

Trade in services: Mutual Recognition Agreements
The agreement provides a platform for ensuring free movement of professionals. Mutual Recognition Agreements (MRAs) – negotiated on the basis of CECA – recognise educational and professional qualifications in services such as accounting and auditing, architecture, medical, dental, and nursing services.⁹ With changes in Singapore's foreign labor policies, the MRAs have taken longer to negotiate than expected.

Regionalisation as the future of CECA
As India and Singapore prepare to elevate their relations to a strategic partnership based on trade and investment, CECA can be a model for regional economic engagement between India and Southeast Asia. Singapore is well placed to encourage this wider engagement because it is the center of Southeast Asia's regional value chains.¹⁰

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¹https://hcisingapore.gov.in/pages.php?id=68
²https://hcisingapore.gov.in/pages.php?id=68
³https://www.channelnewsasia.com/news/singapore/india-s-urban-solutions/2289082.html; https://www.mfa.gov.sg/content/mfa/media_centre/press_room/pr/2015/201511/press_201511243.html
⁴https://www.mfa.gov.sg/content/mfa/media_centre/press_room/pr/2014/201408/press_20140816_1.html
⁵https://timesofindia.indiatimes.com/business/india-business/Singapore-replaces-Mauritius-as-top-source-of-FDI-in-India/articleshow/35590304.cms
⁶https://www.fta.gov.sg/ceca/ceca_india_infokit.pdf, p.4
⁷https://www.livemint.com/Companies/jsYNvJSmfB6tbWKqRL9vhK/Flipkart-raises-700-million-in-fresh-funds.html
⁸https://www.cnplaw.com/en/files/articles/2005/india/INDIA_Jul2005_Feature_2.pdf
⁹https://www.cnplaw.com/en/files/articles/2005/india/INDIA_Jul2005_Feature_2.pdf, p.3
¹⁰https://www.forbes.com/sites/girijapande/2015/11/16/wish-list-for-pm-modis-first-state-visit-to-singapore/