US embassy cable - 04SINGAPORE3294

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