Why Cambodia Should Hedge by Engaging India More

During the 23 July national election in Cambodia, much attention was paid to the ruling Cambodian Peoples’ Party and its relationship with China vis-a-vis the West. Yet, with India now being the largest market in terms of population and poised to be the second-largest economy by 2075, it is time for Cambodia to strategically embrace the biggest democracy to diversify its long-term political and economic interests and reduce its dependence on China and the West.

Like many Southeast Asian countries, Cambodia sits on the nexus between China and the West. As Cambodia’s largest investor and donor, China has spurred the country’s economic growth. Due to this dependence and the tension over the reported Chinese naval base in Cambodia, Phnom Penh has a rocky relationship with the West. Yet, the United States and the European Union are the largest export markets for Cambodia, particularly for garment and agricultural products. Since India is an emerging power, Cambodia should hedge by engaging India more to reduce the geopolitical tension and to attract more investment in sectors that are key to sustained growth. Strengthened ties with India would provide alternative investment and export options for Cambodia, hence reducing its reliance on China and the West.

India is no stranger to Cambodia and has played a central role in its development. There are deep-rooted Indo-Khmer civilisational bonds and the Jawaharlal Nehru-Norodom Sihanouk friendship in the1960s. In the 1980s, India was the first non-communist country to recognise the Phnom Penh regime. It re-established its embassy in Cambodia in 1981. Later, India significantly contributed to the peacebuilding process in Cambodia by sending thousands of its military personnel to join the United Nations Transitional Authority in Cambodia, which organised the first free elections in 1993. Subsequently, India has played a constructive role in Cambodia’s socio-economic development by providing aid in the fields of culture, education, health, sciences and information technology. Its conservation and restoration of Cambodia’s Hindu-Buddhist temples, which are the key sources of tourism revenue, has been outstanding. In the area of education, over 2,000 Cambodian civil servants and defence officers have received training in India.

Since India is an emerging power, Cambodia should hedge by engaging India more to reduce the geopolitical tension and to attract more investment in sectors that are key to sustained growth. Strengthened ties with India would provide alternative investment and export options for Cambodia, hence reducing its reliance on China and the West.

Recently, under its “Act East Policy”, India has enhanced its strategic relations with Cambodia, and Cambodia has been responsive to this effort. This is particularly seen in the defence domain, where there has been an increase in training, grants for defence procurement, maritime diplomacy and high-level exchanges. Apart from providing annual training with a special 18-slot reservation for Cambodian defence officers, India has extended a grant of US$1.5 million for the purchase of demining equipment. It has offered credit worth US$50 million for the procurement of defence equipment from India. There have been more frequent goodwill visits by Indian Navy and Coast Guard ships to Cambodia’s port in Sihanoukville. The latest instance is a six-day visit of the Coast Guard ship ICGS Samudra Paheredar in March 2023. The deepening of the defence cooperation between the two countries can be seen through the visit of General Hun Manet, the Prime Minister-in-waiting, to India in February 2023. It was the first visit by a Cambodian military commander, culminating in bilateral agreements that opened the first direct communication channel between the two militaries. In April 2023, they had their first Army-to-Army dialogue in Cambodia.

On the political front, Cambodia, as the ASEAN chair, helped India become a ‘Comprehensive Strategic Partner’ of the bloc at the 19th ASEAN-India Summit held in November 2022 in Phnom Penh. Incidentally, 2022 marked the 70th anniversary of diplomatic ties between the two nations.

During the visit, Vice-President Jagdeep Dhankhar pledged to substantially increase the number of scholarships for Cambodian students to study at premier Indian universities. Furthermore, another major culmination of the celebration was the maiden state visit of His Majesty King Norodom Sihamoni to India in May 2023 — more than six decades since the late King Norodom Sihanouk’s last visit in 1963. Thus, the reconnection between the heads of state and army chiefs marks an apex in bilateral relations, paving the way for more cooperation in areas of common interests.

However, Cambodia and India need to do more in the economic realm. Under the Mekong-Ganga Cooperation framework, which was launched in 2000 to engage with the Mekong region, India’s bilateral trade with Cambodia is limited. India is Cambodia’s 18^th largest trading partner, with the trade volume standing only at US$440 million in 2022. Moreover, this minimal trade is not in the key growth sectors of Cambodia. Indian investment in Cambodia is primarily in pharmaceuticals, automobiles and mining. Cambodia exports mainly agricultural produce, garments and footwear to India, valued at US$197 million in 2022. Hence, for Cambodia, India is a highly potential candidate for its Free Trade Agreement (FTA) expansion to attract more and better foreign direct investment and expand market access to diversify export destinations, especially in agriculture, light manufacturing and information technology (where India has a niche).

Phnom Penh is seeing bumpy relations with the United States and the European Union. The Generalised System of Preferences (GSP) and Everything but Arms (EBA) are trade privileges that support the bulk of Cambodia’s exports but have come under pressure.  The U.S. has hinted that a Chinese naval base in Cambodia would jeopardise bilateral relations, implicating a change in the status of the GSP. In 2020, Brussels reimposed 20 per cent trade duties on Cambodia’s exports due to Phnom Penh’s human rights record. The EU’s concern about the unfairness of the current election makes the EBA even more uncertain. At this, India could be an option for Cambodia to widen its trade networks. India is not in the Regional Comprehensive Economic Partnership (RCEP), where Cambodia is a member. The two countries should start preliminary negotiations on an FTA.

The environment for the partnership is conducive. India has an open, “demand-led” development cooperation model driven by its “Act East Policy”. Plus, the strong civilisational tie, the increased aid in human resource development, and the earlier-established transport and digital connectivity between the two countries should be a firm foundation for a better relationship. Ultimately, the current political momentum should further spur and deepen this partnership. Given the strategic rivalry between China and India, this path may not be a smooth one. But it is high time for Cambodia to embrace India more strategically.

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