Assessment of prospects of promotion of Commerce & Industry relations between India and Vietnam

·  Propelled by cultural linkages, ideological similarity and identical global political perspective,India and Vietnam share a cordial bilateral commercial & industrial relationship since their independence.

·  Against the backdrop of a prolonged period of global uncertainty, particularly in the multilateral trade relations, despite China’s grand pronouncements, the present seems most appropriate for both countries to take pro-active measures towards realizing the huge potential of trade and investment that prevails between both countries.

·    While Vietnam is determined to promote the Trans-Pacific Partnership (TPP) Agreement even without the US membership, India though all for FTAs does not seem to be keen on the TPP membership. The 11 remaining signatories of the TPP, which includes Vietnam and not India, signed a declaration in mid-March and reiterated at the recent Asia-Pacific trade ministers meeting in Vietnam to continue the promotion of free trade and regional integration in the Asia-Pacific region.

·    The Act East Policy, of which Vietnam is a kingpin, is the mainstay of India’s foreign policy.This policy has helped India to be seen internationally as being integral to the Indo-Pacific region and the Asian order.

Backdrop & Current Scenario

The economic & commercial dialogue for promotion of Indo-Vietnam bilateral relations was absent till 1990s. In 1986, the virtually ‘closed economy’ of Vietnam initiated the ‘Doi Moi’ (renovation) movement, which marked the onset of “market-oriented economic management”. Few years later in 1991, India, too, began replacing its ‘import substitution’ model with a wide structural adjustment programme. Later, India adopted the ‘Look East Policy’, imbued with economic element, signifying an important turn in India–Vietnam economic relations. In fact the imperative of economic development gave rise to strengthening of bilateral economic & commercial linkages by both countries. Support was provided by regional arrangements like ASEAN–India Free Trade Area (AIFTA). Still the relation between the two countries is still in its budding stage. Despite India being an economic powerhouse and like Vietnam, a fast growing economy, the bilateral trade and investment flows have been far below the actual potential. While the Vietnam’s bilateral trade with both China and the US is over $10bn mark, India Vietnam trade volume is merely around $ One bn.

India has been keen on boosting trade and investment with the CLMV (Cambodia, Laos, Myanmar and Vietnam) region being in close proximity as part of its ‘Act East’ policy. This region, progressing by an average of over 7% in 2015 as compared to ASEAN's average of 4.8%, provides huge opportunity for India. The CLMV forms a part of ASEAN bloc with which India already has a free trade agreement and is negotiating a broader Regional Comprehensive Economic Partnership (RCEP) agreement that spans across 16 countries. India is encouraging its industry to create value chains with the CLMV with a view to get export benefits from US and EU. Hopefully, India will be able to garner more partnership trade initiatives with the region to develop a strong India-CLMV vertical within the ASEAN market. Good scope exists for improving trade in sectors like health and well-being, manufacturing, agriculture, fisheries, skilling among many others. There are seen clear verticals for India to facilitate trade with these countries like, organic agriculture produce from Myanmar and value added products from coffee & pepper produce of Vietnam. These countries can take advantage of the tremendous scope in skill resources across various sectors of India.  A CLMV conclave is held annually which facilitates a platform for the decision makers from CLMV countries to interact with a range of Indian business companies involved in trading, manufacturing, processing, engineering, consultancy, construction etc.

Vietnam has been seeking to deepen ties with regional powers such as India and the US. This is despite its estranged ties with China owing to South China Sea territorial disputes. Vietnam is also liberalizing its economy, especially international trade, while restructuring its banks and state owned enterprises. Its real GDP growth is expected to bounce back to an average of 6.7% a year due to robust domestic demand in 2017-18, also aided by a recovery in global trade.

In comparison, the Indian economy is fundamentally strong with low inflationary, high growth, revival in exports and manageable fiscal parameters environment. During the last three years, the benchmark indices -Sensex and Nifty- on two major exchanges rallied 23% and 28% respectively. India’s total market capitalization stands at around $2 trn. Indian market is continuing to generate positive returns and is considered a better spot over other markets be it other emerging markets or a few developed markets. India’s future post GST is very optimistic as it is set to create new buoyancy in the economy. The World Bank in its latest ‘India Economic Update’ has said that private investment would lead India’s growth in FY19. Another notable development is that India’s foreign policy has taken an unconventional turn. Traditionally, India used to be reluctant to publicly confront China’s hegemonic ambitions. India has today clearly articulated objections to China’s One Belt, One Road (OBOR) and China Pakistan Economic Corridor (CPEC).

Some Important Recent Developments

·      China may go ahead with a regional economic deal without India as there is slim hope of India signing it in view of its concerns over cheap Chinese goods inundating Indian markets.

·       Defense cooperation, the most important pillar of cooperation between the two countries, received a fillip with Modi announcing a new $500 mn line of credit for Vietnam to facilitate deeper defense cooperation.

·     Further, both PM Modi and PM Nguyen Xuan Phuc have welcomed the facilitation of ongoing Indian projects and investments in Vietnam. Twelve MoUs covering the sectors of defense, space, IT, health, mutual recognition of standards and cyber-security have been signed, as well as an MoU on cooperation between the Vietnamese Academy of Social Science and Indian Council of World Affairs. India pledged $5 mn to set up a software park in Vietnam. Vietnamese companies have also been invited to India to take advantage of the various flagship schemes and programs of the government.

·    PM Modi has emphasized the need to foster further relations between the two countries on regional and international issues of common concern.

Prospects Ahead

·         India’s is constantly shifting gears from the ‘Look East’ policy to an ‘Act East’ policy.

·    A number of Indian States hold lot of po0tential of establishing sustainable relations with Vietnam.For ex. Rajasthan and many other States offer great scope for tourism. These States need to go in for bilateral arrangements for tourism with the CLMV region. Rajasthan offers great scope for facilitating trade with the CLMV countries like the skill in Rajasthan for value added gems & precious stones, food and spices.

·     Indian government’s initiative to support the industry through business meetings is a positive development. 

·       Some promising Indian sectors for trade and investments are Manufacturing, Pharma, Healthcare, Agri-business, Food Processing, Infrastructure, Textiles, Leather, Renewable Energy, Skills, Education and Engineering.

·         New "TPP-11" is expected to explore going ahead with the pact without the US, which does not necessarily preclude progress on RCEP. The TPP-11 may get finalized first, given that the RCEP talks would include negotiations with giant economies such as India and China.

·  Within manufacturing, expansion of intra-industry trade in the textile sector could prove advantageous for both countries. Vietnam could replace its imports of fabric and yarn from China with imports from India while exporting its lower priced garments to the growing Indian market.

·     Cooperation in Agricultural Sector is another avenue of building partnership. However, India in agriculture still has high levels of protection relative to the levels of tariff imposed by Vietnam. India could consider lowering these tariffs to provide better market access to agro-exports from Vietnam which need to diversify its export basket to India.

·      On the Mekong-Ganga Cooperation, there is need to expand and deepen the robust connectivity between the corridors like infrastructure, facilitation of trade, expansion of the trilateral highway (currently including only India, Myanmar, and Thailand) to Vietnam, reduction of transaction costs, interconnectivity of goods and labor markets and improving funding.

·      PM Modi has been robustly promoting country’s “Make in India” campaign overseas. India is a destination which no willing foreign investors can overlook. However, the percentage of trade with Vietnam is still minimal, making up only about 1.22% of India’s total trade. This can rise in the near term with realization of ASEAN-India Free Trade Agreement in services and investment. It requires increase in manufacturing capacities of both India and Vietnam, which have been getting good amount of FDI. India can further reap the advantages of the bilateral economic relationship if it gets integrated into the RCEP, currently under negotiation. India and Vietnam must also work for direct bilateral connectivity and easing visa regulations for business individuals.

·    In the defense sector, the developments are quite promising. Indian firms can partner global defense suppliers through a transparent and competitive process of selection according to the new strategic partnership (SP) policy. India and Vietnam can develop signals intelligence & imaging, conduct joint military exercises, promote intelligence sharing and increase surveillance and reconnaissance capabilities in the region. Vietnam can also find new opportunities under India’s new defense policy, which has laid an emphasis on “Make in India.”

·     India can engage in Vietnam’s shipping industry by helping Vietnam to construct a viable       maritime infrastructure, thereby providing much-needed investment and quality manpower.

·    Investors and project developers can explore and look for new opportunities in areas of solar power, wind power, hydropower, bio fuels, and the development of photovoltaics. Both countries can also seek to work together on exploring clean energy solutions and smart grid technologies.

Summing up, both India and Vietnam believe that the FTAs create pathways for private sector to become globally competitive. Also ramping up bilateral trade and increasing private investment flows between the two countries will reinforce a new relationship that has already begun to achieve a new dynamism.

The temporary eclipse of both Trans-Pacific Partnership Agreement and Transatlantic Trade and Investment Partnership has provided breathing space to Indian enterprises and policymakers to improve competitiveness of Indian exports. India will also have to broaden the scope of bilateral and regional arrangements to include services.

Indian authorities and Industry have to be bold, pragmatic and imaginative to foster ties with Vietnam and take the relationship, as former Vietnamese President Ho Chi Minh had remarked, into a cloudless sky. The time is ripe for both countries to come closer in their quest for designing the emerging geo-economic environment in Asia. Business Associations like Indo-Vietnamese Chamber of Commerce & Industry (IVCCI) can play a major role in promoting Indo- Vietnamese Economic & Commercial Partnership in multifarious ways.