The move is part of the ministry’s efforts to derisk India from the impact of regional trade agreements and create new exporting clusters for Indian companies.
The newly created subsidiary of GPCL will act as a facilitator by identifying opportunities, preparing feasibility reports and finally creating bankable projects in CLMV countries where Indian firms can set up manufacturing units, a government official said on condition of anonymity.
The subsidiary will subsequently create a number of special purpose vehicles with private entities, acquire a special economic zone (SEZ) or industrial park, develop it and then start allocating space in it to business entities in India against payments.
“We have to set up the subsidiary under the Companies Act and adequately man it. “The government has allocated Rs.100 crore for this fiscal and intends to provide Rs.500 crore in total,” the official added.
The official said the first destination for investment could be Vietnam where a textile park could be developed.
Of the four CLMV countries, Vietnam is part of ongoing negotiations for a 12-member Trans Pacific Partnership agreement, which is expected to raise standards of trade, investment and intellectual property rights, making it difficult for non-members like India to gain market access.
India is hoping that a presence in Vietnam could help it gain easier access to markets of developed member-countries including the US and Canada.
According to Harish Anand, director at the Centre for Trade Facilitation and Research in Textiles, India is still a competitive location for business in cotton-based products and setting up shop in Vietnam may not make sense for textile makers.
“We have easy access to raw materials here. Though labour will be available at a cheaper price in Vietnam, the logistical difficulties of importing cotton yarn from India and storing it will outweigh the advantages,” he said.
The government official cited above said India enjoyed enormous goodwill in the CLMV group and for geo-strategic reasons, too, the country wants to increase its presence in these countries.
“Investments in such countries will also help Indian companies to get integrated with the value chain of the East Asian economies,” he added.
In his budget speech, finance minister Arun Jaitley said the Act East policy of the government endeavours to cultivate extensive economic and strategic relations in South-East Asia.
“In order to catalyze investments from the Indian private sector in this region, a project development firm will, through separate special purpose vehicles (SPVs), set up manufacturing hubs in CLMV countries,” he said.
India’s exports to CLMV countries grew 38% to $6.4 billion in 2013-14, while its imports increased 4.2% to $4 billion during the same year.
The CLMV countries cover 32% of geographical area of the Asean (Association of Southeast Asian Nations) region, and account for around 9% of Asean’s gross domestic product.
These countries have been undergoing a transition from central planning to market economies. CLMV nations, considered among the fastest growing economies in the region, are primarily agrarian.
These economies are endowed with abundant natural resources and cheap labour, but they are plagued by underdeveloped infrastructure and logistics.
Except Vietnam, the rest of the CLMV group are classified by the United Nations under the category of least developed countries.