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The Geo-economics of India-Vietnam Engagements in the Indo-Pacific Region (Part 2)

05/11/2018


The Geo-economics of India-Vietnam Engagements in the Indo-Pacific Region (Part 2)


(Part 1)

Dr. Faisal Ahmed*

3. India-Vietnam Trade Relations

India and Vietnam have a strong bilateral relation characterized by historical linkages, high-level visits and robust institutional frameworks. This is evident through evolving patterns of trade and investment between the two countries, the development of bilateral institutional mechanisms, and increased attention to “specific” spheres of cooperation like those related to defence procurement. In 2017, India and Vietnam completed forty-five years of diplomatic relationship, and just a year prior to it i.e. in 2016, both countries upgraded their Strategic Partnership (2007-2017) into a Comprehensive Strategic Partnership.

Also, there are academic studies which have discussed on issues related to business and trade related challenges and prospects in context of India-Vietnam relations. Nguyen et al. (2016) have compared the levels of efficiency, innovation and competition in the economies of India, China and Vietnam. This year, significant policy attention is being given on India-Vietnam ties, yet there is scope of further policy space on some key geo-economic issues discussed later in this paper. In January 2018, the Vietnamese Ambassador to India, Ton Sinh Thanh has rightly remarked that “India plays a leading role in the Indian Ocean region, while Vietnam holds an important geopolitical position in the Pacific region”. The two countries are facing similar prospects and challenges and can fulfill them through mutual cooperation.

The trade relations between the two countries has generally witnessed an increasing trend. In a decade, India’s exports to Vietnam has increased from US$ 1,738.65 million in 2008-09 to US$ 7,813.08 million in 2017-18. Moreover, India’s import from Vietnam also increased from US$ 408.66 million in 2008-09 to US$ 5,018.55 million in 2017-18 (see Figure 1).

Figure 1: India’s Trade with Vietnam (in US$ million)

Source: Based on data from the Ministry of Commerce and Industry, Government of India

Moreover, there have been marked fluctuations in the percentage growth of bilateral exports and imports in the last decade. In 2009-10, India’s export growth was 5.77% as compared to 2008-09. It saw a marked increase in 2011-12 and stood at 40.27% as compared to 2010-11. Most recently, it stands at 15.13% in 2017-18 as compared to 2016-17. Also, in 2009-10, India’s import growth was 27.69% as compared to 2008-09. It saw a marked increase in 2011-12 and stood at 61.79% as compared to 2010-11. In 2017-18, the imports grew at a rate of 51.14% when compared to the previous year i.e. 2016-17. In 2015-16, both the exports and imports witnessed a negative growth of (-)15.85% and (-)14.75% respectively, as compared to the previous year i.e. 2014-15 (see Table 1).

Table 1: Growth Rate of India’s Trade with Vietnam (in % as compared to previous FY)

Source: Ministry of Commerce and Industry, Government of India

Moreover, a commodity-wise analysis of major Indian exports to and imports from Vietnam also reveals insightful statistics. When taken at 2-digit HS Code, the top 7 exports and imports commodities (in terms of value as in 2017-18) have been identified in Table 2. These commodities constitute a major chunk of the total trade between the two countries. Meat and edible meat offal (HS Code 02) is India’s major exports to Vietnam and accounted for US$ 2292.38 million in 2017-18. It was followed by fish and crustaceans, molluscs and other aquatic invertebrates (classified under HS Code 03) which accounted for US$ 1843.79 million. Vietnam’s top exports to India is in commodities which comes under the HS Code 85 and accounted for US$ 1595.73 million in 2017-18. It comprises of electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts. This is followed by copper and articles thereof which is classified under HS Code 74 and accounted for US$ 424.98 million.

Table 2: India-Vietnam Top Trading Commodities

Source: Ministry of Commerce and Industry, Government of India

4. Geo-economic Enablers: Challenges and Way Ahead

Given the above backdrop, it is therefore pertinent to identify those geo-economic enablers that would need continuous policy space and those which have the potential to redefine India-Vietnam bilateral engagements. Since the nature of this engagement is largely geo-economic, policy attention on these enablers would serve as an instrument of economic as well as geopolitical interests of both countries. India offered a US$ 500 million defence line for credit to Vietnam in 2016. Also, several agreements including those on off-shore patrol vessels, cybersecurity, construction of an army software park, United Nations peacekeeping, and scholarship for higher education were also signed. In fact, owing to the momentum set forth on various bilateral issues including extending the defence line of credit, gaining a “strategic depth” in bilateral socio-economic and geopolitical pursuits now seems inevitable.[1]

  • Strengthening Defence and Security Cooperation: Both India and Vietnam are prominent countries of the Free and Open Indo-Pacific region. Both are committed for a joint co-production in defence, which also includes technology transfer from India to Vietnam. The two countries are keen to build a deeper economic and geopolitical engagements and their upgradation of the Strategic Partnership (2007-17) into a Comprehensive Strategic Partnership reveals it significantly. Military, Maritime and Cyber security are the key concerns. In order to accelerate the defence ties further, India and Vietnam have agreed on the exchange of senior level defence delegation, regular senior level dialogue and also cooperation between the two armed forces. Moreover, equipment procurement and capacity building projects and initiatives are also underway. The ASEAN Defence Ministers Meeting (ADMM) plus is also crucial in this context. The two countries have struck deals related to it.
  • EEZ issues and South China Sea: The geopolitical challenges in the South China Sea and the issue of Exclusive Economic Zone (EEZ) has geo-economic implication for both India and Vietnam. This contentious geopolitical issue is also reflected pragmatically in the comprehensive strategic partnership. For instance, India has also expressed its concern about the freedom of navigation in the South China Sea, and in 2016 also supported the verdict of the Permanent Court of Arbitration of the International Court of Justice. Last year, on the sidelines of the ASEAN summit, Prime Minister Modi held talks with Prime Minister Phuc and both leaders stressed on deepening the bilateral relations. Most recently, we have seen a call from Vietnam inviting newer Indian investments in the oil and gas sector in its exclusive economic zone (EEZ) in the South China Sea, which could open up another chapter in our engagement in the South China Sea.
  • Need for Joint Patrolling and its continuity: India seeks to enter Vietnamese defence market for a better strategic bilateral relation.  India has committed to US$ 100 million defence line of credit to Vietnam for catering of Dhruv advanced light helicopters and Akash Surface to Air Missile systems and also of the Offshore Petrol Vehicle.[2] To possibly operationalize the said arrangement, the Garden Reach Shipbuilders & Engineers (GRSE) have made a bid to supply Vietnam with 14 patrol boats worth US$ 212 million.[3] There is also a need for joint patrolling and naval exercises to be carried out by India and Vietnam in the South China Sea.
  • Impact on the Global Value Chains: Geopolitical volatility has significant impact in the value chains and global production networks as well, especially in East Asia. The issue of participation in the global value chains (GVCs) is therefore crucial for both India and Vietnam. More than 60 per cent of the global trade today happens in intermediate goods. The production networks and value chain activities are geographically spread across a region based on raw material availability, market size and cost advantages. Surprisingly, the participation of both India and Vietnam is relatively less than their true potential. The two countries should collaborate with each other in enhancing their GVC participation especially in sectors such as apparel, footwear, electronic goods, and even petrochemicals.
  • Impetus on Cyber Security: A memorandum of understanding was signed between India and Vietnam in the field of cyber security on September 3, 2016 at Hanoi. It was signed between Indian Computer Emergency Response Team (CERT-In), India, and the Cyber Security Department, Ministry of Public Security, Government of Vietnam. The aim is to give a strategic depth to the bilateral cooperation between the two countries. The working of this MoU will be mutually beneficial in terms of institutional and capacity building in the field of cybersecurity. This will also increase the cybercrime control mechanism in Vietnam. Vietnam will pass a Cybersecurity Bill too.
  • Construction of Army Software Park: Army Software Park is a major initiative proposed during the visit of Prime Minister Narendra Modi to Vietnam in September 2016. Also, after the visit of Vietnamese Prime Minister in 2014 to India, a Vietnam-India Centre for English Language and IT Training has been established in Nha Trang. India announced a grant of US$ 5 million for the construction of an Army Software Park.[4]   
  • Diversification of trade basket: The diversification of bilateral trade basket remains a concern. India’s exports to Vietnam in 2017-18 increased by 15.13% over the previous year. And interestingly, Vietnam’s exports to India also increased by 51.41%. The bilateral trade stands at US$ 10.11 billion, which is again a 29.14% increase from the previous year. All these statistics clearly reveal that this bilateral engagement has created a win-win situation for both the countries. Last year, President Pranab Mukherjee also called upon the two countries to work toward a US$ 15 billion target for bilateral trade by 2020. This target seems quite achievable given the intensity and the level of ongoing cooperation. However, most of the bilateral trade are only in conventional sectors of our respective comparative advantages like fish and crustaceans, rubber, cotton, edible meat and offal, OEMs, electrical machinery and parts etc. But we need to develop our bilateral trade portfolio based by creating newer competitive advantages in other sectors as well.
  • Policy attention on Small and Medium Enterprises: The small and medium enterprises (SMEs) forms the backbone of the developing countries, and helps enhance their export potential as well as their participation in the GVCs. The institutional frameworks including industry chambers, and the role of regional congregations like Mekong-Ganga Cooperation (MGC) and that of India and the Association of Southeast Asian Nations (ASEAN) free trade agreements (FTAs) in goods as well as in services have immensely contributed to the development of bilateral cooperation. Moreover, the policy frameworks like the “Look East Policy” and now its successor “Act East Policy” too are being leveraged well by the government to boost India-Vietnam bilateral ties. Nonetheless, the focus now should potentially be on creating SME clusters linked to multinational lead firms. With improved investments and market access, this will help create avenues to address even SME related challenges like adapting to global demand, availability of finance, managing supply-side constraints, innovation, access to technology, reducing carbon emission, among others.
  • Need for capacity building in Services Sector: the cooperation in services sector need a boost. India’s global exports of services is US$ 161.8 billion, while Vietnam’s global services exports stands at US$ 12.38 billion as of 2016. Vietnam’s economic activities are quite consistent in terms of the participation in the gross domestic product (GDP). Agriculture sector makes a 15.9 per cent contribution to Vietnam’s GDP, while industry contributes 32.7 per cent and services sector is also quite upcoming with 41.3 per cent. With such a structure, Vietnam has huge potential to develop its services sector especially information and communication technology, financial services, tourism, audio-visual services, logistics, and even higher education in collaboration with India. Thus, there is an imminent need for institutional and human capacity building in this sector. (Part 3)

[1] Some of the geo-economic issues highlighted here are also based on author’s article titled “India and Vietnam must create greater synergies” published in The Statesman newspaper in January 2018 

[2] Sandeep Dikshit, “India offers Vietnam credit for military ware”, The Hindu, July 28, 2013

[3] Maki Catama, “Vietnam Looking to Buy 14 Fast Patrol Boats from India”, ASEAN Military Defence Review, August 29, 2015 

[4] India - Vietnam: 45 years, partners in Peace, By Dipanjan Roy Chaudhury, The Economic Times, January 18, 2017

* Associate Professor and Chairman, International Business Area, FORE School of Management, New Delhi, India

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