Four Decades of India – Vietnam Economic and Commercial Relations & the Way Forward (Part 1)


Four Decades of India – Vietnam Economic and Commercial Relations & the Way Forward (Part 1)

Paper will be in 2 parts: Part I: Four Decades of India – Vietnam Economic and Commercial Relations; Part II: The Way Forward for the Next Decade

Four Decades of India – Vietnam Economic and Commercial Relations & the Way Forward

Shantanu Srivastava[1]

Distinguished speakers, participants, ladies and gentlemen,

Thank you for inviting me to share my personal experience of over 30 years in a relationship of love, respect and cooperation with Vietnam. I have been closely associated with Vietnam since 1982 and have witnessed with keen interest the process of integration and economic reconstruction after long years of war. Vietnam’s long and gallant struggle for freedom and the subsequent determined thrust to undertake the gigantic task of economic reconstruction offer several important lessons in management to the whole world.

While in school, I used to admire uncle Ho for his resilience, vision and determination to achieve freedom for Vietnam and his mission to spread peace and friendship around the world. I find a lot of similarities between Mahatma Gandhi, our father of the nation, and uncle Ho as both of them sacrificed their lives in the service of their countries. Mahatma Gandhi used to say “Swadhinta Kisi Bhi Dam Pe Mahengi Nahin Hoti. Ye To Jivan Ka Adhar Hoti Hai” which means “independence is never too expensive at any cost. It’s the basis of life” and uncle Ho used to say “khong co gi quy hon doc lap tu do” which means that “there is nothing more precious than independence and freedom”. What a remarkable similarity in the thought process of the two greatest leaders of the world.

History has shown that India and Vietnam are true friends who have cooperated closely for centuries. For India, the strategic partnership with Vietnam is undoubtedly important and figures prominently in our Act East Policy. Changes in the global geo-political and economic scenario have impacted positively the India-Vietnam partnership. The economic reform programs of both countries and the global integration of our economies have opened numerous opportunities for mutually beneficial cooperation.  We have upgraded our cooperation to Strategic Partnership, based on commonality of interests and shared perceptions on global and regional developments.

Ladies and gentlemen, today I will take you through a brief journey of the past 4 decades and see how the commercial and economic relations developed between our two countries. I will also share with you my vision for the future so that together we can carve an innovative and effective strategy for cooperation. My views will, therefore, be in 2 parts:

Part I: Four Decades of India – Vietnam Economic and Commercial Relations

Part II: The Way Forward for the Next Decade

1. Four Decades of India – Vietnam Economic and Commercial Relations:

1.1 First Decade (1972 – 82): “Early Days; Cold War Era, First Line of Credit and Setting up of India – Vietnam Joint Commission”

This was the period of the last phase of Vietnam’s war for Liberation of Saigon and thereafter national reunification and consolidation. The global scenario was dominated by the cold war and called for ‘South – South Cooperation’ to reduce dependence on the developed world. These were difficult years for Vietnam as it was emerging from 30 years of freedom struggle. India strongly supported and assisted Vietnam in its efforts for economic reconstruction since the liberation of Saigon. In 1978 India offered the first line of credit to Vietnam worth Rs. 400 million and this credit was utilized for the import of 980 wagons, 1,000 bogies and 50 coaches from India. There was no other major activity by way of trade during this decade but significantly the two countries set up the Joint Commission in 1982 for economic, scientific and technical cooperation.

1.2 Second Decade (1983 – 92): “Reconstruction of Vietnam’s Economy & Introduction of New Economic Policies in both the Countries, Low Levels of Bilateral Trade”

India offered the second line of credit in 1983 against which 15 diesel locomotives were supplied. These locomotives were based in Ho Chi Minh City. This was followed by a third credit in 1984 - 85 which was utilized for the import of finishing equipment and boiler for Nam Dinh Textile Mill and some quantity of cotton fabrics. The next credit in 1986 led to the supply of 300 coal hopper wagons for Hong Gai and Cam Pha coal mines north-east of Hanoi.

Bilateral trade during this decade was mostly dependent on the line of credit (LOC) and there was only a small amount of business outside the LOC which was mainly export of tea machinery, yarn and textiles from India and, towards the later part of the decade, export of raw cashews, raw silk and timber from Vietnam to India.

During the 6th party Congress in 1986, the Government of Vietnam introduced a new economic policy, commonly known as ‘Doi Moi’, and this open door economic policy proved to be a real success story for Vietnam. The 7th Party Congress in 1991 adopted the program on national reconstruction. In the same year India introduced its new economic policy which eventually led to a rapid growth of GDP and transformed India into an important economic power in the world.

It is interesting to note that from 1988 to 1992 repayments of old Indian credits were made in terms of rice which was purchased by a select few Indian and Thai companies. These companies exported rice to third countries and made payments to the Indian government based on certain discount formulas which were finalised before each deal.

This decade also saw the beginning of India’s investments in Vietnam as in 1989 OVL (earlier known as Hydro Carbons India Ltd) started their first overseas venture off the coast of Vung Tau, east of Ho Chi Minh City.

1.3 Third Decade (1993 – 2002): “Limited Growth in Bilateral Trade, Regional Economic Crisis in S-E Asia, Rise in Investments from India, Establishment of Indian Business Chamber in Vietnam”

This was the phase of rapid growth for both the countries, though there was a slowdown in Vietnam for a brief period due to the economic crisis in S-E Asia in 1997 – 98. In Vietnam two historic meetings, the 8th Party Congress in 1996 that saw the ending of the socio-economic crisis and encouraged the country to boost industrialization and modernization, and the 9th Party Congress in 2001 that prepared a 10 year strategy for socio economic development, led to landmark decisions that hastened the process of international economic integration and transformed Vietnam into one of the fastest growing economies in the region and an attractive destination for foreign investment.

India offered a credit in 1993 which was used for tea machinery for Son La and Nghe An provinces and textile machinery for Vinh Phu province and Ho Chi Minh City. A complete sugar mill of 1,250 TCD capacity was set up in Can Tho Province under another LOC which was signed in the year 1995. This was a very successful project that not only created visibility but also provided opportunities for further export of sugar machinery to Vietnam outside the credit. Another credit was offered in 1998 for the supply of a fruit drink processing plant in Hanoi and a production line to manufacture adhesive tapes for packaging in Vinh Yen province.

This decade somehow did not witness much growth in bilateral trade. By 1996 the two way trade could reach only about US$ 100 million and even by 1999 it could crawl to a mere US$ 150 million. Out of this India’s exports to Vietnam were above 90%. By the year 2000 the figure rose to a little over US$ 200 million with Vietnam’s exports to India still remaining in the range of 10%. However, it was encouraging that during this period India’s investments grew rapidly as companies like KCP and Nagarjuna set up sugar mills in Phu Yen and Long An provinces respectively, Ranbaxy set up a pharmaceutical plant in Ho Chi Minh City, and United Phosphorous and Godrej set up factories in Binh Duong province.

Another major development of this decade was the setting up of the Indian Business Chamber in Vietnam in Aug 1998 (formally licensed in Feb 1999) whose mandate was to provide a platform for smooth flow of information and facilitate interactions.

1.4 Fourth Decade (2003 – 2012): “Period of Real Growth of Bilateral Trade, Sharp Rise in Vietnam’s Exports to India, Global Economic Crisis, Signing of FTA”

The new decade brought fresh energy into bilateral trade and was the turning point as the trade rose sharply during this period. During the visit to Hanoi in Jan 2001, the then Prime Minister Atal Bihari Vajpayee expressed the desire to increase the bilateral trade from US$ 200 million to US$ 500 million in 5 years. This appeared to be a difficult target at that point of time. However, the trade actually grew more rapidly and the figure rose to US$ 1,000 million in 2006, though even at that stage the share of Vietnam’s export to India still remained below 20%. In 2009 bilateral trade exceeded US$ 2,000 million, with India’s exports at 78% and Vietnam’s export to India at 22%. The years 2010 and 2011 saw a very sharp increase in Vietnam’s exports to India which rose to US$ 1.55 billion or 39% of the total trade of US$ 3.90 billion in 2011. In 2012 the trade was worth 5.40 billion, out of which Vietnam’s exports were US$ 1.70 billion or 31% of the total and India’s exports were US$ 3.70 billion or 69% of the total.

During this decade LOCs worth US$ 27 million and US$ 45 million were finalized and these were used for the import of Hydro Power projects from India. All the Hydro Power projects have been highly successful and have created a large amount of visibility in Vietnam. They have also led to more imports of Hydro Power projects from India outside the credit.

IT companies like NIIT and Aptech were amongst the major investors from India during this decade. There were also investments from R.K. Marble, Alliance Mineral and Philips Carbon Black besides some others.

India – ASEAN Free Trade in Goods Agreement was signed in Aug 2009. (Cont,.)

[1] Chairman, India – ASEAN Business Promotion Council, ASSOCHAM

Founder Chairman, Indian Business Chamber in Vietnam; Managing Director, Ishan International Pvt. Ltd; Chairman, Ishan Foundation; Recipient of Friendship Order of Vietnam

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