How India and Vietnam can increase bilateral trade

How India and Vietnam can increase bilateral trade

Singapore: Vietnam is India’s fourth largest trading partner in Association of South East Asian Nations (ASEAN)- the first three being Singapore, Indonesia and Malaysia. The India-Vietnam trade has been consistently growing- clocking double-digit rates. It has grown almost 80 per cent over the last five years.

India is among Vietnam’s top ten trading partners.

Data from the Indian Department of Commerce shows that trade between India and Vietnam grew 11.5 per cent to USD 14.2 billion in 2018 compared with a year ago. The two countries targeted bilateral trade to hit USD 20 billion by 2020 in 2015. This now seems a little bit of a stretch considering the compounded annual rate of growth since 2013 was 12 per cent and for this to happen, it will have to grow at around 19 per cent per year in the next two years.

It should not be a surprise that Vietnam and India currently enjoy strong diplomatic and trade relations. The strong ties date as far back as to the cold war days of the 1950s. India not only supported Vietnam’s independence from France, it also objected to the US involvement in Vietnam in the 1960s and was one of the first countries to recognise a united Vietnam in 1975 after the war with the US.

Today, India sees Vietnam as a pivotal state in its “Act East” policy, the same way that China sees Pakistan as a strategic counter-balance to India. Vietnam and India share the same apprehension of China’s growing power and influence in the region. To this effect, India is leveraging Vietnam and other ASEAN states to protect its interest in the resource-rich South China Sea which China has been aggressively growing its assertiveness. This is reflected in its build-up of weapons systems on the artificial islands it has constructed in the area.

It is with this background of common security interests that bilateral trade between the two states have strengthened in recent years.

The partners established extensive economic ties since 1992, starting with cooperation in oil exploration, agriculture and manufacturing. Trade took a giant leap forward after both nations liberalised their economies and Vietnam following up by backing India for a more prominent role in ASEAN.

Today, Vietnam’s main exports to India include electronics and electrical products, textiles, handicrafts, cashew nuts, coffee, tea, mate, spices, canned food, building material, pharmaceutical products, precious metals, copper and rubber.

In return, India top exports to Vietnam are agriculture and farm products, meats and seafood, cotton and pharmaceutical products.

In terms of investments in each other countries, India is the 26th ranked investor in Vietnam with almost 210 projects worth around USD 880 million.

These projects are in telecommunications, information technology, energy, mining, pharmaceuticals and electrical appliances. Vietnam’s direct investments in India is negligible.

That there is interest in improving trade between the countries at a faster clip is not in doubt.

Vietnam had a strong presence in last week’s ASEAN-India expo in New Delhi. The event is co-organised by the Indian Ministry of Commerce and Industry, the Federation of Indian Chambers of Commerce and Industry, and the ASEAN-India Business Council. More than 20 Vietnamese firms representing industries as diverse as farm produce, transportation services, tourism to handicrafts were present.

How can India and Vietnam work towards meeting the 2020 target?

Tourism could very well be the “low hanging fruit”. There is a mutual visa-on-arrival programmes already in place for each other’scitizens. Increasing the number of flights as well as joint promotion of each other’s destinations would go a long way towards enticing the growing middle class in both countries to visit.

Secondly, both countries have significant pharmaceutical industries and cooperation in this field would improve efficiencies and enhance the industry’s growth in both countries.

In the longer term, Vietnam can increase its investments in India by taking advantage of the Indian government’s loosening up of foreign direct investment (FDI) quota for foods and beverage sector as well as the 100 per cent allowance of FDI in the in e-commerce and foods manufacturing industries.

Increasing trade between India and Vietnam is not without challenges. There is a significant cultural, custom and language gap between people from both countries. Furthermore, the two countries are geographically far apart with flight time between most major cities around seven hours. This not only affects tourism but also impacts the import and export of goods and business exchanges.