India and Vietnam: A case for substantive partnership

Each can benefit through greater bilateral dialogue and interaction

Mukul G Asher
Professor, Public Policy, National University of Singapore

Khuong Minh Vu
Assistant Professor, Public Policy, National University of Singapore

For nearly two decades, India and Vietnam have been managing calibrated globalisation with a fair degree of success. Both have exhibited rapid economic growth, increasing integration with the world economy, significant reductions in poverty levels, and have kept inequalities in reasonable check. While the size of the two economies is different (India’s GDP in 2007 is projected at $1,132 billion and Vietnam’s at $71 billion), the per capita income ($946 for India and $822 for Vietnam) are similar.

In both countries, an overwhelming proportion of the population is currently employed in agriculture, where on average, the productivity and therefore incomes are low.

Both are, however, rapidly becoming urban societies. It is projected that in India, majority of the population will be urban around 2035.

These pose enormous challenges in employment and physical restructuring. Even in the best of circumstances, such substantial structural transformation is difficult. Each can therefore benefit through greater bilateral dialogue and interaction. Vietnam’s expertise in the plantations sector, and in raising agricultural production, is of particular relevance to India.

Both countries have extensive Diaspora abroad, whose expertise and resources are important for bringing about mindset and structural changes in their respective economies. The role of remittances is also significant. According to the World Bank, in 2005, India received $24 billion (3% of GDP), while Vietnam received $4 billion (7.6% of GDP).

It is in the above context that the two countries need to make concerted efforts to give greater substance to the partnership between the two countries, particularly in the economic sphere.

The bilateral merchandise trade has increased from $120 million in 1996 to $825 million in 2005, nearly six-fold increase in a decade. In 2005, India’s exports to Vietnam were $693 million (1.1% of Vietnam’s imports), while India’s imports were $132 million (0.4% of Vietnam’s exports).

The current level of merchandise trade is insubstantial. It can be improved through lowering of transaction costs, and air and sea connectivity. Economic diplomacy should receive much greater priority in bilateral relations than has been the case so far. It is essential that diplomatic representation in each other’s capital reflects this priority.

Vietnam, as part of the 10-member Association of South East Asian Nations (ASEAN), will be a major beneficiary of the free trade agreement (FTA) being negotiated between India and ASEAN. Vietnam is slated to receive early-harvest unilateral trade concessions from India as a part of the FTA. India’s services exports amounted to $73 billion in 2006, equivalent to 2.7% of total world commercial services trade, ranking 10th globally.

There are opportunities for cooperation between the two in services, particularly in IT and tourism, even as they compete in some segments of the value chain. Vietnam may consider more aggressive wooing of Indian IT companies to locate in Vietnam, even as Vietnamese IT companies and professionals seek opportunities in India.

Vietnam’s success in tourism has been rapid, an area where India’s performance has considerable scope to improve. Vietnam’s share of international tourist arrivals in Asia and the Pacific increased from 0.4% in 1990 to 2% in 2004; while India’s corresponding share fell from 3% to 2.4%.

Indian companies are beginning to invest globally. In May 2007, Tata Steel and Vietnam Steel Corp signed an accord for a $3.5 billion steel and iron ore venture to be located in Vietnam. Tata Steel will hold 65% of the 4.5 million metric tonne plant and 30% of the iron ore mine. This is among the largest foreign investment projects in Vietnam, and demonstrates the possibilities for enhancing investment relations. Vietnam’s resource sector, including oil and petrochemicals also hold promise.

It may be useful for the investment promotion agency of Vietnam to consider setting up a physical presence in India and invite India’s apex business organisations to establish a similar presence in Vietnam. There are also opportunities for mutual learning, and information sharing in application of knowledge and technology with a view to narrowing the gap between the actual and best practices in agriculture, healthcare delivery, education, and e-governance practices.

In both countries, there is considerable scope for greater focus on developing competence and professionalism in all areas, particularly in the delivery of public and merit goods and services. Both also need to ensure that there is a talent-attracting and entrepreneurship-promoting culture and environment to enable their citizens to maximise opportunities for a better life.

Vietnam’s success in reducing power transmission and distribution losses from 26.2% in 1990 to 10.5% in 2004 could hold lessons for India where transmissions losses are around 25%.

The dialogue and interactions should be wide-ranging, involving policymakers, bureaucrats, businesses, and academics. These should be aimed at substantially reducing current rather lather large information and perception gaps about each other’s policies, developments, and strategic intentions.

India and Vietnam should use opportunities provided by such multilateral fora as ASEAN annual meetings with its dialogue partners to enhance their cooperation and comfort levels.

On balance, a more robust partnership has the potential to enhance strategic leverage and lessening of global risks for both countries. Neither can afford to miss the opportunity to inject greater substance to this mutually beneficial bilateral relationship.