facebook twitter Google+ Google+
Wednesday, 21 October 2015 11:56

India- Vietnam Bilateral Relations

Written by
Rate this item
(0 votes)

1. Introduction into Vietnam Economy

 1.1Economic Reform and Macroeconomic Performance

Vietnam had suffered from a prolonged war with both United States and China along with  economic stagnation during 1950-1990. However, since 1986, the country began rebuilding its economy with the policy of doi moi[1]. Substantial progress was achieved from 1986 to 1997, despite the ravages of war, loss of financial support from the old Soviet Bloc and change over from a centrally planned economy. Real GDP growth averaged around 9 percent (as per IMF) from 1993 to 1997. After a slight dip during 1997 Asian financial crisis, growth averaged 7.5 percent in 2000-2007. GDP grew by a robust 8.4 percent in 2007, driven by strong domestic growth as well as higher investment following the country’s accession to WTO in January 2007. However, the global recession had dampened the export oriented economy in 2008. In 2014, real GDP growth was seen growing at 6 per cent. In absolute terms, GDP has increased to US$ 186.04 billion in 2014 from US$ 31.18 billion in 2000, and GDP per capita stood at US$ 2052.85 in 2014 (Table 1).

 

Services are the largest sector in Vietnam’s economy, accounting for 41.7 per cent of Vietnam’s GDP in 2012. The shares of industry and agriculture in GDP during the same year were 39 percent and 20 per cent respectively[2]. Vietnam has substantial energy and mineral resources. Its energy resources are a major source of export earnings and support domestic industries. Some of its major resources include phosphates, coal, manganese, rare earth elements, bauxite, chromate, offshore oil and gas deposits, timber, and hydropower. Inflation has been observed to be high in Vietnam in recent years, owing to easy availability of domestic credit. In 2014, inflation eased to 4.1 percent as compared to a high of 23.11 percent in 2008. Foreign-exchange reserves have risen at a strong pace, improving the ability of the central bank to counteract further downward pressure by intervening in the currency market if necessary. Vietnam has remained an attractive investment destination in light of its growing working-age population and low labour cost. Nevertheless, the country faces increased competition for FDI in Southeast Asia, particularly from Indonesia. The total FDI inflows have increased significantly from USD 1298 million in 2000 to USD 8900 million in 2013. In terms of volume of imports and exports, both are increasing constantly despite fluctuations in year 2012 and 2008.

Table 1: Macroeconomic Snapshot of Vietnam

Subject Descriptor

Units

2000

2002

2004

2006

2008

2010

2012

2013

2014

Gross domestic product, constant prices

Percent change

6.79

7.08

7.79

6.98

5.66

6.42

5.25

5.42

5.98

Gross domestic product, current prices

U.S. Dollars (Billions)

31.18

35.10

49.52

66.39

98.27

112.77

155.57

170.57

186.05

Gross domestic product per capita, current prices

U.S. Dollars, Units

401.57

440.21

603.67

796.93

1154.49

1297.23

1752.62

1901.70

2052.85

Gross national savings

Percent of GDP

32.72

31.13

28.99

33.16

25.00

31.90

33.20

32.15

31.06

Inflation, average consumer prices

Percent change

-1.77

4.08

7.90

7.50

23.12

9.21

9.10

6.60

4.10

Volume of imports of goods and services

Percent change

-6.54

19.86

16.38

16.83

15.81

8.07

7.82

17.63

13.26

Volume of exports of goods and services

Percent change

-5.97

9.53

15.75

14.30

5.92

11.63

20.09

12.93

13.12

Population

Persons in Millions

77.64

79.73

82.03

83.31

85.12

86.93

88.76

89.69

90.63

Current account balance

Percent of GDP

2.73

-1.79

-3.21

-0.25

-10.98

-3.79

5.96

5.55

5.42

Foreign direct investment, net inflows (BoP)

Current USD in Millions

1298.00

1400.00

1610.00

2400.00

9579.00

8000.00

8368.00

8900.00

 

Net ODA received

Percentage of GNI

5.07

3.42

3.80

2.84

2.65

2.64

2.75

2.49

 

Total debt service

(% of exports of goods, services and primary income)

7.50

6.12

2.67

2.12

1.98

2.34

3.61

3.55

 

Source: World Economic Outlook Database, IMF, World Development Indicators (World Bank)

2. Economic relations between India and Vietnam

The India-Vietnam relationship, part of which is based on a set of historical commonalities, has been moving towards addressing shared strategic concerns of energy security, open Sea Lanes of Communication, and of ensuring an extended neighbourhood that is free to make policy choices without undue deference to potential regional and international hegemons. India’s desire to realize these goals without alienating Vietnam’s neighbours has kept the relationship focused more on capacity building and technical assistance, instead of on the supply of military hardware. On the other hand, Vietnam is poised to play a greater role in facilitating India’s Act East policy as the next ASEAN country coordinator for relations with India. India’s new role should be welcomed by ASEAN members as it will add ballast to ASEAN’s efforts to maintain regional autonomy in Southeast Asia and a multipolar balance in ASEAN’s relations with external powers.


 

Geo-strategic interests between India and Vietnam are markedly converging. Both share similar concerns about maritime security and Chinese muscle flexing. Not only has India offered substantial support to Vietnam’s navy and air force but political-diplomatic support for Vietnam’s South China Sea policy. Both India and Vietnam will benefit from the development of Vietnam’s offshore hydrocarbon resources. India is seeking new markets while Vietnam wants to enhance its economic heft. Indian strategists have long called for stepping up relations with Vietnam to exert pressures on China as a response to China’s quasi-alliance with Pakistan and the pressures this brings on India. More recently, Indian strategists have called for stepping up relations with Vietnam as a response to Chinese in-roads in the Indian Ocean region especially with Sri Lanka. Deeper development partnerships between India and Vietnam are proving to be rewarding for both in spite of the causes for mutual concern such as China’s growing investments in the vicinity of both nations and the tensions in the South China Sea.

India’s bilateral trade relations with Vietnam are marked by growing economic and commercial engagement.  Bilateral trade between India and Vietnam reached US$ 9308 million in 2014, up from US$ 208.9 million in 2000 (Table 2). Although bilateral trade has been growing at a fast rate, Vietnam’s share in India’s total trade stands at a meagre 1.2 percent in 2014. In exports, Vietnam’s share in India’s total exports stands at a meagre 2 percent and in imports it is only 0.6 percent. The two sides have set a target of US$ 15 billion for bilateral trade by 2020. Vietnam ratified the India-ASEAN FTA in goods with effect from June 1, 2010. The proposed agreement on trade in services and investment, which will enter into force later this year, is likely to impart further boost to bilateral trade and economic relations.

Table 2: India’s Trade with Vietnam (USD million)

 Description

2000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Gross exports to Vietnam

195.39

633.47

874.1

1241.48

1812.61

1833.5

2475.6

3466.53

3658.16

5987.61

6526.52

% Growth

25.8169

18.439

37.987

42.03

46.004

1.1527

35.0202

40.0279

5.5282

63.6783

9.000425

India's total Export

42358.1

100353

121201

145898

181861

176765

220408

301483

289565

336611

317544.6

% Growth

14.7295

32.21

20.775

20.377

24.649

-2.8021

24.6901

36.7839

-3.953

16.2474

-5.66432

% Share (Vietnam)

0.46129

0.6312

0.7212

0.8509

0.9967

1.0373

1.12319

1.14982

1.2633

1.77879

2.055309

Gross Imports from Vietnam

13.54

127.38

159.83

153.13

371.6

442.91

993.51

1554.28

1945.49

2826.67

2781.69

% Growth

16.8599

73.995

25.474

-4.1872

142.67

19.187

124.317

56.443

25.17

45.2937

-1.59112

India's total Import

52940.3

140862

178212

218645

315712

266402

350029

462403

488976

466046

459369.5

% Growth

5.85743

42.312

26.516

22.688

44.395

-15.619

31.3916

32.104

5.7468

-4.6896

-1.4325

% Share (Vietnam)

0.02558

0.0904

0.0897

0.07

0.1177

0.1663

0.28384

0.33613

0.3979

0.60652

0.605546

Total trade with Vietnam

208.93

760.84

1033.92

1394.61

2184.21

2276.41

3469.11

5020.8

5603.65

8814.28

9308.22

India's Total Trade

95298.3

241214

299413

364543

497573

443167

570438

763886

778541

802657

776914.1

% Share

0.22

0.32

0.35

0.38

0.44

0.51

0.61

0.66

0.72

1.1

1.2

Source: WITS Online

In 2012, India was the 10th largest global source of imports for Vietnam, accounting for 2.9 percent of Vietnam’s total global imports. During the year 2012, India was the 4th largest global supplier of cotton to Vietnam. India was also the 10th largest supplier of plastics and articles, 11th largest supplier of vehicles other than tramway[3]. The main commodities that constituted India’s exports to Vietnam in 2014 (Table 3) comprised meat and edible meat offal (35.44 percent), fish, crustaceans and molluscs (16.84 percent), Cotton (7.25 percent), oil seed and oleagic fruits (4.30 percent) & coffee, tea and spices (3.36 percent). In FY 2014, India’s top ten exports to Vietnam constitute about 80% of its total exports to Vietnam from 45% in FY 2003. Indian exports to Vietnam have registered a major change during the past 10 years.  Meat and edible meat offal and fish and crustaceans and molluscs which constituted just 0.21% and 6.66% of its exports, has increased to 35.44% and 16.84%.

 

Table 3: India's top 10 exports to Vietnam in 2014 (% share)

Code

Description

2003

2007

2008

2009

2010

2011

2012

2013

2014

2

Meat and edible meat offal

0.21

6.33

13.49

15.51

9.98

20.24

22.64

32.06

35.44

3

Fish & crustacean, mollusc & other

6.66

0.94

0.67

1.53

4.38

14.72

13.06

16.09

16.84

52

Cotton.

1.49

4.52

3.98

3.31

6.90

3.16

4.28

5.71

7.25

12

Oil seed, oleagi fruits

0.76

0.60

0.62

1.09

2.32

9.02

10.99

1.94

4.30

9

Coffee, tea, matï and spices.

0.10

0.86

0.52

0.68

0.78

1.20

3.38

2.76

3.36

84

Nuclear reactors, boilers and machinery

2.47

3.62

1.92

1.63

4.78

4.49

2.09

2.37

2.73

30

Pharmaceutical products.

9.82

6.13

4.37

5.15

3.84

3.77

3.66

2.62

2.61

72

Iron and steel.

10.28

4.43

6.68

5.52

1.02

2.15

2.39

7.22

2.61

10

Cereals

3.36

1.20

3.49

6.28

5.44

5.21

8.94

4.97

2.51

39

Plastics and articles thereof.

10.11

6.20

3.20

2.19

2.36

3.13

3.01

2.81

2.41

 

Share of top 10 export commodities to Vietnam

45.26

34.84

38.94

42.90

41.80

67.09

74.45

78.54

80.05

Source: WITS Online


 

India’s key imports from Vietnam during the same period comprised Electrical machinery equipment parts thereof (38.61 percent), coffee, tea, mati and spices (8.21 percent), Nuclear reactors, boilers, machinery (7.75 percent), rubber and articles (6.38 percent), Articles of iron or steel (5.33 percent). In FY 2014, India’s top ten imports from Vietnam constitute about 79.3% of its total imports from Vietnam from 69.2% in FY 2003 (Table 4). This shows that concentration of India’s imports from Vietnam has not remained same over a period of time and moreover, India’s imports composition with regard to Vietnam has remained unidentical.

Table 4: India's Top 10 imports from Vietnam in 2014 (% share)

 Code

Description

2003

2005

2007

2008

2009

2010

2011

2012

2013

2014

85

Electrical mchy equip parts thereof

19.80

5.21

13.03

9.86

30.63

35.54

33.93

38.49

51.60

38.61

9

Coffee, tea, matï and spices.

42.64

38.51

16.58

9.75

15.91

7.65

6.52

6.33

4.27

8.21

84

Nuclear reactors, boilers, mchy & m

0.64

1.99

2.49

2.64

6.08

7.25

9.05

6.77

8.19

7.75

40

Rubber and articles thereof.

5.58

3.11

5.21

2.76

1.99

6.48

5.66

10.13

8.37

6.38

73

Articles of iron or steel.

0.03

0.08

0.09

0.04

0.03

0.20

1.03

0.91

0.56

5.33

28

Inorgn chem; compds of prec mtl,  r

0.00

0.00

2.05

3.89

4.72

3.64

2.58

2.87

2.62

4.01

44

Wood and articles of wood; wood  ch

0.12

0.24

0.85

1.00

1.15

1.07

1.37

2.11

1.97

2.50

54

Man-made filaments.

0.43

0.49

1.76

0.51

1.53

1.06

1.14

1.48

1.93

2.43

74

Copper and articles thereof.

0.00

0.00

0.00

0.00

0.04

0.11

0.58

0.51

1.12

2.05

25

Salt; sulphur; earth & ston; plaste

0.04

3.41

5.13

22.03

6.68

5.74

4.69

3.35

1.93

2.03

 

 Share of top 10 imports from Vietnam

69.28

53.04

47.19

52.47

68.76

68.75

66.56

72.95

82.56

79.30

Source: WITS Online

3. India’s Investment in Vietnam

Vietnam continues to be an attractive investment destination for Indian companies. As of June 2013, according to the figures from Vietnam's Foreign Investment Agency, India have 73 investment projects with total registered capital of US$ 252.21 million. If investments by Indian companies from third countries are included as well, India has 68 valid projects with an estimated total investment capital of US$ 936.23 million. Indian companies are investing in oil and gas exploration, mineral exploration and processing, sugar manufacturing, agro-chemicals, IT, and agricultural processing. Vietnam has three investment projects in India with total investment of US$ 23.6 million. OVL, Essar Exploration and Production Ltd, Nagarjuna Ltd, KCP Industries Limited, Ngon Coffee Manufacturing, Venkateswara Hatcheries, Philips Carbon and McLeod Russell, CGL are some of the major Indian investors. Tata Power plans to develop the US$ 1.8 billion Long Phu-II Thermal Power Plant in Soc Trang. An MOU was signed between Tata Power and Vietnamese Ministry of Industry and Trade during the visit of General Secretary of Vietnam to India. In the field of IT training, NIIT, APTECH and Tata Infotech have so far opened more than 80 franchised centres spread all across Vietnam[4].

4. Assistance and Capacity Building 

Indian has been providing development assistance to Vietnam since 1958, which predates India’s 1991 Look East policy. In 1958, India made a gift of books to Vietnam, and in 1974, India facilitated training of Vietnamese nationals in animal husbandry and advanced English. Since 1976, India has extended 17 Lines of Credit (LOCs), totalling approximately US$ 165 million on concessional terms and conditions apart from grants and loans[5]. The last major LoC extended by India was in July 2013 for US$ 19.5 million for execution of a Nam Trai-IV hydropower project and Binh Bo Pumping station. In addition, India has also extended lines of credit of US$100 million for infrastructure and Defence procurement. India has also agreed to consider earmarking an amount of up to USD 100 million under the Buyer's Credit of the National Export Insurance Account (BC-NEIA) for use by Vietnam. India has offered to extend new LoCs to Vietnam for infrastructure projects.

5. Conclusion

The broad cooperation envisaged in different areas reflects that closer ties will likely be very rewarding. Vietnam could leverage enhanced ties with India for greater degree of strategic independence, as the deepening relationship will not only provide a measure of balance with China, but also provide a balance between the conflicting pressures coming from the US and Russia[6]. For India, close ties with Vietnam could allow it to boost trade with ASEAN plus 6 countries.  It could also allow New Delhi to better counter Chinese attempts to assert dominance in the South and East China Seas.

In addition to this, Vietnam has always supported New Delhi’s position on the state of Kashmir being an integral part of India, India’s status as a nuclear weapons state, and its bid for inclusion in the Asia-Europe Meetings (ASEM). Hanoi also supports India’s bid for a permanent seat on the Security Council[7] and Vietnam’s decision to block Pakistan’s membership to the ASEAN Regional Forum, this too proved beneficial for New Delhi. Additionally, in 2011 India and Vietnam signed an agreement for a joint oil and gas exploration project in the increasingly tense South China Sea.[8] India’s Oil and Natural Gas Corporation won a 45 percent stake in exploring blocks 127 and 128 in Vietnam’s Exclusive Economic Zone. Despite Beijing objecting to perceived infringements on its sovereignty, India chose to partner with the state-owned Petro Vietnam, considerably boosting ties between the two nations. Given that 50 percent of India’s trade with the Asia-Pacific passes through the South China Sea area, it is a positive sign that Vietnam and India could use convergent commercial interests to address larger strategic objectives in the region.

To summarize, for India, the importance of accessing new sources of cheap energy, assuring open trade through the South China Seas and keeping friendly bilateral relations in a region also of great strategic significance has further highlighted the importance of good relations with countries like Vietnam to the Indian economy. For Vietnam, its own strategic imperatives, and its desire for latitude in foreign policy make it likely that Hanoi will continue to welcome the deepening development partnership with New Delhi. 


 

Footnote

[1]Doi Moi renovated and announced that Vietnam would “virtually” abandon the centralized economy to adopt a market-based economy intended to give greater freedom to private enterprise, emphasis on exports, production of consumer goods and encouragement to foreign investors.

[3] WITS Online, accessed on 12th August, 2015

[4] Ministry of External Affairs, Govt. of India

[5] IBID

[6] Brewster ‘India’s Strategic Partnership with Vietnam,’ pg. 29.

Read 29793 times Last modified on Thursday, 29 October 2015 17:48