India & Vietnam must work on Bilateral issues

India & Vietnam must work on Geo-Economic Issues

Context :-

  • The recent visit of the Vietnamese Prime Minister, Nguyên Xuân Phúc to New Delhi to attend the Asean-India Commemorative Summit and participate in the Republic Day celebrations has added a new dimension to the bilateral engagement.

Series of moments defining growing bilateral relations b/w India & Vietnam :-

  • In 2016, the two countries agreed to upgrade their level of engagement from being strategic partners to a “comprehensive strategic partnership”.
  • India offered a $500 million defence line for credit to Vietnam in 2016. Also, several agreements including those on off-shore patrol vessels, cyber security, construction of an army software park, United Nations peacekeeping, and scholarship for higher education were also signed.
  • 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.

Five key Geo-Economic issues needs to work upon between India & Vietnam :-

>> Participation in Global Value Chain (GVCs) :-

  • More than 60 per cent of the international 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.

But statistics reveal that 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.

>> Bilateral engagement needs in Small and Medium Enterprises (SMEs) sector :-

  • 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.

The focus 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.

>> Co-operation in Service Sector :-

  • India’s global exports of services is $161.8 billion, while Vietnam’s global services exports stands at $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.

>> Diversification of bilateral trade basket :-

  • India’s exports to Vietnam in 2016-17 increased by 28.87 per cent over the previous year. And interestingly, Vietnam’s exports to India also increased by 29.69 per cent.
  • The bilateral trade stands at $10.11 billion, which is again a 29.14 per cent increase from the previous year.

However, most of the bilateral trade is 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.

>> Need of Continuous Strategic policy attention :-

  • The business-to-business (B2B) meetings need to be encouraged and Mode-4 should be further liberalised to contribute to SME growth and create avenues for active GVC participation.
  • A key impetus need to be given to public diplomacy as an instrument for “social connect” thereby encouraging people-to-people interactions.
  • It is imperative that the two countries maintain a continuity in strategic and defence cooperation to keep leveraging mutual geo-economic benefits.

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