Growing Trade Ties Of India And Vietnam

As India and Vietnam compete to complement China as “factories of the world”, is there room for cooperation between the two rivals?

For companies moving out from China, in an effort to diversify their production sites as well as supply chains, India and Vietnam are locations that are foremost on their minds. With a recent surge of manufacturers relocating their facilities or building new ones, the competition for FDI (foreign direct investment) has intensified.

This trend has gathered urgency due to China’s increasingly higher costs, the US-China trade war, and the realisation that having alternative sources of supplies is necessary after experiencing supply-chain disruptions caused by the COVID-19 pandemic.

According to the Vietnam Ministry of Planning and Investment, FDI into Vietnam stood at about USD 20 billion for 2020, a fall of 2 per cent from a year earlier. Furthermore, FDI pledges, an indication of future FDI disbursements, plunged last year by 25 per cent to USD 28.5 billion. The sector that nabbed the largest amount of investment is the manufacturing and processing sector which captured 49.1 per cent of total pledges.

This is followed by the production and distribution of gas, water and electricity with 34.7 percent. Singapore was the top source of FDI pledges last year, followed by China and Taiwan.

India, being a much larger country, has fared better on both the total FDI it has attracted as well as its ability to grow FDI in spite of COVID-19. Extrapolating based on figures from the Department of Promotion of Industry and Internal Trade up to September, India is expected to achieve an FDI of roughly USD 53 million for the calendar year 2020. (The October to December quarter figures have not yet been published.)

This is a growth of about 11 per cent from 2019. The common theme between India and Vietnam is that the highest FDI equity inflow also originated from Singapore, accounting for 25 to 30 percent of FDI flows to India in the calendar year 2020. This is followed by Mauritius registered companies where investment flows are roughly half of that of Singapore’s.

The Department of Promotion of Industry and Internal Trade says that the higher equity inflow is attributed to the government’s efforts in improving ease of doing business along with relaxed FDI norms. In the fiscal year 2020 (ending March 2020), the industry that performed the best for total equity inflows is the service sector which brought in 17 per cent of the total investments. This was followed by the computer software and hardware sector, while the telecommunications and trading sector’s share ranked third and fourth, respectively.

Despite being competitors on the FDI front, there are signs that the trade relationship between India and Vietnam are expanding. Just last week, two trade and investment events were held between businesses from the two countries.

The first, which was held in Hanoi on January 21, was a seminar to promote cooperation in the pharmaceutical industry in both countries. It was hosted by the Embassy of India in collaboration with the International Investment Promotion Alliance (INVEST-GLOBAL), Vietnam Association of Foreign Invested Enterprise (VAFIE) and Indian Business Chamber (INCHAM).

The Vietnamese pharmaceutical market was estimated to be valued at USD 7 billion in 2019 and projected to grow another 8 per cent by 2024.

To meet production needs Vietnamese drug manufacturers import 90 percent of their active pharmaceutical ingredients and most of the raw materials. With regards to pharmaceutical end products, approximately 60 per cent of the demand is met by imports. India has been a key exporter of such products and raw materials to Vietnam. However, businesses in both countries feel that there is still great potential to promote investment cooperation in the pharmaceutical as well as the medical equipment industries.

Pranay Verma, Ambassador of India to Vietnam, shared that Vietnam is a key consumer of Indian pharmaceuticals with annual trade worth USD 225 million, currently in 19th position among the top 25 destinations for Indian pharmaceutical products.

A day later, in the southern commercial hub of Ho Chi Minh City (HCMC), the Indian Consulate General in HCMC, the Private Economic Development Research Board, the Investment & Trade Promotion Centre of HCMC, and VinaCapital Group, jointly organised an India-Vietnam Investment Forum.

At the Forum, businesses discussed areas of cooperation and investment, determining that those sectors that presented the highest potential are garment, food processing, pharmaceuticals, information technology (IT), construction materials, and renewable energy.

Vietnam’s imports from India rose from USD 2.7 billion in 2016 to over USD 4.5 billion USD in 2019, while exports grew from USD 2.6 billion to USD 6.7 billion in the period.

According to Indian Ambassador to Vietnam, Pranay Verma, Vietnam’s investment in India now stands at USD 30 million, while Indian companies have invested USD 900 million in Vietnam.

Emphasising the benefit and opportunities for investments in Vietnam, Don Lam, deputy head of the Private Economic Development Research Board and CEO of VinaCapital, said, “The strategic relationship between the two countries does not stop at trade.”

He continued, “Indian companies consider Vietnam an attractive destination for their investments in the fields of oil and gas, steel, minerals, tea, sugar, and IT training, as well as a place for the transshipment of goods in Southeast Asia.”

Deputy Minister of Planning and Investment, Tran Duy Dong, highlighted the need for both sides to step up investment promotion and connectivity, both online and in-person. He added that the ministry commits to working together with Vietnamese ministries, sectors, and localities to support Indian enterprises for win-win cooperation, thus helping to lift the Vietnam-India comprehensive strategic partnership to new heights. (ANI)

India And Sri Lanka – Cleaning The Slate

Prime Minister Mahinda Rajapaksa’s visit to India this week (February 7-11) will be an opportunity to forget past bitterness and begin on a clean state. The former strong man will get a warm welcome in the Capital, when he arrives in for his first official visit in his new avatar. Delhi is as eager as the Rajapaksas to improve relations.

The emphasis will be on getting the political relations right, considering that the Rajapaksa’s second term as President, where he openly wooed China and gave short shrift to India, was a nightmare for New Delhi. This was the period when Colombo allowed Chinese submarines to dock in Colombo and allowed Beijing to spread its wings across the island nation, despite Delhi’s security concerns.

Mahinda Rajapaksa’s supporters allege that India had a hand in his defeat in the 2015 elections. They blame the former RAW official posted in the High Commission in Colombo of organising the anti-Rajapaksa front of like-minded people from both the ruling Sri Lanka Freedom Party and the United National Party to oust Rajapaksa. Whatever be the truth of the allegations, suspicion remained. But all that is now in the past as the two sides hope to rebuild frayed ties. 

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The Rajapaksa brothers (President Gotabaya and PM Mahinda as well as state defence minister Chamal) know that it is important to have good relations with India for all ruling dispensations in Colombo. Mahinda Rajapaksa who is the main strategist for the family, had built his bridges with India soon after he lost power. During private visits to India, he had made it a point to call on Prime Minister Narendra Modi. His closeness to maverick politician Subramanian Swamy ensured access to the PM.

Though the LTTE has been wiped out, Tamil-speaking minorities in the north and east of the island, indeed even those living in Colombo, look to New Delhi for support. In the initial stages when the Liberation Tigers of Tamil Eelam began their movement against discrimination by the Sinhala-Buddhist majority, they were solidly backed by New Delhi and Tamil Nadu. So far while the Tamils have been given some of their rights, the complete devolution of power to the provinces have not yet come through. India will be urging Mahinda Rajapaksa to carry out all the provisions of the 13th amendment, which was brokered by India in the past. The Tamil National Alliance, the party of Tamil MPs has been urging the government to fulfil the promised devolution provisions.

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It is unlikely that the Rajapaksa brothers, who believe in a unitary state, will be in a hurry to fully implement the 13th amendment to the Constitution. In fact President Gotabaya himself believes that rebuilding the Northern Province and bringing development to the Tamils is more important then giving them greater autonomy. `Development over devolution,’’ is what Gotabaya thinks is the need of the hour. The Tamil population which have long yearned for more meaningful devolution may not quite agree. Aware of this, New Delhi will continue to push for devolution.

India is also in the mood to ensure that the past mistakes are not repeated because that will push Sri Lanka into China’s waiting arms. This is at a time when PLA vessels, including warships are increasingly plying the Indian Ocean region and developing close ties with India’s immediate neighbours.The BJP government since 2014 has been working towards strengthening ties with all its Indian Ocean neighbours whether it is Mauritius, Seychelles, Sri lanka and Maldives.  

New Delhi’s tough policy towards Nepal and the decision to blockade that land-locked nation in 2015, has had severe consequences for India. Nepal turned to China for help. The Chinese naturally grabbed the opportunity. The Chinese are today well entrenched in neighbouring Nepal, thanks to Prime Minister Oli’s close ties with Beijing. China is giving India a run for its money in the Himalayan nation. India realises the dangers of China’s presence in its immediate neighbourhood, and is hoping to counter the dragon in its periphery. This means wooing the neighbours, and ensuring that Indian interests in the region are protected.

South Block is no mood to give more space to China in its immediate neighbourhood. And with China investing massively in Sri Lanka, from the Humbantota Port, to modernising the Colombo port and building the USD 1.4 billion port city in the capital, which would house an International Financial Centre. Delhi has no time to waste.

India has also stepped up its efforts. In fact, the move to woo the Rajapaksa brothers began with foreign minister S Jaishankar rushing to Colombo soon after Gotabaya’s election victory, inviting him to visit and reassuring him that Delhi was ready to do business with the new regime. Gotabaya helped matters by announcing that Sri Lanka’s foreign policy would be neutral as the island had no wish to get involved in the rivalry between the two Asian powers. Gotabaya came to India soon afterwards in November 2019, and had meaningful conversations with Prime Minister Narendra Modi and other Indian leaders. India announced a credit of $400 million to boost development and a further $50 million for security. Sri Lanka lost 250 people after the Easter bombings. Anti-terror cooperation is high on the list of bilateral ties now. In fact, Indian intelligence had warned their Lankan counter part of a possible terror attack. But the squabbling coalition of Sirisena and Ranil Wickremasinghe did not act on the information.

Apart from the ongoing project of building 50,000 house in the war torn Northern Province, announced in 2010, India and Japan are joining hands to build a deep sea Container Terminal in Colombo port. This was announced in 2019. India will also work towards refurbishing the Trincomalee oil farm in the Eastern province.  At one time, decades back, India was worried about US eyeing the oil tank project in Trincomalee. Now though India has been working at refurbishing some of the old tanks. Sri Lanka has leased out the oil tanks to India, to jointly operate a strategic oil facility. This is not a new project but the Modi government now is paying much more attention and will take up the work in earnest. This will help in the integrated development of Trincomolee and the entire Eastern province. Trincomalee is strategically located in the eastern side of Sri Lanka and in the heart of the Indian Ocean. According to reports from Colombo the US is also eyeing Trincomalee port, perhaps to checkmate China’s presence in Humbantota further south of the island.

Keeping all this in mind, Mahinda Rajapaksa’s visit this weekend is important. Last month China’s foreign minister Wang Yi was in Colombo on an official visit. China will continue to be an important partner of Sri Lanka. Considering that Beijing has the money power to back it, no developing nation wants to close the door to China. So despite criticising Mahinda Rajapaksa for giving a free reign to China, the India-friendly government of Maithripala Sirisena and Ranil Wickeremasinghe, allowed China to continue the projects it had signed with the previous government. So South Asian neighbours will benefit from the India-China rivalry playing out in the region.

Though China’s cheque book diplomacy works wonders, people to people contacts are much better with India. Buddhism is a strong link and Sri Lankans, including Prime Minister Mahinda Rajapaksa does not miss an opportunity to visit the holy sites in India. He will be visiting Sarnath as well as Bodh Gaya during this trip. The religious and cultural bonds are India’s strong points. All this will come into play as India hopes to contain China in its neighbourhood.

Growing Chinese Footprint In Myanmar: Should India Be Worried?

Chinese President Xi Jinping’s two-day visit to Myanmar (January 17-18) was closely watched by India. Xi reinforced his pet Belt and Road Initiative which had slagged, though Myanmar had signed in by 2018. President Xi’s personal push will give the much needed political impetus to bring fresh energy to the BRI projects in Myanmar.

Myanmar is in the doghouse at the moment with few Western corporates willing to invest in the country, since the 2017 military crackdown on Rohingya minorities, many of whom had to flee the assault of local Buddhists as well as the army. The UN had termed it a genocide against the country’s Muslim minorities. All through this period and even earlier when the military junta got no truck from the Western democracies for the house arrest of pro-democracy icon Aung San Suu Kyi, China had steadfastly stood with Myanmar.\

Once again when the government as well as democratic leader Aung San Suu Kyi have been heavily criticised for not protecting the Rohingyas, China sided with the government in power. China’s stand was on expected lines as the Communist Party of China had never bothered much about human rights, leaving it to individual nations to deal with their problems. The one exception is Kashmir, where it has consistently supported ally Pakistan and raised the matter twice at the United Nations Security Council. Even that did not pay off as no resolution was passed against India, thanks mainly to other members of the UNSC.

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With Prime Minister Narendra Modi in the saddle, Rohingyas who would in normal circumstances thronged to India, were not welcome. So they fled to Bangladesh and few have the confidence to return home. New Delhi went out of its way to stand by Aung San Suu Kyi and her government. So while the rest of the international community, led by the US and Europe had turned against Myanmar, Asian giants India and China have continued their steadfast support to the government in Naypyitaw, Myanmar now has excellent political relations with both countries.

Despite the common approach to Myanmar, India is uneasy at China rapidly spreading its wings in a country on its backyard, bordering its sensitive north eastern states. For any country, its immediate neighbourhood is vital for its security and having China on its very door step is a matter of grave concern to strategic planners. Every neighbour of India and China like to play out the rivalry of the two Asian powers to their own advantage. It has happened in Nepal and in Sri Lanka under Mahinda Rajapakse. It can also happen in Myanmar.

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For now China is way ahead of India in Myanmar. As the world’s second largest economy, China has the economic clout to finance infrastructure projects across the world. Developing nations are desperate for money and one that comes with no strings attached on democracy and human rights is what these nations want. This is why Myanmar is so happy with President Xi Jinping’s visit. For Myanmar, largely isolated from the international community since the 2017 massacre of Rohingyas, China’s support is a boon. And it is reinforced by generous financial gains for Myanmar.

At the end of the visit the joint statement released by the two sides is an indication of the growing trust between leaders of both countries.  The statement read that China “firmly supports Myanmar’s efforts to safeguard its legitimate rights and interests and national dignity in the international arena”, an obvious reference to Western criticism of the country. China was also keen to advance “peace, stability and development in Rakhine State”. China is today Myanmar’s largest investor. Significantly, Xi and Suu Kyi talks yielded thirty three agreement, though as always these remain opaque.

One of the earlier schemes, was the Kyaukphyu deep sea port in Myanmar restive Rakhine state. This was signed by Xi when he visited Myanmar as vice president in 2009. The project is of vital geostrategic significance as it gives China access to the Indian Ocean. Chinese submarines and warships have in recent years extended its presence in the Indian Ocean, through which much of its oil is transported from the Gulf. India has been worried about China’s growing presence in the Indian Ocean.

Kyaukphye is emerging as a vital cog in the BRI scheme. Kyaukphyu is the terminus of Chinese oil and gas pipelines. This area has oil and since May 2017, it has carried 22 million tons of crude oil from Kyaukphyu to Yunnan province of China The Kyaukphyu deep-sea port and economic zone calls for an investment of nearly $1.3 billion. The China-Myanmar Economic Corridor was added when Aung San Suu Kyi visited China in 2017. The economic zone envisages a railway line between Kyaukphyu to Kunming the capital of Yunnan province, through Mandalay. Aung San Suu Kyi once a great friend of India, has played her cards right and hopes to benefit from friendship with both Asian rivals, now that the US and Western democracies have turned against her.

During a banquet for Xi, Aung San Suu Kyi assured China that her country always stand by its giant neighbour. “It goes without saying that a neighbouring country has no other choice, but to stand together till the end of the world,” reports quoted her as reassuring the visitor. Myanmar’s military are also on board. While on a visit to Beijing last April, commander-in-chief of Myanmar’s army, senior General Min Aung Hlaing had assured his hosts that the armed forces backed China’s BRI and wanted it to be a success in Myanmar.

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Considering the current bonhomie between China and Myanmar, where does India stand? As pointed out earlier, political relations are excellent, with India going out of its way to extend support to Myanmar over the Rohingya issue. Concern about China’s growing footprints in Myanmar in 1992, when it was under military rule and Aung San Suu Kyi was backlisted by the junta, made Narasimha Rao change track. India had, like the Western world, refused to deal with the military rulers. But seeing Beijing fill in the vacuum, Rao decided to engage with Myanmar’s ruling regime. Now Myanmar is seen as a bridge between India and the ASEAN nations.

During the first NDA government headed by Atal Bihari Vajpayee, talk of connectivity projects took shape. The Kaladan Multi Modal Transport was conceived and begun around 2010. Yet even now the project is not complete, though India has completed the deep sea Sittwe project, again in Rakhine state and handed it over to the Myanmar government. The problem with Indian projects is that the time taken to complete a project takes too long. The government realises this and steps are now being taken to co ordinate work between different departments of the state and central governments and Myanmar authorities better.

To compete with China in the neighbourhood, India needs to be much more efficient in executing projects. Delhi needs to consider why it has done so well in Afghanistan and replicate that model. India is lagging far behind China and needs to be more focussed unless it wants to lose Myanmar to the Chinese dragon. Efficient execution of projects and abundant cash flow has made China a potent force in the region.

India has lost much valuable time but can catch up if it gets its act together. Instead of concentrating on massive projects, India’s strength is in institution building and working in fields of agriculture and small water projects which touch lives of ordinary people. Delhi has to play to its strengths and not imitate China. Perhaps that it the key to success against the rising Asian super power.

High GDP Growth May Mean Nothing For Most Indians

India’s favourite bugbear is China. So when India fares a little better on growth statistics or other metrics than China does, the jubilation is exuberant. Sometimes it is also misplaced. Such as when some Indian politicians exult over things that they certainly should not. A few years back when it was declared that by 2022 India’s population (now more than 1.32 billion) could surpass China’s (now 1.37 billion), quite a few totally uncalled-for cheers were heard as if having the world’s largest cohort of people was a good thing for a nation that is already heaving under the burden of a massive population.

At other times, the jubilation is over-exuberant. The most recent rousing cheers were heard when the International Monetary Fund (IMF) estimated that India’s Gross Domestic Product (GDP) would grow this year at 7.3% and next year at 7.4%, making India the fastest growing big economy in the world once again. The fact that IMF’s estimates for China for this year is 6.6% and for next year, a lower 6.2% quite likely cranked up the decibel levels for those cheers among political leaders. But percentages matter only in the context of the base levels that they relate to. China’s GDP in 2016 was USD 11.2 trillion; and India’s only USD 2.26 trillion. Do the math to see which country adds what to its GDP if those growth estimates are correct. The answer is a no-brainer; and it is about time India stopped comparing itself to an economic superpower.

Instead, it should look at more compelling issues. Such as whether GDP growth rate should be the appropriate measure of the well being of majority of Indians. The IMF’s growth survey lauds India’s government for implementing the contentious Goods and Services Tax, which in theory is supposed to have removed multiple layers of taxation and replaced it with a national tax. And it praises it for a new Insolvency and Bankruptcy Code, which ostensibly would make it easier to do business in India and enable quicker recovery of loans. Both these are still ‘works in progress’ and their efficacy would have to be tested by time. But those structural reforms (welcome, as they may be) apart, it is time to assess whether a higher GDP growth rate alone is enough for improving the economic well-being of Indians, more than 300 million of whom live on less than USD 1.25 a day.

GDP is an aggregate that when simply divided by the number of Indians to arrive at a per capita figure does not take into account the inequality and wide disparities in socio-economic levels among the population. Wide inequalities usually mean that when it comes to GDP growth, the benefits accrue in a highly skewed manner. Only a very small minority at the upper reaches of the income pyramid end up receiving most of the increases. Sample this: according to the Barclays Hurun India Rich List for 2018, in one city, Delhi, just 163 super rich people are estimated to have cumulative wealth of Rs 6,78,400 crore. That list is a compilation of Indians with a net worth of Rs 1000 crore or more. For the record, besides Delhi’s 163 super rich, there are 233 in Mumbai and 69 in Bangalore.

Even as those statistics boggle the mind, let’s shift the focus to jobs and job creation and the Indian economy’s record on that. In the first two years after the Modi government took charge in 2014, a research report, which was backed by India’s central bank, Reserve Bank of India, found that employment in at least 27 sectors fell by 0.2% (in the first year) and 0.1% (in the second year). That means it wasn’t that jobs were not created but actually the number of jobs shrank. These were years when GDP actually grew at an impressive pace: in 2014-15, it grew at 7.4%, and in 2015-16 it grew at 8.2%.

Government officials, including Prime Minister Narendra Modi, often harp on about how jobs are actually being created and employment is on the rise and how official figures are unable to capture that because much of it is in the informal sector. They tout the rise in employee provident fund accounts as evidence but this has been variously contested as not being an authentic method of counting jobs. More recently, there have been media reports of moves to stymie the government’s own labour ministry’s exercise of compiling data on job creation, ostensibly because the findings could be embarrassing.

Several surveys, including one summed up by the RBI’s consumer confidence index, show that the majority of Indians are not elated with their current economic well being, nor of what they expect in the near future. The rupee’s value has slid perilously, and fuel prices have shot up. Add to that continuing distress on India’s farms and frustration among its jobless youth.

But more important, India’s rankings on several other measures and indices are a cause for concern. On the Human Development Index, a statistic composite index of  life expectancy, education and per capita income, India ranks 130 among 189 countries. On the World Bank’s Human Capital Index, which attempts to measure the human capital (stock of knowledge, habits, social and personality attributes, including creativity, embodied in the ability to perform labour so as to produce economic value) that a child born today can hope to achieve by the age of 18, India is at 115 out of 157 countries. On the World Hunger Index, India languishes at 103 among 119 countries; and on the inequality index, it is ranked at 147 our of 157 countries.

India’s official response to these measures has been to question the methodology and find flaws with the surveys and data that are used to compile them. But instead of splitting such hairs, it may be time for those in charge of policies and governance to address other issues—such as the runaway growth in population; the widening inequality in income; and other skewed socio-economic indicators. As for the IMF’s optimistic estimates for GDP growth, it would be best not to exult over them or gloat about how we’re growing faster than a superpower neighbour.

Sanjoy Narayan tweets @sanjoynarayan  ]]>