Vietnamese Economy and Current Cooperation with India

Maj Gen (Retd.) P K Chakravorty

Introduction

The Vietnamese economy at the time of unification on 30 April 1975 was a highly centralised planned economy like the former Soviet Union. This underwent change with the introduction of Doi Moi in 1986. With the breakup of the Soviet Union in 1991, the economy transformed into a socialist market economy similar to Russia and China. Currently, Vietnam is a part of the global economy. Vietnam today exports agricultural and industrial products. In 1997, Asia faced a financial crisis which made Vietnam cautious in undertaking accelerated economic reforms. The turnaround came with the signing of the Bilateral Agreement with the United States (US) on 13 July 2000. This enabled Vietnam to trade with the US and Europe as also brought in Foreign Direct Investment from numerous countries, resulting in a high rate of growth and economic development.

In 2001, the Vietnamese Government approved a 10 year economic plan that enhanced the role of private sector, while reaffirming the primacy of the state. The rate of growth grew from 6% to 7% between 2000 to 2002. It is pertinent to note that the growth rate continued to increase and soon it was just next to China in this field reaching a high over 8%, thereby becoming the world’s second fastest growing economy. Simultaneously, investment grew three fold and domestic savings quintupled. On 11 January 2007, Vietnam became the 150th member of World Trade Organisation (WTO). The membership of WTO resulted in stiff competition which compelled the Government to deal sternly with non performing State Owned Enterprises resulting in privatisation of 30 to 50% of these enterprises thereby stabilising the situation reasonably. Vietnam with its high growth rate is moving on an upward trajectory.

Current Status

Vietnam is currently a part of the globalisation process and is a member of WTO, ASEAN Free Trade Area (AFTA), Asia Pacific Economic Cooperation (APEC), Association of South East Asian Nations (ASEAN) and Food and Agriculture Organisation (FAO). The nominal GDP is $ 187.848 billion and converted to Purchasing Power Parity (PPP) works out to $ 509.466 billion. In the current year, the GDP witnessed a growth of 5.62%. The per capita income is $ 2073 as per nominal calculations and $ 5621 as per PPP. The GDP as applicable to sectors is as follows: Agriculture - 19.3%, Industry – 38.5 % and Services – 42.2%. The population by occupation is Agriculture – 48%, Industry -21 % and Services- 31%. The population below the poverty line is 10% and unemployment is about 2%.The main agricultural as also meat products are rice, coffee, rubber, cotton, tea, pepper, soya beans, cashew nuts, sugar cane, peanuts, bananas, poultry, fish and sea food. The main exports are clothes, shoes, marine products, crude oil, electronics, wooden products, rice and machinery. The total exports are about $ 128.9 billion. The imports are machinery and equipment, petroleum products, steel products, raw materials for clothing & shoe industries, electronics, plastics and automobiles. The total imports account for $ 121.4 billion. US is the highest export partner accounting for about 17.8% of the exports and China is the highest import partner accounting for 25.8% of the imports. The public finances are rated as stable and the Government has been taking corrective measures to keep the economy on course.

Economic targets for 2015

The eighth session of the 13^th Vietnamese National Assembly commenced in Hanoi on 20 October 2014. The Prime Minister Mr Nguyen Tan Dung in his speech stated that despite a promising outlook for 2015, inefficiency, bad debt and domestic sentiment will moderate the growth rate. The Prime Minister set out a growth rate of 6.2% for 2015. He also emphasised that inflation will be maintained at 5% resulting in reduction of poverty by another 1.7 % and creation of additional 1.6 million new job opportunities. The rise recorded in recent months is driven by strong exports and a booming manufacturing sector.

Experts feel that to reach a growth rate of 6.2% there would be a need to boost investment to the tune of 33 to 35% of GDP. Further, Vietnam is pushing ahead with its plan of disinvesting its 1000 State Owned Enterprises. The Ministry of Planning and Investment was asked by the Government to withdraw its proposal for using the state budget to settle bad debt of State Owned Enterprises. It is estimated that the bad debt works out to $ 80 billion. Further, the Government wants to tackle corruption which exists in finance, banking, land management, natural resources exploitation and public investment. Despite these irritants, Vietnamese economy has stabilised. The forecasts predict that in the short run, Vietnamese economy will grow at a slightly slower speed and will accelerate to high growths in the long run once the shortcomings are addressed.

Current Economic Cooperation with India

India and Vietnam have been cooperating extensively in the economic field. India has offered Vietnam 18 Lines of Credit as on date. The Vietnamese Prime Minister recently visited our country on 27 and 28 October 2014.In the Joint statement issued by both the Prime Ministers, it was agreed that economic cooperation between both countries should be pursued as a strategic objective. They welcomed the strong growth in bilateral trade in recent years particularly after the India- ASEAN trade in Goods Agreement.

They also noted that the conclusion of India-ASEAN trade in Services and Investment agreement would further boost economic cooperation between India and ASEAN in general as also Vietnam in particular. They also called for closer Regional Economic Partnership Agreement (RECP).

Business leaders of both countries identified priority areas for cooperation. These included hydrocarbons, power generation, infrastructure, tourism, textiles, footwear, medical and pharmaceuticals, Information & Communications Technology (ICT), electronics, agriculture, agro-products, chemicals, machine tools and other supporting industries. They agreed to enhance bilateral trade to $ 15 billion by 2020.

The Prime Ministers reaffirmed the importance of investment for the growth of their economies. Prime Minister Dung welcomed Indian companies to invest in Vietnam and Prime Minister Modi invited the Vietnamese companies to join the accelerated economic growth programme ‘Make in India’ for establishing their industries in India. It was agreed that the Customs Cooperation Agreement and Maritime Shipping Agreement between the two countries be optimised to facilitate greater economic engagement.

Both the Prime Ministers welcomed the signing of Agreement between ONGC Videsh and Petro Vietnam for exploration of new oil and gas projects in Vietnam. Prime Minister Dung welcomed Indian Oil and Gas companies to explore new opportunities in midstream and downstream activities in the oil and gas sector in Vietnam.

It was a great step that the Vietnam Bank had agreed to the proposal to open a Bank of India branch in Vietnam. Further, to improve connectivity, Jet Airways is going to commence direct flights to Ho Chi Minh City from India with effect from November 2014.

Another area which will provide an impetus to our economic relationship would be the construction of a Thermal Power plant. Tata Power plans to develop US $ 1.8 billion Long Phu Thermal Power Plant in Soc Trang which is located in the southern portion of the country. An MOU has been signed in this connection in November 2013. Efforts are being made to expedite the commencement of construction of the project. All these issues will assist Vietnam in stabilising its economy and build its Comprehensive National Power.

Conclusion

The Vietnamese economy continues to grow at about 6% despite its problems with State Owned Enterprises. India and Vietnam have strengthened their economic cooperation over the last four decades that has been mutually beneficial which has, in turn, led to strengthening of their strategic relationship. Growing economies of both the countries offer several opportunities for India to enhance its investment and trade with Vietnam. There is an expanded scope for Indian companies to invest in Vietnam in a variety of sectors besides oil and the mineral sector. Investment and trade potential between both the nations is very large and has not been fully exploited. With Prime Minister Modi at the helm of affairs in India, it is time to impart momentum to India’s economic engagement with Vietnam.

(The author was India’s Defence Attache to Vietnam)

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Published date: 27^th November 2014, Image source: http://vietlaw4u.com

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)

India’s ‘Act East’ Policy: A Perspective

Brig Vinod Anand, Senior Fellow, VIF

Dr Rahul Mishra

India’s Look East Policy (LEP) came of age when New Delhi celebrated two decades of engagement by holding the ASEAN-India Commemorative Summit in November 2012. The first phase of LEP lasted for one decade till 2002 when the then Minister for External Affairs Mr Yashwant Sinha announced the commencement of the second phase. While in the first phase, the emphasis was on political, diplomatic and people to people relationships, improved connectivity and enhanced trade, the second phase revolved around strengthening of economic relations, defence and security cooperation besides strengthening relationships in other areas. During the second phase, though the dominant impulse remained the economic engagement, increasingly the LEP also acquired strategic orientation. The LEP focused not only on the ASEAN members but also expanded to include South Korea, Japan, Australia, New Zealand and other countries in the East. Over the two decades, not only has India progressed from a dialogue partner to the present status of a strategic partner in respect of ASEAN but has also established strategic partnerships on bilateral basis with many ASEAN countries and Japan, Australia and South Korea. It can also be said that after 2012, the Indian government continued to work towards what it called the third phase that was termed as an ‘Enhanced LEP’.

In fact, when Modi government took over the reins of power in May this year, it conscientiously continued with the previous government’s policy and the new Minister for External Affairs, Smt Sushma Swaraj termed the new phase as ‘Act East Policy’ which in a sense meant that more substance was to be imparted through early implementation of many elements of the LEP. While the plan to engage ASEAN has been charted out in the ‘Plan of Action to implement the ASEAN-India Partnership for Peace, Progress and Shared Prosperity (2010-2015)’ announced during the Commemorative Summit of 2012, the Modi administration has been in an overdrive to reach out to all the nations in the wider Pacific region.

Prime Minister Modi’s successful visit to Japan, the India visit of Australian Prime Minister Tony Abbott and the visit of China’s President Xi Jinping are seen as high points in the Modi government’s policy towards the wider East Asian region. Japan is also considering joint projects with India in some of the ASEAN countries besides expressing its interest to invest in India’s North East. The level of defence and security cooperation including joint military exercises and co-production and co-development in defence industry is on the cards. India-Japan civil nuclear agreement could not be concluded because of some apprehensions on part of Japan but that aside, the scope of strategic and economic cooperation is expected to follow an upward trajectory.

During the India visit of Australian Prime Minister Tony Abbott, India and Australia signed the much-awaited India Australia Civilian nuclear cooperation agreement that would enable supply of Uranium to India. The successful conclusion of Abbott’s visit is a watershed event in India-Australia relations. Apart from the civilian nuclear deal, Indian companies are also working towards joint energy ventures in Australia. Earlier this month, Modi attended the ASEAN-India and East Asia Summit in Myanmar where he further outlined his plans to revitalise relationships with ASEAN and East Asian countries in both economic and security fields. From Nay Pyi Taw, Modi travelled to Australia for the G-20 Summit where he held bilateral meetings with Prime Minister Abbot to build on the evolving strategic relationship with Australia. In order to expand India’s footprint in Pacific, he visited Fiji after attending the G 20 meet.

Clearly, within a short period of six months or so, the Narendra Modi government has taken steps to give a boost to the Look East Policy, or what has been termed as the ‘Act East Policy’. In that regard, the statement made by the External Affairs Minister Sushma Swaraj is worth noting. During her visit to Vietnam on 26 August, 2014, she addressed the Indian Heads of Missions and said that India has to not just ‘Look East’ but ‘Act East’. Her visit to Vietnam was the third visit to a Southeast Asian country since she became the Minister for External Affairs in the Modi Cabinet.

President Pranab Mukherjee has also visited Vietnam and signed a number of agreements that include allotment of seven oil blocks for exploration, enhanced defence and security cooperation, increased economic and people to people exchanges besides regional and multilateral cooperation. While Vietnam supported India’s LEP and its increasingly important role in regional and global forums, they also expressed the resolve to ‘foster the implementation of signed agreements’ and observed that cooperation in national defence was an important pillar in their strategic partnership. President Mukherjee also supported the freedom of navigation through high sea, peaceful resolution of disputes based on international law including the 1982 UNCLOS and adherence to the Declaration on the Conduct of Parties in the East Sea towards the adoption of the Code of Conduct of Parties.

It has been stated many times by the Indian strategists that Myanmar is the lynchpin of India’s LEP and is a gateway or a strategic land bridge to the ASEAN. Myanmar is the current Chair of the ASEAN, hosting several meetings of ASEAN during the year. In that regard, Sushma Swaraj was on a four-day visit to Myanmar to participate in the Fourth East Asia Summit (EAS) Foreign Ministers’ meeting, 21st ASEAN Regional Forum (ARF) retreat session and India-ASEAN foreign Ministers Summit. During her visit, she had extensive discussions with Myanmar’s President U Thein Sein, Minister of Foreign Affairs of Myanmar and Pyithu Hluttaw (House of Representatives), Thura U. Shwe on how to further strengthen ties between India and Myanmar.

India has been pushing for greater regional integration of Indian economy with that of the ASEAN by expanding the scope of trade and investment. The main focus of 4th EAS Foreign Ministers’ meeting was on strengthening cooperation in the areas of energy, education, disaster management and enhancing connectivity. Sushma Swaraj reiterated India’s position that India “would soon draft a five-year action plan starting 2016 for enhancing connectivity and cooperation in diverse areas”. The agenda of the 21^st Asean Regional Forum retreat session largely revolved around the security issues. Ways of combating terrorism and other non-traditional security threat relating to the South China Sea figured prominently in the meeting.

Regarding the South China Sea dispute, India continued to follow its traditional stance of pushing for a peaceful resolution of the maritime dispute between China and the ASEAN member states and that “no such issue should be resolved through conflict and war” but through peaceful dialogue”. Swaraj remarked, “Recent disputes in the South China Sea underscore the need to resolve sovereignty issues peacefully by the countries concerned in accordance with international law”. Notably, major claimants in the dispute such as Vietnam and the Philippines consider India a benign balancer in the region. Therefore, India is widely envisaged as a key power and one of the major stakeholders in the emerging East Asian security dynamics.

The Modi government has been emphasising on giving urgent attention to the speedy completion of trilateral highway that will connect India-Myanmar-Thailand to facilitate people-to-people contact between India and Myanmar and improve trade and investment opportunities. Prospects for a direct flight from Delhi-Bodhgaya-Yangon are likely to be materialise given the earnestness of Modi administration. Moreover, friendly relations with Myanmar are crucial for peace and development of India’s north-eastern states. Given that it was the first ever visit to Myanmar by any Indian Minister of the new government, Myanmar was given assurance that the new government is willing to strengthen relations with it and thereby, ready to boost trade and investment.

India is aware of the changing dynamics of the East Asian regions. The security architecture of the region is rapidly changing. Rising China and Japan, and the consistently increasing competition between them has taken new dimensions. India has realised the problems as well as the prospects of the changing regional dynamics. In that context, India’s greater role and participation in the security architecture of the region as also the ways and means to enhance India’s presence in the Southeast Asian region are of immense importance, not just to India but to the countries of the East Asian region also. These are important components of the Act East policy as without robust trade, economic investment and physical connectivity, India will not be able to achieve its goals.

Energy security is an important component of the Act East Policy of the Modi government, which has been manifested in the recent MoUs that India has signed with partner countries. New Delhi and Hanoi have moved forward in energy cooperation despite some objections by China. Vietnam has already renewed India’s lease of two oil blocks in the South China Sea for another year. Vietnam is keen to procure the Brahmos missiles, which are jointly produced by India and Russia. Vietnam is also exploring the possibility regarding procurement of naval weaponry. India has agreed to supply four off shore naval patrol vessels to Vietnam and Modi has announced that India will “quickly operationalise the $100 million Line of Credit that will enable Vietnam to acquire new naval vessels from India."

Likewise, India is also working towards greater military cooperation with Japan and Australia. India and Australia will hold their first-ever bilateral military exercise in January 2015.

India-ASEAN FTA in Services

After several rounds of negotiations, India and the 10-member countries of Association of Southeast Asian Nations (ASEAN) signed the Free Trade Agreement (FTA) in services and investments on 8 September, 2014. The final agreement was signed two years after the conclusion of detailed negotiations on the pact. In 2010, India and the 10- ASEAN member countries signed the Free Trade Agreement in goods. However, at that time, the services agreement could not get signed taking into account the sensitivities of a few ASEAN member countries. The realisation of the FTA in services is expected to give the much needed impetus to India’s trade and investment relations with the member countries of ASEAN. In fact, the former Prime Minister Manmohan Singh led United Progressive Alliance government II was criticised for signing an incomplete FTA (FTA in goods only), which was destined to lose out to ASEAN in terms of benefits. As a result, in the past few years, India’s exports remained insignificant, while imports from ASEAN countries increased.

The Indian government as well as the private sector have been ready for the agreement but the ASEAN members couldn’t expedite the pact. Countries such as Indonesia, the Philippines and Thailand took several months to set things right domestically. It is worth noting that the Philippines is yet to ratify the agreement in its parliament. The other nine countries that have ratified the agreement include: Brunei, Cambodia, Indonesia, Laos, the Philippines, Myanmar, Singapore, Thailand and Vietnam. The primary reason for the Filipino apprehension is that it fears that the Indian services sector might sweep the Philippine market and dominate the ASEAN services industry. However, as the FTA in services is implemented, India’s share in total trade would also rise as India is a leader in the services sector, making India-ASEAN FTA a ‘win-win situation’ for all.

It is hoped that with India-ASEAN FTA in services and investments, greater flow of trade and investment and freer movement of professionals will be realised, paving the way for India’s comprehensive regional economic integration with the 10 ASEAN member countries. The good news for India is the inclusion of a brief annexure on movement of natural persons or workforce. The annexure defines business visitors, contractual service suppliers and intra - corporate transferees, issues that are critically important for India. In addition to that, other major issues such as domestic regulations, recognition, market access, national treatment, transparency, participation of developing countries, joint committee on services, review, dispute settlement and denial of benefits etc. are also included in the agreement.

With the completion of India-ASEAN FTA, the road to the Regional Comprehensive Economic Partnership (RCEP) seems clearer. RCEP includes the 10 ASEAN member countries and its six partners including India, China, Japan, South Korea, Australia and New Zealand. ASEAN aims to make RCEP a reality by 2015, which was first mooted during the 2011 ASEAN Summit in Indonesia, and formally launched during the 2012 ASEAN Summit in Cambodia. With the realisation of RCEP, India is likely to gain preferential market access to 15 countries and gain more from price competitiveness.

To benefit most from the India-ASEAN Free Trade Agreement, India needs to keep going on the economic reform path. In that regard, steps to strengthen its medium, small and micro enterprises (MSME) sector are critically important which can help it not only sustain the free flow of trade, but also to become a more competitive player.

Conclusion

The last three years or so have witnessed a growing apprehension about the rising capabilities of an ascendant China and its propensity to assert its claims in South China and East China Sea. The countries in the region are also afflicted with difficult choices to be made between their economic objectives where China is of help and their strategic objectives of safeguarding their national and sovereign interests where some of the nations in the region feel challenged. On the other hand, India is seen as a power which does not threaten or challenge their national interests and can in some away lessen their apprehensions. Against this backdrop, ASEAN states are seeking a moderating role in the region given that New Delhi is seen as a benign power as opposed to China, the US or even Japan. While India may not have the political or the economic clout of ASEAN’s other envisaged partners, it is anticipated that with rising trajectory, India will become a pole of influence in the future. However, China’s influence is considerable and is likely to be so for the coming years. India’s LEP (and now Act East) has been in place now for over two decades and precedes the American pivot to Asia and therefore it stands on its own merit. Modi administration is only building up on what was bequeathed by the previous government but with much more vigour. The strategic dynamics in the region are very complex and still evolving and the LEP is only one element of the vast strategic canvas on which major powers have put forward their own policies like the American rebalance, or Japan’s Security Diamond concept or for that matter China’s New Maritime Silk Route strategy. It is to be hoped that the new policies contribute towards stability and prosperity in the region rather than instability and insecurity.

(Dr. Rahul Mishra, Research Analyst, ICWA)

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Published in Vivek: Issues & Options, September - October 2014