Growing India-Vietnam economic relations after 50 years of relationship

The year 2022, which marks 50 years of bilateral relationship between Vietnam and India, is an important landmark in diplomatic relations.

While formal diplomatic relations were established in 1992, the relations between the two countries are more than 2000-years-old. Historians point out that economic and cultural links can be traced back to the 2nd BC. They point out that Buddhism reached Vietnam via Indian delegations in the 3rd or 2nd BC. As per legends, Chu Ðong Tu (a famous Vietnamese divine being and a ruler) became a disciple of an Indian Buddhist monk and Luy Lau, in Bac Ninh Province became the centre of Buddhism. The Cham civilisation is yet another symbol of long relationships.

The last fifty years have witnessed a significant growth in the India-Vietnam bilateral relations, which have acquired a new dimension with common strategic, diplomatic, security and economic interests with special focus on people-to-people linkages. India-Vietnam ties are one of the most crucial bilateral relations that India has in South-East Asia. India and Vietnam have elevated their relations from Strategic Partnership in 2007 to Comprehensive Strategic Partnership in 2016. This reflected the commitment of the two countries to become more invested in boosting their bilateral relations in a wide array of fields.

This year has witnessed high-level exchanges between the two countries to mark the celebration of 50 years of diplomatic relations. At the end of 2021, Mr Vuong Dinh Hue, Chairman of the National Assembly of Vietnam visited India along with a high-level delegation on the invitation of Vice President Sri Naidu and Sri Om Birla, Speaker of the Lok Sabha. This was the first high-level interaction to celebrate the 50th year of diplomatic relations between the two countries and spell-out an action plan for further cooperation between the citizen representatives of the two countries.

The year 2022 is an important landmark in the diplomatic relations between the two countries. (Nguồn Vector Stock)

This year, Sri Om Birla visited Vietnam in April 2022. During his visit, he stressed that India and Vietnam should further expand their cooperation in areas such as climate change, sustainable development, health care, and the digital economy.

On the 15th April, Prime Minister Modi had a telephonic conversation with the Secretary General of the Communist Party of Vietnam Nguyen Phu Trong, who briefed the former on the targets of the 13th National Congress on socio-economic issues that included Vietnam’s aim to emerge as a key manufacturing hub for global giants and to upgrade its economic profile from a low-cost labour industry concentrated on labour-intensive manufacturing into high-tech centre for science and technology.

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The Indian Defence Minister Sri Rajnath Singh visited Vietnam in June 2022. This visit was important both in the defence and economic dimensions.

Both countries are emphasising the need for promoting trade and investment and cooperation in hi-tech for economic development, taking the economic relationship to a much higher level for mutual benefits.

In pursuance of this objective, Vietnam’s Ministry of Industry and Trade, the Government of Vietnam sent to India a business delegation led by Mr. Do Quoc Hung, Deputy Director General of the Ministry, and 20 business communities in multi-sectors to India from July 18th to 22nd 2022.

The leader of the delegation at the meeting with the Indian Importers Chamber of Commerce and Industry (IICCI) stated that the bilateral trade between the two countries registered a significant growth since 2000 when it was only 200 million USD to 2021-2022 reaching to 14.4 billion USD and that in 2021-2022, the bilateral trade between India and Vietnam posted a growth of 27%.

Mr Atul Kumar Saxena, President of IICCI highlighting the factors that has made the country an attractive place for doing business, pointed out that "Vietnam is providing necessary assistance to entrepreneurs and has a stable economic growth that was noticeable even during the pandemic period".

Of late, Vietnam has taken several steps to accelerate its integration into the global market, like signing of a Free Trade Agreement with Europe in 2019. It is also a member of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP,) RCEP and India-ASEAN Free Trade Agreement. Vietnam is emerging as a favourite destination for Japanese manufacturing firms.

In August 2020, the then Japanese Prime Minister (Late) Abe, observed that half of the Japanese businesses that receive support from the Government in expanding supply chains had chosen Vietnam and assured Vietnam of his government’s assistance to such firms for diversifying supply chains.

Internal reforms that began with the introduction of Doi Moi in 1986 that aimed at shifting away from a centrally planned economy to a market one, are continuing. Vietnam has not only assured continued electricity supply to industrial houses, but has also digitalised the process of registration of firms, introduced transparency and freedom for foreign firms to have 100% ownership. Its anti-corruption campaign assures the elimination of middle-men. Besides, it is focusing on developing skilled labour needed for industrial growth.

Currently, India is one of the top 8th trading partners of Vietnam, while Vietnam is the 15th largest trading partner of India and the fourth in Southeast Asia. Vietnam is trying to diversify its trade and intends to make use of India’s growing market.

The key Vietnamese exported products to India are mobile phones and components, computers, electronic products and components, chemicals, plastics, rubber, coffee, pepper, and cashew. The main Indian exported products to Vietnam are iron and steel products, textile materials, fishery, corn, pharmaceutical, and pharmaceutical raw materials; auto spare parts.

Vietnam occupies a central position in India’s Act East Policy and also in the Indo-Pacific strategy.

India has made positive contributions towards capacity building and socio-economic development of Vietnam. India has also been providing assistance to Vietnam within the ASEAN framework.

Under the Mekong-Ganga Cooperation (MGC) framework, India has been taking up Quick Impact Projects (QIPs), each valued at US$50,000, in different provinces of Vietnam for the development of community infrastructure. India has 317 valid projects worth over 1 billion USD in Vietnam, ranking 23th out of the 129 countries and territories investing in that country.

India realises that Vietnam is a potential regional power in South East Asia with great political stability and substantial economic growth. Its average 7% annual economic growth is very attractive. Even during the worst period of the pandemic, its economic growth remained commendable at 3% while several other nations registered negative growth. Even more impressive is its growth, which is driven by a record trade surplus, despite the collapse in global trade.

The drivers for the growth of trade and commerce are both strategic and economic. The problem related to the supply chain emerging in recent years, has also pushed them to consider an alternative supply line. Moreover, both nations desire a stable, open, free and inclusive Indo-Pacific Ocean region. Thus, both have common objectives.

What are the future prospects for economic relations between the two countries in the current unpredictable global environment? India is pursuing the Act East Policy and is working to make the Indo-Pacific free and open, which will promote Security and Growth for All in the Region (SAGAR).

Vietnam set the priorities at the 13th National Congress, which included national digital transformation, development of a digital-based economy, greater stress on science and technology development and creating a more conducive environment for business development as well as for manufacturing concerns. These make the prospects for further growth of trade and commerce between India and Vietnam bright in the coming period.