Vietnam: Closer Economic Relations with India as a Source of Growth to Vietnam


Associate Professor Binh Tran-Nam

India and Vietnam have enjoyed a special relationship since the first meeting between Prime Minister Jawaharlal Nehru and President Ho Chi Minh 50 years ago. During the war years and the early period following Vietnam's reunification, India has constantly expressed its diplomatic support of Vietnam, especially to the United Nations. This important bond has been reiterated by both countries at the various biennial sessions over the years of the Indo-Vietnam Intergovernmental Committee. However, until recently, this bilateral relationship has been largely confined to the sphere of diplomatic cooperation.

In October 2004, India's Foreign Minister Natwar Singh visited Vietnam to commemorate the 50th anniversary of the historic Nehru-Ho meeting and co-chair the 12th session of the Indo-Vietnam Intergovernmental Committee. During this visit, Mr Singh confirmed India's readiness to boost its cooperation with Vietnam in the spheres of economics, trade, culture and science-technology. The Committee agreed to implement the 2004-06 Action Program and to raise bilateral trade turnover to US$1 billion by 2006. This development seems to be consistent with the long-held sentiment of many Indian analysts who argue that along with Myanmar in South East Asia, India needs to build up a strategic partnership with Vietnam.

India can indeed be a potentially important source of economic growth for Vietnam. Unlike the past, the Indian economy has been growing rapidly since the modernization process commenced in 1991. On 15 October 2004, the Asian Development Bank forecast that India would grow by 7-8 per cent per annum in the medium term and said it would step up its loan exposure to US$2 billion annually. India has accordingly become an attractive destination for global investment flows. The FDI confidence index for 2004 constructed by AT Kearney (a global management consulting firm) shows India as the third most preferred destination for foreign investors, behind only China and the US. More importantly, for the first time, manufacturing investors surveyed by AT Kearney considered India a superior manufacturing location than even the US. Further, with a current GDP per capita of US$800 850, India is considered by many as being at the inflexion point for an economic take off.

A closer and expanded bilateral relationship with India can benefit Vietnam for several reasons. First, as mentioned above, India is a large and rapidly growing economy. Its emergence as a potential economic superpower lessens somewhat the dependence of Vietnam and ASEAN on China as a cornerstone of economic stability and growth. Secondly, there is a geographical proximity as well as a political closeness between India and Vietnam. Thirdly and finally, there is a reasonably high degree of economic complementarity between the two countries. Significantly, bilateral economic cooperation will be conducted in terms of English, which represents an area where Vietnam needs to make a rapid improvement.

The India-Vietnam partnership holds promising prospects in the economic sphere, especially in the areas of technical assistance and technology transfer. As many analysts observe, in terms of absorption of technologies for its industrial development, Vietnam does not require the hi-tech inputs readily available from countries like Japan or Taiwan. Rather, it needs intermediate levels of technology that can be economically provided by India. In this sense, Vietnam has not yet fully utilized India as an efficient source of assistance in the development of its industrial and economic infrastructure. Given its comparative advantage, India's private sector could profitably invest in the following sectors in Vietnam: telecommunications, information technology, agro-tech industry and fertiliser production, pharmaceuticals, railway construction and supply of engines/coaches. Conversely, Vietnam is well placed to assist India's energy sector, particularly with crude oil and gas supplies.

The institutional basis for bilateral and regional cooperation has been formally established. Bilaterally, there exist a Memorandum of Understanding and a series of 3-year Action Programs between India and Vietnam. Regionally, there is the Mekong Ganga Cooperation, launched in Vientiane on 10 November 2000. This organization, comprising of India, Myanmar, Thailand, Laos, Cambodia and Vietnam, aims to focus on cooperation in tourism, culture, education and transportation. The scope of this organization could be easily expanded to trade, industry and economic cooperation. This expanded scope seems to be increasingly appropriate in view of China's recent decision to build eight dams along the upper Mekong River, which could have disastrous consequences for Thailand, Laos, Cambodia and Vietnam.

In conclusion, India is in a good position to assist Vietnam in its ambition to become a new economic hub in the Asia Pacific. Both countries will find powerful incentives to expand their traditional ties to encompass mutually beneficial trade, commerce and economic cooperation.

WATCHPOINT: How India supports Vietnam in training IT staff is a good indicator of the success or otherwise of the bilateral 2004-06 Action Program.


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