What INDIA can learn from Vietnam

As India is still feeling the pressure at the border because of China, a south-east Asian country – Vietnam is taking the market by storm and is partnering with some well-known Global players. Even though Vietnam & India were around at similar levels in some sectors and ranked under top 20 exports, Vietnam seems to be outstripping India.

And that is one reason, this question strikes our minds – Why India is not able to attract global companies when it has a chance? Well, we decided to take a deep dive and here are the findings:

Vietnam’s journey from the economy fall to PROSPERITY:

It has been more than two decades since Vietnam decided to introduce a reform policy under the name of ‘Doi Moi.’ The reforms were all about encouraging more trade, removing self-imposed barriers, investments from FDI, direct investment and private sectors.

This policy acted as a miracle and saved them from economic fall down and which is one of the reasons that Vietnam is at par with India and is now enjoying the international status and attracting more MNC’s and large investors.

Source: Crawford School Working paper

Comparison over time between Vietnam & India 

 

1900-2000

Due to the above policy and continued development, Vietnam’s exports, which were 6% of India’s in 1960 and 13% in 1990, performed exceptionally well and reached  34% in 2000. What was more incredible was that in 18 years it shot up to 75%. 

21st

Vietnam’s top exports, in 2019 was electrical hardware and gear (with 41 per cent share), garments (11 per cent), footwear (8), apparatus and mechanical machines (5). During 2010-19 the most exported products were electrical hardware and gear, which also resulted in export rising from 10% in 2010 to 42% in 2019. The US, UAE and Austria represented 40% of the cell phone trades by Vietnam in 2019.

Source: Tradingeconomics.com

Whereas, India traded products such as pearls, precious stones and adornments (16 per cent of all-out shipments); fossil fuels (12 per cent), atomic reactors, hardware and mechanical machines (5 percent), drug items (5 percent) and natural synthetic compounds (4 percent).

Major countries that exported from India were United States (15 percent of the all-out fares), United Arab Emirates (11 per cent), Hong Kong (5 percent), China (4 percent), Singapore (4 percent) and United Kingdom (3 percent).

Source: Tradingeconomics.com

Now let’s take look into the popular sectors

Merchandise:

Vietnam’s complete merchandise trades developed at an annualized rate of 18 per cent over the most recent 10 years till 2019, and India contracted with 5 per-cent. During a similar period, Vietnam achieved an exchange overflow of $47 billion, which again was a huge improvement over the import/export imbalance of $13 billion out of 2010.

While Vietnam began conveying exchange overflow, India’s import/export imbalance expanded to $156 billion of 2019 compared $130 billion out of 2010.

Source: Financial Express

Hi-tech Manufacturing:

Under this sector, when we compare India with Vietnam:

Indias top trade is composed of primitive manufacturing products like fossil fuels (14 per cent share), valuable stones (11 per cent), machinery (6), chemicals (5) and carriers (5). India could have been an ideal destination for technology manufacturing, but Vietnam has been the pacesetter.

According to 2018’s export analysis, in technology manufacturing, Vietnam stood at a whopping 40 per cent, while India for just 9 per-cent.

Even though India has a world’s largest refining capacity for petroleum oil and also, has extensive mining units, with significant storage of copper, iron and other fossil fuels. Indian’s fares still don’t show a predictable development and numbers swing intensely based on prevailing conditions.

Electronics

We all know Vietnam is known as the hub of mobile manufacturing. But do you know, in 2018, Vietnam earned revenue of $263 billion in mobile assembling, which was a year back $45 billion. 

Samsung, a South Korean brand which has a major stake in electronics, has the largest facility in Vietnam and has been profited due to Vietnam geographic advantage & favourable policy. Till 2018, Samsung Electronics in Vietnam added up to $66 billion representing 28 per cent of the nations GDP.

Source: GFK

Given the huge opportunity presented by US-China trade conflict and because many top-producers want to shift their operations – Vietnam has taken the opportunity and captured around 60% of the 300 billion total export of SMARTPHONES whereas, India has only 10% in its pocket.

According to many export-import researchers, India in future will import in large amounts of electronics. What worries us that if we don’t attract more of these companies, especially smartphone companies, India will bear a high trade deficit.

Source: India Today Group

Geographic advantage:

When a foreign company decides to set-up a manufacturing unit, they look at the key factors like efficiency and sustainability of the port. When we compare two major ports like Kandala, India & Hai Phong, Vietnam; we see the laters geographic benefits broaden around the major economies.

India & Vietnam have common trading partners that are China, Japan and the US. The shipping time to these countries takes less from Vietnam, whereas Europe has the advantage of trading from India. According to the ITF, to guarantee productive shipment transfers factors like turnaround time and labour expenditure which plays a crucial pointer in attracting the giant players. Data from IFT show that India has a turnaround time of around 60 hours, whereas Vietnam has around 24 hours.


Add on benefits by Vietnam

Labour Reforms & Training:

The decline of trade barriers led to the breakdown of supply chains, enabling lower-skilled workers to work in regions with lower wages. However, Vietnam saw that it was attracting low-to-moderate skilled workers such as repetitive assembly line work. It led the government of the country to develop policies which aimed at harmonising education and also led to raising the standards of vocational and technological skills.

On the other hand, India’s ranking dropped to 103 ( around 23 places down) because of the complicated regulations and outdated labour laws. The country is also not focusing on skill development where it ranks at 107, with a large void between the lesser number of high-skilled labourers and a greater percentage of low-and-semi-skilled labourers unaware of the new technology and innovations.

Source: Mint

Tax regimen:

In past years, Vietnam has also brought out some attractive tax regimes for large foreign firms. Taxes such as corporate income taxes were dropped to 22% from 25% in 2014 and further eased by 2016 ( 20% ).

Significant packages were made accessible for specified sectors that need promotion & improvement. They have a rule where if manufacturing operation fulfils minimum revenue or hire 3,000 plus workers in four years of its undertaking, the company becomes eligible for tax breaks. Companies also get some additional benefits like cheap land at competitive levels. Foreign corporates are authorized to pay all revenues, royalties and expenses in hard cash.

Source: Vietnam Briefing

Learnings from Vietnam

Amidst the devastating Covid-19 in the first six months of 2020, we saw Vietnam at par with India. The average growth for the exports by Vietnam was 3 per-cent and while India had negative growth of 25 per cent. 

Vietnam holds a lesson for developing nations and as well as the developed economies. Vietnam has achieved the hard way its success is just not because of geographical advantage and the experience it has built through time in different sectors but, it has done some major reform like: 

  1. Trade liberalization 
  2. Introducing policies & incentives to bring ease in the business
  3. Investment in a large amount of human and physical capital

As we are very near to the end of the year, India needs to analyze and build strategies to compete with its neighbouring countries. It needs to think in term of free trade, developing a stable business environment, giving out financial incentives to attract foreign companies. And most importantly, it needs to improve its standards when it comes to labour working environment.

Let us know what changes you think that India needs to improve in order to increase its export and balance the trade.

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