Jyoti Kataria asked: What are the reasons behind below potential trade between India and Vietnam?

Udai Bhanu Singh replies: Vietnam is a pillar of India’s Act East Policy. The relations between the two countries were upgraded to a Comprehensive Strategic Partnership in 2016. The economic reform trajectory in Vietnam and India in recent times has not been dissimilar. Vietnam introduced its Doi Moi reforms in 1986 whereas India liberalised its economy in the early 1990s (accompanied by its Look East Policy, later rechristened Act East Policy). India and Vietnam have robust direct maritime links supplemented by direct air links. The two countries have also recently joined the Indo-Pacific Economic Forum (IPEF). 

Vietnam is India’s 15th largest trading partner globally and 4th largest within ASEAN (Association of Southeast Asia Nations), whereas, for Vietnam, India is the 8th largest trading partner. Bilateral trade reached US$ 13.7 billion in 2021 (calendar year), which was over 23 per cent year-on-year increase. On 21 December 2020, during a virtual summit between Prime Minister Narendra Modi and then Vietnamese Prime Minister Nguyen Xuan Phuc, the India–Vietnam Joint Vision document set a target of US$ 15 billion of trade “at the earliest…based on a concrete plan of action and new supply chains located in each other’s country”. Despite the positives in their favour, the full potential of trade between India and Vietnam has not yet been fully realised. The trade and economic links are not as strong as the political and defence relationship. Some of the key factors are as follows:

1. China Factor: India has an ongoing conflict with China on its land border while Vietnam faces China in the South China Sea. Yet, counter-intuitively, the China factor serves as a limiting factor. China has been Vietnam’s largest trading partner and a source for primary inputs for its garment export industry. It also relies on China for electricity supply. While China is not India’s top trading partner, bilateral trade is considerable. 
2. Vietnam and India are competitors in some agricultural products (for instance, rice and coffee).
3. The Special ASEAN–India Foreign Ministers’ Meeting in June 2022 decided on an early review of the ASEAN–India Trade in Goods Agreement (AITIGA) because India feels its exports to the ASEAN region are impeded by non-tariff barriers (NTBs). India has also stayed away from the Regional Comprehensive Economic Partnership (RCEP) because it fears that cheaper (Chinese) goods will flood the Indian market.

Given the close understanding between India and Vietnam, there is a reason for optimism for the growth of future trade ties. As pointed out by Joint Secretary (South), MEA, V.V. Sapkal: “The future of economic ties…[lies] in building reliable, resilient supply chains, facilitating long term investments and greater market access while also working to upgrade the regional trade structure”. While India needs to leverage its strengths (in the trade relationship) in agriculture, energy, and pharmaceuticals, Vietnam needs to leverage its strengths in chemicals and construction. Further Indian investments in Vietnam (around $1.9 billion), Indian Technical and Economic Cooperation (ITEC) initiatives, and human resource development in the field of information technology would continue to supplement the growing political and defence relationship.

Posted on 20 September 2022

Views expressed are of the expert and do not necessarily reflect the views of the Manohar Parrikar IDSA or the Government of India.