1. Vietnamese lessons for Indian exports

Vietnamese lessons for Indian exports

India’s overseas shipments finally came out of rough waters last month, after 18 months, when it increased by 1.27%. But data released for July 2016 shows exports contracting by 6.84% due to decline in shipments of engineering goods and petroleum products.

Published: August 29, 2016 6:19 AM
As good news in exports become more of an exception than a norm, a paradoxical picture is emerging in Vietnam. (Reuters) As good news in exports become more of an exception than a norm, a paradoxical picture is emerging in Vietnam. (Reuters)

India’s overseas shipments finally came out of rough waters last month, after 18 months, when it increased by 1.27%. But data released for July 2016 shows exports contracting by 6.84% due to decline in shipments of engineering goods and petroleum products.

As good news in exports become more of an exception than a norm, a paradoxical picture is emerging in Vietnam.

While India’s exports witnessed a decline of 17% in 2015 over 2014, Vietnam’s exports grew phenomenally by 24%.

Further analysis shows that India’s average annualised export growth during 2011-2015 had a negative growth of 2.5%, in tandem with world growth; however, during the same period, Vietnam had an export

AAGR of 17.9%. Infact, its exports have almost doubled, from $97 billion in 2011 to $187 billion in 2015.

Non-resource based manufacturing: Fortune hasn’t suddenly started favouring Vietnam; rather, it is the success of a strategic bid to build its manufacturing sector that led to its strong export growth.

The harbinger of Vietnam’s exports has been the $65.8 billion exports of electrical and electronic equipments, constituting 35% of its total exports. India, on the other hand, exported just $7.9 billion of the same.

In fact, Vietnam earned nearly $17 billion from exports of mobile phones and spare parts in the first half 2016 alone—21% of its total exports.

Amongst Vietnam’s top 10 exports in 2015, just 4% constituted resource-based products, while in India’s case, it was 30%. This has inevitably been exposing India’s export performance perennially to the vagaries of commodity-price cycles.

Hi-tech exports: While India often ends up comparing itself with China, where high-tech manufacturing exports as a share of total exports in 2014 stood at 25% as compared to India’s 9%, Vietnam, one-tenth the size of Indian economy, had a share of 27%.

The High Technology Law devised in Vietnam provides corporate interest rates as low as 10%, and is a major draw for investors.

Trade agreements: Vietnam has been proactive in engaging in FTAs. As on date, there are nine FTAs.

The big ones in pipeline are with the EU, the ASEAN Economic Community and the Trans-Pacific Partnership, all of which will be game-changers for the Vietnamese economy.

India, on the contrary, hasn’t been able to leverage its 13 FTAs. Infact, some of these are reportedly harming the domestic industry, and the government is contemplating reopening negotiations. Some

FTAs—the ones with Sri Lanka, Nepal, Afghanistan, and Bhutan—don’t provide access to any sizeable market. Going forward, India must ascertain that FTA benefits include efficiency gains.

FDI: FDI has been the engine of export growth for Vietnam. Though, India saw a total capital investment of almost $190 billion in 2011-2015—compared to Vietnam’s $81 billion—given its size, the latter has reaped significant benefits, including job creation. According to Vietnamese government data, FDI helped export goods equivalent to around 65% of the total exports in 2015, up from 41% in 2009.

This upsurge in FDI could also be seen as a corollary to the slew of trade agreements that have been signed by the country, and may also divert some of the FDI inflows from China.

Doing business: In July 2016, Vietnam removed almost 3,500 regulations, as part of its new Law on Investment, that only allows the central government to decide on investment requirements. The move is expected to dramatically reduce the existing red tape.

According to the World Bank’s Ease of Doing Business rankings, Vietnam ranks 90, while India ranks 130.

Learning for India: All these factors go some way to explain why Vietnam is experiencing consistent exports growth, unscathed by the global recession.

May be India can learn from the Vietnamese growth story and boost its exports. Who knows “Made in Vietnam” may become more ubiquitous than “Made in China”, leaving the Indian dream in limbo.

As the global economy takes an inordinate time to recover, India needs to have its house in order. An enabling environment which facilitates investment and production of globally competitive high value added products is the way ahead for India. India like Vietnam can still leverage on the cost of skilled labour.

Written by: Rahul Majumdar

The author is an economist, Exim Bank. Views are personal

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