Can India learn from Vietnam how to manage export-led growth?

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Updated: August 19, 2019 4:37:23 AM

As a result of this sustained growth, Vietnam’s exports, which were a mere 6% of India’s in 1960 and 13% in 1990, managed to reach 34% in 2000 and a whopping 75% in 2018; at this rate, within a few years, they could even outstrip India.

 India, Vietnam, export, led growth, China, financial express editorial, financial express,  sea food, rice, crude oil, rubber, wood, export base, economy, economy newsAs a result of this, in 2010, textiles and shoe exports comprised 22% of Vietnam’s exports; traditional exports like sea food, rice, crude oil, rubber and wood comprised 26% of the total, while electronics was a mere four percent. (Reuters)

India’s exports-growth appears to have picked up in July, when they rose 2.3%, but for the last four years, it has averaged just around 0.2% which, it turns out, was a just a third of global trade growth in the same period; in the previous four years, from 2010 to 2014, however, global exports grew 5.5% a year while India’s exports rose by 9.2% per year. This slowing of India’s exports—and the relatively poor growth before that—is really bad news, given that countries like India, who have a very small export base, should be growing many times faster than the global average (see graphic).

Even China, whose exports are 7.5 times India’s, managed to grow at 1.5% per year in 2014-18; Vietnam, which is rapidly emerging as an export powerhouse, taking up the slack in markets being vacated by China, managed to grow by a whopping 13% per year, from $150.2 bn in 2014 to $245.6 bn in 2018. As a result of this sustained growth, Vietnam’s exports, which were a mere 6% of India’s in 1960 and 13% in 1990, managed to reach 34% in 2000 and a whopping 75% in 2018; at this rate, within a few years, they could even outstrip India.

At a time when India’s economy is flagging, as is investment and consumption, and rapid exports-growth is the only way out of the morass, India would do well to learn from Vietnam. When China started vacating the market for textiles and moved on to higher-value exports, it was countries like Vietnam and Bangladesh that made the most of this and, today, when big electronics producers—including those producing mobile phones—want to de-risk and move part of their production out of China, it is once again Vietnam that is looking to take away the bulk of this.

The way that Vietnam has achieved this has been to aggressively liberalise its economy by lowering tariffs as well as attracting foreign investments; in 1995, Vietnam joined the Asean free trade area, it signed an FTA with the US in 2000 and in 2018, it joined the Trans-Pacific Partnership (although without the US). Today, its tax levels are amongst the lowest in the world and, as several top electronics companies with manufacturing/export bases there will testify, it is willing to go more than the extra mile to ensure investors get what they want in terms of infrastructure etc. Indeed, in 2018, data from the Vietnam government website says that 71% of exports took place in what is called the “FDI sector”; that is, by global firms setting up shop in Vietnam.

As a result of this, in 2010, textiles and shoe exports comprised 22% of Vietnam’s exports; traditional exports like sea food, rice, crude oil, rubber and wood comprised 26% of the total, while electronics was a mere four percent. In 2018, the share of textiles and shoes were down a bit to 19%, that of traditional exports was down to 10%, while electronics including mobile phones was up to a third.

Given the tremendous opportunity posed by the US-China trade fight and the fact that top producers want to de-risk their operations—60% of the $300 bn market in global exports of smart-phones take place from China—this is a great opportunity for India. But, as this newspaper has detailed earlier, Vietnam has stolen a march over India and already accounts for over 10% of global exports of mobile phones while India’s exports are miniscule; though Vietnam’s production of mobile phones was around a fourth that of India as late as in 2010, the production levels are almost the same today though the per unit price of Vietnamese phones is much higher

Since the bulk of the smart-phone exports are made by four or five companies—Apple and Samsung alone account for around 60% of all smart-phone sales across the world—India’s best bet is to ensure that they relocate as much of their operations as possible from China. Right now, since mobile phones are ‘assembled’, and not really ‘manufactured’ in India, even as phone production rose, imports are rising to alarming levels; in the next 5-6 years, these could be India’s second-largest imports.

Apart from the fact that Vietnam offers better quality infrastructure, as our front-page story points out today, while corporate tax rates for large manufacturing plants in Vietnam range from 10 to 20%—Indian rates for foreign companies are 43.68%—some big global manufacturers have managed to get even better deals. Given that 70-75% of global trade today takes place through ‘value chains’ administered by multinational firms, if India isn’t a part of this—for most manufactures, not just mobiles or electronics—its exports can never take off.

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