According to an analysis by economist Rahul Mazumdar - General Director of the Export-Import Bank of India, when comparing most of the trade-related indices, Vietnam surpasses India.
While it is difficult to keep up with China, India is facing the rise of Vietnam. Vietnam started the doi moi in 1986, after China - which reformed in the late 1970s, and before India - only started reform in 1991.
Few doubts that Vietnam can achieve great economic success. But one must look at the fact that the United States is buying more garments from China, Bangladesh and Vietnam than from India.
With the outbreak of Covid-19, China will likely face the displacement of multinational companies. In this context, Vietnam has emerged as the preferred choice of electronics and mobile phone companies trying to expand beyond China.
Let's take a closer look at the trade data for Vietnam and India.
Vietnam's total merchandise exports grew at an average annual rate of 18% over the past 10 years through 2019, while India's only 5%. While Vietnam started to trade surplus, India's trade deficit increased to 156 billion USD in 2019.
Vietnam's top export items, in 2019, include electrical machinery and equipment (with 41% market share), apparel (11%), footwear (8%) and machinery and equipment. mechanical (5%). The highest growth in exports in the period 2010-2019 is machinery and electrical equipment. The share of this item in Vietnam's total exports increased from 10% in 2010 to 42% in 2019. Of which, the item with the highest export volume was recorded as mobile phones (with 13% market share). . Followed by electronic integrated circuits (7%) and components of mobile phones (6). The US, UAE and Austria account for 40% of the share of Vietnam's mobile phone exports in 2019.
Compared to Vietnam's manufacturing and technology-oriented exports, India's top exports are mainly comprised of low-tech manufactured products such as mineral fuels (14% market share). portion), pearls (11%), machinery (6%), organic chemicals (5%) and vehicles (5%). India has great potential to be an ideal destination for high-tech manufacturing, but it is lagging behind.
The rate of high-tech exports in the manufacturing sector in Vietnam is 40%, while in India it is quite low, at 9% in 2018.
Samsung has one of the largest manufacturing facilities outside of Korea in Vietnam. In 2012, Samsung founded Samsung Display Solutions, which caters to the company's range of LED SMART products. In fact, the company assembles half of its cell phone production in Vietnam and has benefited greatly after the US-China trade war.
However, according to some Indian newspapers, Samsung is also likely to diversify its smartphone production line to India under the PLI (Promotion of joint production) program - if this happens, it will is a driving force for India.
In June, Vietnam ratified an FTA with the EU, which will essentially allow European manufacturers to invest in Vietnam and from there they can export to other markets in the Asia-Pacific. - where Vietnam is providing preferential access.
Unfortunately, EVFTA comes at a time when Indian exporters are losing market share to Vietnam in the EU market. The market share of India to the EU accounts for nearly one fifth of the total exports of India. In 2009 and 2018, India's exports to the EU increased by 1.6 times, but Vietnam by 4.4 times.
With the trend happening all over the world, if production continues to shift out of China after the war, it will be very reasonable for businesses to enter Vietnam. Once companies are established in Vietnam, they can consider re-exporting back to China or expanding their operations to other ASEAN and EU economies. Unfortunately, India will still lack these advantages.
To be able to break through, India needs to realize where it is strong and weak. Since its liberalization, the country has had a variety of policies - from the National Manufacturing Policy to today's Make in India - but the share of manufactured goods in India's exports remains limited.
Vietnam has developed as an attractive destination for FDI, thanks to cheap labor and a friendly environment and tax reduction for foreign businesses. Of the 56 companies that have left China since the trade war to 2019, only 8 have invested in India, while 26 have expanded into Vietnam.
India needs to quickly adapt to the evolving global landscape. Recently, due to the trade war, Vietnam has quickly introduced attractive corporate tax rates for large businesses looking to expand. For example, two general preferential rates of 10% and 20% apply to eligible large production projects for 15 years and 10 years. Whereas in India, the standard tax is 40% for foreign companies and branches of foreign companies in India.
In the first 6 months of 2020, amid the destruction of Covid-19, exports from Vietnam were almost on par with India's. In fact, Vietnam's exports this year will still grow 3% on average, while India's exports have grown negative 24% during the same period.
90% of Vietnam's merchandise trade is carried out through seaports. In the case of India, despite having a coastline almost twice as much as Vietnam, India did not make good use of it. Part of the reason is that some Indian seaports have dredging problems, unlike in Vietnam with deep water ports.
Going forward, India needs to closely analyze strategy to compete with other Asian countries. It can be signing free trade agreements, creating a friendly and stable business environment, financial incentives and, most importantly, quality of labor costs.
