My worst fears came true this Monday when I heard the news about Vietnam ratifying a significant trade deal with the European Union, which is expected to boost the country’s manufacturing sector and exports. The move promises to make Vietnam a new market for trade with Europe as the EU will lift 85% of its tariffs on Vietnamese goods. In return, Vietnam will lift 49% of its import duties on EU exports.
All this part of the EU-Vietnam Free Trade Agreement is made possible for the ASEAN country’s “pro-active efforts” to contain coronavirus to the minimal damage caused and a swift recovery promising a better investment environment. Has India missed something big? New Delhi has been the most talked about option for becoming the new market and manufacturing hub of the world after China’s exit from the global demand and supply chain as coronavirus started bleeding the world. The habitual red-tape bureaucracy, the wait-and-watch policy and the complex “permit raj” jamming the much-awaited economic reforms, make India a natural loser. States like Uttar Pradesh, Madhya Pradesh and Gujarat are trying to break barriers to be investor-friendly, but that is too little to match Hanoi’s “swift-mode encashing of corona”.
Vietnam prioritised public health and safety when coronavirus started to peak in China. It closed the border with China in January and with the world in February, while imposing a social shutdown that lasted until the end of April. The tough measures contained Vietnam’s outbreak to just over 300 Covidpositive cases with no deaths. India too got the global appreciation for being a leader to enforce lockdown, encourage social distancing and informing the citizens that prevention is the best cure. But given our “hidden internal gaps” in the system, we are in the top five of the global corona-positive list, if not in top five economies still. We have surpassed Spain and Italy and getting closer to the others and may only end up standing next to the United States, our closest friend.
There is another interesting comparison: both Vietnam and India are “overtly dependent on China”. While Vietnam has realised this fast and is correcting to overcome its dependency on footwear, electronics and textiles from Beijing, India is confused and stranded. Some are still ruing for losing out the Chinese dependency and some have lost the self-belief to match the Dragon.
It’s clear that after the trend of manufacturing shifted from China to other countries, accelerated first by the China-US trade war and then Covid-19, Vietnam is going to lead if India doesn’t manage to speed up. Vietnam is the EU’s second-largest trading partner in Southeast Asia, with the trade turnover reaching $56 billion last year. India should be in no illusion that it is the only market available to the Western world, currently busy uprooting from Chinese land to overcome rising labour and real estate costs. Vietnam, Thailand, Bangladesh, Sri Lanka, even Malaysia and Indonesia are possible options for thousands of firms ready to relocate. Is the Raisina Hills listening?