Authors: Shishir Priyadarshi and Dr Cchavi Vasisht
As India-ASEAN countries celebrated 10 years of Act East Policy, it is crucial to look at the India-Vietnam relations. Vietnam has emerged as a key trading partner for India in Southeast Asia, especially with implementation of ASEAN-India Free Trade Area (AIFTA) which helped reduce tariffs and facilitated trade growth between the two countries. This also aligned with India’s “Act East” policy, which seeks to deepen ties with ASEAN countries and enhance trade linkages thereby strengthening India’s economic and geopolitical presence in the region. Additionally, investing in Vietnam helps India counterbalance China’s influence in Southeast Asia, providing an opportunity to diversify its economic partnerships in the region and enhancing its economic and strategic ties with Southeast Asia.
India and Vietnam share a long history of cultural affinity through the Champa or Cham civilization which is at least 2000 years old. The growing cultural linkages is reflected in the architecture i.e. the Buddhist temples in Vietnam, art, knowledge traditions, language, religion, trade and agriculture practices. For instance, the contemporary cultural ties are highlighted through joint efforts to restore UNESCO World Heritage site at My Son, Vietnam, celebrating festivals, Vietnam-India Friendship Association of Hanoi, and Swami Vivekananda Culture Centre and many more. Built on the shared history and cultural similarities, the interaction in the last century led to the enhancement of cooperation in strategic dimensions like economic and defence partnerships.
Economically, Vietnam has seen rapid growth over the last two decades, with its GDP growth rate consistently rising by over 5% annually for the last 23 years (excluding COVID period – 2020 and 2021). This growth is largely driven by manufacturing exports and increasing foreign direct investment (FDI). Further, Vietnam’s political stability, strong central government, and relatively low levels of internal conflict also make it an attractive investment destination, especially for long-term projects. Vietnam also improved its business environment by implementing reforms to attract foreign investment, streamlining administrative procedures, and offering incentives for sectors like infrastructure. The Vietnamese government’s promotion of public-private partnerships (PPPs) in large-scale projects opened opportunities for foreign investors to collaborate on infrastructure development. According to India’s Consul General in Ho Chi Minh City, Vietnam, Madan Mohan has mentioned that over 400 companies have invested in Vietnam as both nations have experienced steady growth in trade relations in the last two decades. Vietnam’s political stability, favorable demographics, robust domestic demand, competitive corporate tax rates, geographical proximity to India, and easy market access have positioned it as a promising country for Indian enterprises seeking long-term growth. This is evident in the recent estimation of India’s cumulative investments in Vietnam of nearly $2 billion.
Strategically located along the South China Sea, one of the world’s busiest shipping lanes, Vietnam serves as a crucial hub for regional and global maritime trade. Additionally, Vietnam’s participation in various free trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the AIFTA, provides preferential access to major global markets, making it an attractive partner for trade. As a major player in global supply chains, particularly in electronics, textiles, and machinery, the demand for logistics and shipping services is expected to rise, boosting the potential for port investments. For instance, Adani Group’s plans to invest heavily in Vietnam, particularly in the Lien Chieu port. The Lien Chieu port project, if executed, will allow Adani to tap into Vietnam’s growing role as a trade hub, benefiting from its proximity to major markets such as China, Japan, South Korea, and the United States.
Furthermore, Vietnam’s growing energy demand, fueled by rapid industrialization and urbanization, as well as increasing focus on renewable energy, there is a significant potential for Indian firms to capitalize on this market. Indian companies with expertise in solar, wind, and hydroelectric power can contribute to Vietnam’s ambitious renewable energy targets. Additionally, investments in grid modernization and energy storage solutions can help address challenges related to energy supply and integration. Strategic partnerships with Vietnamese entities and international firms can further enhance market access and project implementation. Here, Adani’s potential entry into Vietnam’s energy sector, including the proposed thermal power project, could help meet Vietnam’s increasing power needs, while also generating long-term revenue streams for the company.
Furthermore, India can strengthen its cooperation with Vietnam to counterbalance China’s growing influence. In recent years, China became a major investor and trading partner for Vietnam. But the recent attack in October raised the tensions between the two sides where a Vietnamese fishing boat in the South China Sea was attacked, 10 Vietnamese fishermen were assaulted, damaged their fishing gear and seized their 4 ton of fish catch.The Vietnamese government accused China of violating its sovereignty and demanded an investigation into the incident. However, China has denied any wrongdoing and claimed that the Vietnamese boat was fishing illegally in Chinese waters. This incident marks a break from the recent trend of relatively calm relations between the two countries in the South China Sea.
The Belt and Road Initiative (BRI) has played a pivotal role in shaping their economic interactions. While these investments have bright economic benefits and created jobs; the influx of Chinese investment has raised concerns about competition for domestic businesses and the potential for debt traps associated with BRI projects as well as China’s ability to exert greater influence over Vietnam’s economy. Furthermore, the overlapping territorial claims in the South China Sea, particularly over the Paracel Islands, have been a major source of tension between China and Vietnam. Despite these tensions, Vietnam has maintained diplomatic channels with China to manage bilateral relations and address differences. It must be noted that Vietnam’s cautious approach towards China reflects its desire to maintain strategic autonomy and avoid excessive dependence. Vietnam has also maintained close ties with other regional and global powers. This cautious approach and commitment to regional stability make Vietnam a valuable partner for other countries in the Indo-Pacific region.
As Vietnam turns increasingly wary of China’s presence, India can position itself as an alternative destination for companies looking to diversify their supply chains away from China. Here the private sector has a crucial role in complementing India’s government-led initiatives in the Indochina bloc, particularly in the context of countering China’s influence. While AIFTA has facilitated increased trade between India and Vietnam, private investment can significantly accelerate economic development and enhance India’s presence in the region. By fostering a favorable environment for private investment and encouraging Indian companies to engage in the region, India can effectively counter China’s dominance and strengthen its economic and strategic ties.
While Vietnam’s business environment is improving, there are risks associated with large-scale investments, such as regulatory changes, market competition, and geopolitical tensions, particularly with China over the South China Sea. The private sector will need to navigate these challenges by establishing strong local partnerships, ensuring compliance with Vietnamese regulations, and staying adaptable to changing geopolitical dynamics. By focusing on these areas, Indian companies can leverage the opportunities in Vietnam’s energy sector and contribute to the country’s sustainable development goals.
Vietnam has demonstrated consistent growth in trade volume with India following the implementation of AIFTA, suggesting deeper economic integration and greater potential for expansion. Even Vietnam’s location along major shipping routes provides a strategic advantage for trade and logistics. Furthermore, Vietnam’s investments in infrastructure development and relative geopolitical stability compared to its neighbor’s offers a more predictable and secure investment climate. Most importantly, the growing complex relationship between Vietnam and China presents opportunities for India. Investing in Vietnam would allow India to capitalize on the country’s economic momentum and strategic position in the Southeast Asia region.
