Editorial✍

Learning form Vietnam & Bangladesh

While Bangladesh has become the second-largest apparel exporter after China, Vietnam’s exports have grown by about 240% in the past eight years. The article throws light upon the best practices followed in both the countries for and what India can learn from them.

Vietnam’s Success:

  • Vietnam’s exports rose from $83.5 billion in 2010 to $279 billion in 2019.
  • Vietnam pursues an open trade policy mainly through Free Trade Agreements (FTAs) which ensure that its important trading partners like the U.S., the EU, China, Japan, South Korea and India do not charge import duties on products made in Vietnam.
  • Vietnam’s domestic market is open to the partners’ products.
    • 99% of EU products will soon enter Vietnam duty-free.
  • The country has agreed to change its domestic laws to make the country attractive to investors.
    • Foreign firms can compete for local businesses.
    • EU firms can open shops, enter the retail trade, and bid for both government and private sector tenders.
    • They can take part in electricity, real estate, hospital, defence, and railways projects.
  • An open trade policy, a less inexpensive workforce, and generous incentives to foreign firms contributed to Vietnam’s success.

Learning for India:

  • While Vietnam being a single-party state can ignore domestic voices, this model may not be good for India as it offers no protection to farmers or local producers from imports.

Bangladesh’s Strategy:

  • In Bangladesh, most of the country’s export constitutes large export of apparels to the EU and the U.S.
    • The EU allows the import of apparel and other products from least developed countries (LDCs) like Bangladesh duty-free.
    • However, Bangladesh may not have this advantage in a few years.
  • The country is working to diversify its export basket.
  • In India, as a good neighbour, all of Bangladesh’s products are accepted duty-free (except alcohol and tobacco).

Way Forward:

Here are a few suggestions of elements followed in Vietnam and Bangladesh models that India can look to emulate:

Support Large Firms:

  • The key learning from Bangladesh is the need to support large firms for a quick turnover.
    • Large firms are better positioned to invest in brand building, meeting quality requirements, and marketing.
    • Small firms begin as suppliers to large firms and eventually grow.

Export Diversification:

  • Vietnam has changed domestic rules to meet the needs of investors. Yet, most of Vietnam’s exports happen in five sectors.
  • In contrast, India’s exports are more diversified.
    • The Economic Complexity Index (ECI), which ranks a country based on how diversified and complex its manufacturing export basket is, illustrates this point.
    • The ECI rank for China is 32, India 43, Vietnam 79, and Bangladesh 127.

Setting up pre-approved factory spaces:

  • India, unlike Vietnam, has a developed domestic and capital market. To further promote manufacturing and investment, India could set up sectoral industrial zones with pre-approved factory spaces.

Final Assembly of goods produced:

  • The quick build-up of exports in Vietnam resulted from large MNC investments. But most of its electronics exports are just the final assembly of goods produced elsewhere. In such cases, national exports look large, but the net dollar gain is small. China also faces this issue.

GDP to Export Ratio:

  • Vietnam’s export to GDP ratio (EGR) is 107%.
    • Such high dependence on exports brings dollars but also makes a country vulnerable to global economic uncertainty.
  • The EGR of large economies/exporting countries is a much smaller number.
  • Most such countries (including India) follow an open trade policy, sign balanced FTAs, restrict unfair imports, and have a healthy mix of domestic champions and MNCs.
  • While export remains a priority, it is not pursued at the expense of other sectors of the economy.

Conclusion:

  • For India, the focus is on organic economic growth through innovation and competitiveness.
  • With reforms promoting innovation and lowering the cost of doing business, India is poised to attract the best investments and integrate further with the global economy.

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