Home Markets “India Seeks to Reduce Trade Deficit, Enhance Supply Chain Cooperation with Vietnam”

Markets

“India Seeks to Reduce Trade Deficit, Enhance Supply Chain Cooperation with Vietnam”

2 December, 2024

There is significant potential for economic cooperation between India and the Association of Southeast Asian Nations (ASEAN), including Vietnam, across various sectors, from trade and supply chains to energy transition and science and technology, according to recent statements by Indian authorities to the press.

Officials in New Delhi acknowledged the competition between Vietnam and India in attracting manufacturing activities moving out of China but emphasized that there is room for both countries as the market is large enough.

However, India expressed its desire for ASEAN countries to increase their imports from India to achieve a more balanced trade relationship.

PIVOT TO THE EAST: ASEAN AS A CRUCIAL PARTNER

In a meeting with a press delegation from ASEAN countries on November 28, Jaideep Mazumdar, Indian Minister of State for External Affairs responsible for the East, highlighted the importance of ASEAN and Vietnam in India’s new foreign policy.

“India truly considers ASEAN as a pivotal pillar in our new Act East Policy and a central pillar in our Indo-Pacific vision. For this reason, we see ASEAN and the countries in the ASEAN region as a true growth factor for the region in the near future. All the economies in ASEAN are growing at a rapid pace, and both India and ASEAN are among the fastest-growing economic regions in the world. So, it is only natural that we should cooperate,” said Mazumdar.

Emphasizing the importance of ASEAN in India’s foreign policy, Mazumdar noted the vibrant high-level diplomatic engagements between the two sides during the first 100 days of Indian Prime Minister Narendra Modi’s third term.

“In those first 100 days, we hosted the visits of the Prime Ministers of Vietnam and Malaysia to India. Our Prime Minister visited Singapore, and our President visited Timor-Leste, in addition to several other ministerial visits. In the coming months, there will be another 2-3 high-level visits from our side to ASEAN … I think there is no other region in the world with such an intensity of interaction,” the Minister of State emphasized.

Mazumdar mentioned that in India’s Act East Policy, Vietnam was one of the first countries with which New Delhi developed multifaceted relations. Today, the two countries have established a comprehensive strategic partnership, with enhanced cooperation in various fields, ranging from agriculture to industry, science, and information technology. “I believe Vietnam was one of the first countries we engaged with in our Act East Policy, so there is a lot of substance in this relationship,” he added.

When asked about bilateral cooperation opportunities between Vietnam and India, Mazumdar mentioned strengthening supply chain resilience. “Vietnam has a strong manufacturing industry, and so does India. The world is now looking to improve the resilience of supply chains and reduce dependence on single sources. So, I think this is an area where we can truly cooperate,” he stressed.

Regarding the competition between the two countries in attracting manufacturing activities moving out of China, Mazumdar said, “Manufacturing is a very large sector, and there are many countries dependent on manufacturing in Asia. So, the competition between our two countries is not in a way that disadvantages each other. The market is big enough for both of us.”

The Indian Minister of State expressed his impression with Vietnam’s efforts in developing new technologies, such as electric vehicles. “I think you have strongly demonstrated your capabilities in this field. Vietnamese companies have also come to India to set up electric vehicle manufacturing plants. I believe this is an area where you have great potential, and India has a huge market,” he added.

In a separate meeting with the ASEAN press delegation on the same day, Rajesh Agrawal, a senior official who is set to assume the role of Minister of State for Commerce and Industry, affirmed ASEAN’s importance as a trading partner for India. However, he added that India wanted to address the trade imbalance by encouraging ASEAN countries to increase their imports from India.

CONCERNS OVER TRADE DEFICIT

Agrawal expressed concern about India’s annual trade deficit of $40 billion with ASEAN. Currently, India’s imports from ASEAN amount to about $80 billion annually, while its exports to the region stand at only $40 billion.

“India’s trade deficit with ASEAN is increasing. We would like our partners in ASEAN to increase their imports from India by making adjustments to the ASEAN-India Trade in Goods Agreement (AITIGA),”

According to figures presented at the meeting, India imports $700 billion worth of goods annually, of which $80 billion, or 11%, comes from ASEAN countries. In contrast, ASEAN imports a total of $1.8 trillion per year, but India’s exports to the region account for only $40 billion, or 2.2% of ASEAN’s import basket.

“If India increases its share in ASEAN’s import basket, our trade will be much larger. Trade cannot be one-way. Otherwise, the supply chain will restructure and reposition itself in other directions. So, we need to be mindful of this,” Agrawal said.

Regarding Vietnam, Agrawal also mentioned addressing the trade deficit that India is facing.

Rajesh Agrawal, a senior official who is set to assume the role of Minister of State for Commerce and Industry, India – Photo: Kiều Oanh.

According to data from the General Department of Vietnam Customs, bilateral trade between Vietnam and India reached approximately $8.67 billion in the first seven months of 2024, a 4.5% increase compared to the same period in 2023. Vietnam’s exports to India were $5.37 billion, a 15.2% surge compared to the previous year, while imports were $3.3 billion.

“Trade between the two countries has been growing steadily. Since the signing of AITIGA in 2009, bilateral trade relations between India and Vietnam have improved significantly. There are many opportunities for both sides to further boost trade,” he said, adding that Indian exporters’ access to the Vietnamese market was limited due to restricted tariff preferences in AITIGA.