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#4080, 9 August 2013
 

IPCS Special Commentary

India & Vietnam: Defence Cooperation, Economic Ties and a Strategic Partnership
Rajaram Panda
Visiting Fellow, IPCS
Email: rajaram_panda@yahoo.co.in
 

The Foreign Minister of Vietnam, Pham Binh Minh, visited India in mid-July to participate in the 15th Vietnam-India Commission meeting and to review bilateral ties. Surprisingly, as compared with the Chinese media, the Indian media did not give the kind of coverage that Binh Minh’s visit deserved. A significant development in Vietnam’s foreign policy has been its developing close relationship with India, because of complimentary and converging interests. Over the years, both India and Vietnam have graduated from traditional friends to strategic partners. The fact that Chinese media took note of Binh Minh’s visit was because China is concerned that many Asian countries are trying to reach out to India because of their perceived threat from China. 

Strategic Partnership
External Affairs Minister Salman Khurshid reaffirmed that India-Vietnam strategic partnership is characterized by warm and close bilateral relations and high degree of trust and understanding at political levels. Continuous high level visits have played a very important role in consolidating and strengthening the relations between the two sides. The Indian Prime Ministers and Vietnamese leaders have met regularly on the sidelines of multilateral summit meetings. The institutional architecture of the India-Vietnam strategic partnership is based on the joint declaration on Strategic Partnership of 2007 and dialogue mechanisms and agreements. On its part, Vietnam has regularly reiterated its support for India's candidature for permanent membership of an expanded UNSC. It has also signed the G-4 Draft Resolution on reforms of the UNSC. Concurrently, India-Vietnam security and defence cooperation is robust and growing, based on shared interests and a convergence in security perceptions.

India attaches great importance to the development of its relations with Vietnam and move forward on the strategic partnership by adding more content in all areas. The year 2012 marked the 40th anniversary of the establishment of full diplomatic relations between India and Vietnam, the 5th anniversary of the India-Vietnam Strategic Partnership, and the 20th anniversary of partnership between India and ASEAN. The two sides celebrated it as the 'Year of Friendship between India and Vietnam'.

During the visit of Binh Minh, and after the 15th meeting of India-Vietnam Joint Commission, it transpired that the strategic partnership which included exchange of a cooperative agenda on bilateral relations and regional and global issues has been strengthened further.  Salman Khurshid also testified to this commitment to the media. Both the leaders agreed to consolidate their activities and add greater content to the partnership and bilateral relations in the fields of defence and security, trade and investment, science and technology, information technology, capacity building and human resource development, agriculture, education and culture and other areas of common interest. The potentials are huge and both need to work together to tap into those opportunities.

Defence Cooperation
In pursuance and further consolidation of their strategic interests, both countries have resolved to deepen defence cooperation as well. For the first time, India has offered a $100 million credit line to Vietnam to purchase military equipment. Vietnam will use this for purchasing four patrol boats. The credit line was agreed upon around the time India once again expressed its resolve to remain involved in oil exploration activity in the Phu Kanh basin of the South China Sea. Vietnam has reaffirmed that it is within its rights to invite India to explore for oil in this area but China claims that this basin is within the “nine dotted line” or its zone of influence. The credit line is likely to be finalized by the time the General Secretary of the Communist Party of Vietnam visits India towards the end of 2013.

Vietnam and India have long enjoyed strategic ties that include cooperation in the civil nuclear sector, training slots for Vietnamese military officers and frequent exchange of visits. But this is one rare occasion when India is offering a defence-related credit line so far upfield. Usually, near neighbours squarely in India’s zone of direct influence have been the beneficiaries of New Delhi’s credit lines for the defence sector. For example, Mauritius, whose air force and navy have Indian defence hardware, was given credit lines to buy Indian patrol boats and Dhruv helicopters.

India has wanted to expand its defence ties with Vietnam to military hardware and one of the top-most items on the Vietnamese wish-list is the Brahmos missile, jointly produced with Russia. However, since Russia has close ties with both Vietnam and China, it remains unclear if India would want to antagonize either. The government wanted the credit line to be seen from the context of the overall drive to improve ties with South East Asian nations of which Vietnam’s close ties with India predate the Cold War. From India’s Look East Policy perspective and India’s increasing engagement with the ASEAN countries, there is no reason why there should be any ruckus if India and Vietnam enter into a deal on Brahmos missile. There has been a heavy traffic of high level visitors between the two countries that has led to a $ 45-million credit line for a 200-MW hydel project built by BHEL, offer of export of the Param supercomputer and a breakthrough for the Indian corporate sector though its Vietnamese counterparts have struggled.

India is beefing up security ties with all countries beyond its eastern flank as one of the vital components of its Look East policy. Indian and navies of some South East Asian countries have for long conducted the Milan series of naval exercises. The Indian Navy also conducts coordinated patrols with Thailand and holds joint exercises with Singapore and Japan. Apart from the Malabar naval exercise, India and Japan had for the first time had joint naval exercises in June 2012. During Prime Minister Manmohan Singh’s visit to Japan in May 2013, it was agreed to renew the exercises and increase their frequencies. 

Economic Ties
Economic ties between the two countries have also expanded. Vietnam has received substantial Indian private sector investments. Bilateral trade has grown to $6.1 billion in 2012-13. Both expect to cross the target of $7 billion by 2015. Investments by Indian companies totals about $936 million in 86 projects in sectors such as oil and gas exploration, mineral exploration and processing, sugar manufacturing, agro-chemicals, IT, and agricultural processing.

Vietnam has a lot to offer in terms of trade and investment. Vietnam supports Indian businesses to explore more opportunities in oil exploration, electricity, science and technology and agriculture. A vivid example is that Tata Power has won a $1.8 billion contract to build the 2X660 MW Long Phu Thermal 2 Power Project in Soc Trang Province in southern Vietnam, despite  strong competition from Korean and Russian companies, thus taking India from 40th to 12th biggest foreign investor to Vietnam.

It will be the single largest Indian investment in Vietnam when it comes through and will give a strong boost to the economic cooperation and the strategic partnership. The MoU between the two Central Banks, viz. Reserve Bank of India and the State Bank of Vietnam, signed in 2012, will enable Bank of India and Indian Overseas Bank to upgrade their representative offices that they opened in Ho Chi Minh City in February 2003 and March 2008 respectively into full-fledged branches in near future. India has extended 17 LoCs totaling $164.5 million, including $19.5 million LoC for setting up Nam Trai-IV hydropower project and Binh Bo Pumping station. India has also agreed to consider earmarking $ 100 million under the Buyer's Credit under the National Export Insurance Account (BC-NEIA) for use by Vietnam.

From its side, Vietnamese investors are becoming strong in recent years. The average value of each outward investment of Vietnam till 28 February 2010 was about $17.50 million but there is only a small project of Vietnam in India in the past two decades. Vietnamese investors have advantages of investing in small-scale hydropower projects while India is reported to need more sources of energy, including hydropower.

Cultural Exchange 
The two countries have strong cooperation in capacity building and human resources development. Vietnam has been participating actively in training programmes under Indian Technical and Economic Cooperation (ITEC) programme. Presently, 150 ITEC slots are being offered to Vietnam every year along with 16 scholarships under the General Cultural Scholarship Scheme (GCSS), 14 scholarships under the Educational Exchange Programme (EEP) and 10 scholarships under the MGC Scholarship Scheme. India has set up a $2 million Vietnam-India Advanced Resource Centre in ICT (ARC-ICT) in Hanoi and is providing a PARAM Supercomputer, costing Rs. 4.7cr, as a grant, for use in multiple applications.

Importance of Asia's Growth
Asia has become the centre of gravity, the engine of world growth and economic recovery. Despite the downturn in global economy, Asian economies still register strong growth. For example, in 2012 that reached 7.6%. One notable feature of Asia’s growth is the simultaneous emerging regionalism. There are a total of 76 free trade agreements and the Asia-Pacific leads the world in the drive for economic integration in the absence of progress of the Doha Round. In the coming years, the number of FTAs and other forms of economic linkage will continue to rise. For example, along with the process of ASEAN Community, there is a gradual emergence of the Regional Comprehensive Economic Partnership (RCEP), Trans Pacific Partnership (TPP), Northeast Asia Free Trade Area, Enhanced Economic Engagement between ASEAN and the United States, and Mekong Sub-regional cooperation. The scope of activities within ASEM and APEC now expands to cover non-traditional issues.

Despite this impressive stride, the potentials are enormous and can be tapped and explored further. Inter-regional initiatives such as linking the Mekong-Ganga Initiative and between ASEAN and the South Asian Association for Regional Cooperation (SAARC) are areas in which India helps in a meaningful way, such as cooperation in the Lower Mekong to which Japan, the US and Korea are parties to, and initiatives for connectivity in infrastructure, land and maritime transport. In recognition with India’s engagement with ASEAN politically and economically, as a responsible and proactive member of ASEAN Vietnam stands ready to be at the forefront of the cooperation between ASEAN and India. 

The Strategic Partnership between the two countries, established in 2007, set out very clearly the five pillars of cooperation. These are: political, defense and security cooperation, economic cooperation and commercial engagement, closer trade and investment, science and technology, cultural and technical cooperation, and cooperation at multilateral and regional forums. During his state visit to India by President Sang in 2011, both India and Vietnam agreed on more concrete steps and targets that both sides should work on. Among those, a target to bring annual two-way trade to $ 7 billion by 2015 was set.

Bilateral visits by top political leaders have set the tone for consolidation and further expansion of bilateral ties. Kapil Sibal, the Indian Minister of Communication and Information Technology, visited Vietnam in June 2013 and reached a number of agreements with his Vietnamese counterpart. In the coming years, Vietnam will choose IT as a foundation for new development model. Vietnam looks to India as a leading IT industry powerhouse in the world for help and support. Vietnam and India should set up joint ventures in IT, making full use of India’s advantage in software and Vietnam’s hardware products.

Conclusion
It transpires that Vietnam is slowly but steadily deepening its engagement with the outside world. The single most important factor, besides economic imperatives, that is driving Vietnam’s external policy is strategic considerations.

The question that remains unanswered is: Is India prepared to assume the role of ‘regional balancer’ or prefers to take cover over its strategic ‘Risk Aversion Policy’ while dealing with China? With the support of the US and in response to the high expectations from the rest of Asia (minus China), it is desirable India takes up a leadership role in Asian affairs. While it is not suggested that India must lead or join a front against China, as a matured player in Asia, India cannot shirk its responsibility to see that peace and order is maintained in Asia by its proactive policy.                      

 

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