Southeast Asia - Articles

Indochina in 2007 has emerged as India's the most favoured investment destination in ASEAN, driven by large-scale investment from both the public and private sectors. With the three large-scale investments from Oil & Natural Gas Corporation (Videsh) Ltd. (OVL), Essar and Tata Steel, India became the 6th largest investor in Vietnam in 2007, climbing 22 notches from its ranking in 2006. The total India investment in Vietnam in 2007 was US$4.6 billion, its biggest in any ASEAN country.

The simultaneity of high-level economic growth in India and Indochina and their close politico-strategic relationship has led to their greater economic linkages. Indochina emerged in 2007 as the fastest growing sub-region in Southeast Asia with each constituent - Vietnam, Cambodia and Laos - registering around 8 per cent economic growth. On the other hand, India with its sustained economic growth of nine per cent during the last four years has emerged as one of the important drivers of Asian economic growth. Moreover, while Vietnam emerged as one of the most favoured destinations for global FDI, the Indian industrial sector witnessed an aggressive pursuit by manufacturing companies of investing in other economies, including the ASEAN countries.

One of the most important aspects of the Indian investment is the centrality of Vietnam in India's economic engagement with Indochina. Both Cambodia and Laos have remained off the radar of Indian investors and India's overall economic relations with these countries have remained minimal. The limited nature of economic engagement with the two other Indochina countries can be gauged from the fact that India's total bilateral trade with Cambodia and Laos in 2007 was only US$56 million and US$4 million respectively. The only major Indian investment initiative in Cambodia came in the form of the willingness of the Bank of India to open an international branch in the country. Therefore, in order to identify trends in Indian investment in Indochina, one has to confine the analysis to Vietnam only.

Indian investment in Vietnam has come from two sources - public sector units and private companies. The bulk of the investment from the Indian public sector has been mainly in the energy sector. The OVL secured exploration and exploitation rights with 100 per cent stake in two deepwater blocks (block 127 and 128) in the Phu Kanh basin off the coast of southern Vietnam. The OVL has also signed a production sharing contract with Petro-Vietnam in these two blocks. Besides, the OVL with its 45 per cent stake has also entered into a joint venture investment with British Petroleum (35 per cent) and Petro-Vietnam (20 per cent) for the exploration and exploitation of another off-shore block (block 06.1). The exploration project has been designated as one of the top three projects of national importance by the Vietnamese National Assembly.

A significant trend in the Indian investment in Vietnam is the growing presence of private Indian manufacturing companies, which have been aggressively looking for raw materials, sustainable markets and an investor-friendly atmosphere. The two biggest Indian investment initiatives ever in Vietnam came in 2007. Essar Global Ltd signed an agreement to set up a hot rolled steel mill in Ba Ria Vung Tau with the total investment of US$527 million and Tata Steel Ltd signed a MoU with the Vietnam Steel Corporation to build a Steel complex in Ha Tinh province of Vietnam with a total investment of approximately US$3 billion.

Given limited Vietnamese restrictions on foreign direct investment, several Indian private companies have also invested in the manufacturing sector. Out of 19 projects listed by the Embassy of Vietnam in New Delhi, nine are in the manufacturing sector, comprising pharmaceuticals and pesticides, agro-products, information technology, and surgical equipments. Some of the companies involved include Arihant Oil and Feeds, Ranbaxy Laboratories Limited, Godrej (Vietnam) Company Limited, and Nagarjuna International (Vietnam) Limited.

However, Indian investment has remained limited to a few strategic sectors only, led by a few big companies. The substantial portion of India's large-scale investment has come from only three investment projects, beyond which Indian investment in Vietnam has been minimal both in terms of number of investment projects and amounts invested. By contrast, other large-scale investing countries have exhibited a much more broad-based pattern of investment, as evident from 311 investment projects from South Korea, 67 from Singapore, 151 from Taiwan, 122 from Japan, and 76 from China. Such a pattern of Indian investment therefore, may not be sustainable in the long run.

Moreover, given the current scenario of global economic crisis, some of these investment projects may see a certain degree of roll-back in the face of reduced demand in the host country and reduced liquidity in the global market. Though there has been active interest among some Indian investors in Indochina, there is a great need to further broad-base the Indian investment with more small and medium enterprises (SMEs) taking an active interest in tapping not only the Vietnamese but also Laotian and Cambodian markets. Only then can India develop a sustained and strong economic relationship with Indochina.