Preparations for supply chain setbacks as virus strikes India

The COVID-19 crisis in India is highlighting the importance of India in the global supply chain. Which products and industries are being affected right now?

Vaibhav Saxena, vice chairman of the Indian Business Chamber in Vietnam

India has been considered a new power in the global supply chain. It has a favourable business environment and liberal foreign direct investment (FDI) norms, constantly improving ease of doing business rankings, has an enormous consumer base, and also rapidly-improving digital infrastructure. Moreover, the country is home to the second-largest digital citizenry in the world after China, with a reported 718 million internet users. It is expected that India is set to be home to a billion digital users by 2028.

The country is well-positioned to be an alternate source of supply to the global chemical industry with permission for 100 per cent of FDI in the sector, dedicated investment zones, availability of raw materials, and a large domestic talent pool. Besides that, the country’s pharmaceutical industry has progressed strongly and today is one of the largest generic suppliers to global markets.

In the telecoms sector, India has plenty of enabling factors that should prove attractive to foreign investors considering the country as a destination for their manufacturing plants. These include a phased manufacturing programme to promote the domestic production of mobile handsets, and a subsidy in special economic zones, among others.

The success of domestic and multinational auto component players in India over the years also lends robust, credible support for positioning the country as a reliable partner in global auto supply chains. The Automotive Mission Plan 2016-2026 targets triple of growth for the industry and aims to establish India as a manufacturing base and an export hub.

In addition to the unprecedented collapse in demand due to the pandemic, there will also be widespread supply chain disruptions due to the unavailability of raw materials, exodus of millions of migrant workers from urban areas, slowing global trade, and shipment and travel-related restrictions imposed by affected countries. The supply chains are unlikely to normalise for some time.

The longer the crisis lasts, the more difficult it will be for firms to stay afloat. This will negatively affect production in almost all domestic industries, as well as affect investment, jobs, income, and consumption.

Regardless of the current pandemic, what is the future growth potential in bilateral trade and investment ties between India and Vietnam?

Vietnam and India will continue to prioritise cooperation in the fields of defence, trade, and investment, as well as seek new opportunities to connect businesses from both sides.

With the increasing number of support projects from India, they hope to further promote development projects in Vietnam, according to Indian Ambassador to Vietnam Shri. Pranay Verma. By cooperating with each other in various fields, Vietnam and India will turn the crisis and challenges into new opportunities.

Textiles, food processing, pharmaceuticals, IT, construction materials, and renewable energy are also potential areas that businesses of the two countries can invest more in the coming time. Overall, Indian-Vietnamese cooperation has seen positive movements over past years, with noticeable impacts on the Vietnamese economy. Now, with the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the EU-Vietnam Free Trade Agreement going into effect, the Vietnamese economy is heading towards a promising future, attracting more FDI from foreign partners over the world.

Indian firms, especially textile producers and manufacturers globally, may set up more subsidiaries in Vietnam to take advantage of these factors. Domestic firms can seize these opportunities to integrate themselves into global value chains and strengthen the evolution of small- and medium-sized enterprises.

The rising importance of Vietnam in global supply chains has the potential to strengthen India-Vietnam ties further. Have you seen any new movements from Indian investment in the Southeast Asian country?

Vietnam’s strategic location close to existing manufacturing hubs, its favourable position in accessing other Southeast Asian markets, and its proactive approach towards opening its markets to the world has helped it gain popularity as an attractive manufacturing and sourcing location.

India is estimated to have invested nearly $2 billion in Vietnam including funds channelled via other countries. Over 200 Indian investment projects in Vietnam are primarily focused on sectors including energy, mineral exploration, agrochemicals, sugar, tea and coffee, IT, and auto components. Several major Indian businesses such as Adani Group, Mahindra, chemicals major SRF, and renewables giant corporations have shown interest in venturing into Vietnam.

According to the Vietnamese Ministry of Planning and Investment, in 2015, India had 95 investment projects in Vietnam with total registered investment capital of about $324 million. The number rose to by the end of 2020 for India having 294 projects with total registered capital of nearly $900 million.

Recently, we have seen some moves from powerful groups. Indian conglomerate Tata Coffee inaugurated and running a freeze-dried coffee production plant in the southern province of Binh Duong in Vietnam. This $50 million coffee facility was commissioned within around 19 months of the groundbreaking ceremony.

Another example is HCL Technologies, which is considering establishing a $650 million technology centre in Vietnam and plans to recruit and train over 10,000 engineers within the next five years.

Additionally in December after a virtual high-level meeting between the prime ministers of the two countries, Vietnam-India joint Declaration about Peace, Prosperity, and People was released to orient the development of the Comprehensive Strategic Partnership of Vietnam and India.