Why is Vietnam Outperforming India on Exports?

Why is Vietnam Outperforming India on Exports?
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Vietnam Export of Goods and Services was $ 260 B in 2018. India is around $ 537 B. Vietnam’s population in 2018 was 96 million, India was at 1340 million. Given Vietnam’s population, they are significantly outperforming India

If one looks at Goods Exports vs Services Exports, this is how it looks

Goods: Vietnam: $ 246 B, India: $ 326 B

Services: Vietnam: $ 14 B, India: $ 211 B

Basically, on services, India is dominant over Vietnam but languishes when it comes to Goods (On population basis)

Let us look at who are Vietnam’s biggest Goods Trading Partners in 2017. India’s numbers are in brackets (all in USD $)

Asia

China – 39.9B (14.8B)

Japan – 18.1 B (5.3B)

Korea – 16.1B (5B)

Asia Share of Total Exports – 45% (41%)

North America – 23% (17%)

Europe – 20% (17%)

Others – 12% (25%)

India’s biggest export partner in Asia is UAE ($ 28 B). In fact, India is UAE’s number 1 Trading Partner. Vietnam does not exist in the UAE radar. Looking at 3 of Asia’s biggest and most Affluent Countries (PRC, Japan and Korea), Vietnam leads India $74 B to $ 25 B, a massive lead of $ 49 B.

While experts have for years railed about Ease of Business as the biggest issue, looking at the data, it appears that the real issue is access to Markets. India is doing quite well in its near Geography. What gives China, Vietnam and even Bangladesh an advantage over India is access to markets at low cost. What access to markets gives a country is an opportunity to scale up huge volumes which then increases its advantage due to economies of scale. This is also one reason why India does well on Services, the distance from the Markets is the same (given technology). In fact China’s services exports are just 15% higher than India. China’s Goods Exports are 7.7 times higher

To boost our exports we therefore need two things

  • Encourage strong competition amongst Importers eventually forcing them to open factories in India (China Mobile Handset companies for example)
  • Focus on leaving more money in hands of consumers (lower taxation regime) which creates a huge consumer market that drives more companies to set up factories in India
  • The above two will then create economies of scale to export Globally at a competitive cost

It needs to be seen if today’s detailing on Atmanirbhar yojana will take care of these nuances

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