If Vietnam can attract investors, so can India

US Ambassador to India Eric Garcetti’s recent remarks about India losing out to Vietnam should come as a wake-up call to our policy makers. “FRI direct investment isn’t flowing into India at the pace it should be, instead it is going to Southeast Asia, to countries like Vietnam,” he said while addressing the Indo-American Chamber of Commerce in New Delhi recently. He was specific that “Export control and export policy have to change.” It is not the first time that an authority from the west has said that India must improve the business environment and enhance transparency. Similar views were also expressed by India Inc and economists, including economic advisers to the government, so there is nothing very exceptional about the statement. It is a well-known fact that the business environment is far from perfect in India. What makes Garcetti’s remarks important is their timing. The Narendra Modi government seems to have dumped—to use a term that often defines India-US ties—the hesitations of history in terms of economic policy, as evident from the tone and tenor of the Interim Budget that Finance Minister Nirmala Sitharaman presented on February 1.

It not only eschewed populism that has been the bane of the Indian economy for quite some time but also confidently embarked upon a journey of fiscal consolidation and economic development. That the Budget was presented just a few months before the general elections made it more credible. Not surprisingly, it was widely welcomed by the Indian industry; there are also reports that global investors are keenly watching the emerging political situation and may be interested in India if Modi returns to power the third time, which seems likely. Such glad tidings, however, should not lull the top decision makers into complacency, for though a lot has been done, a great deal remains to be done. A Bloomberg write-up said, “If India wants to build a robust computer and electronics manufacturing industry, it needs to shift focus, fast. Instead of concentrating on the domestic market, it should become regionally competitive and export-driven. That means recognizing that Vietnam, not China, is its biggest rival.”

Even if we don’t lay much emphasis on becoming export-driven (for India itself is a huge market), becoming regionally competitive is the sine qua non of industrial development. There is no reason why we cannot do that. Come to think of it, the war against the US in the 1970s devastated it in every sense of the term. In 1985, its per capita income was below $236, while that of India was $298. In 2022, however, its per capita income, at $4,163.5, was way above India’s $2,411. This is despite the fact that Vietnam is a country ruled by the Communist Party—and yet it is able to attract investors, thus becoming a major beneficiary of the ‘China plus one’ policy. And India, with its immense potential and the government’s stated commitment to reforms and development, is unable to get investment. For too long have governments allowed things to happen, the bureaucracy to have their way—often at the expense of businesspersons. This must stop; the Modi regime must ensure that its tall promises on the economy are redeemed.