The Pulse

Vietnam, Not India, is in a Geopolitical and Geoeconomic Sweet Spot

Recent Features

The Pulse

Vietnam, Not India, is in a Geopolitical and Geoeconomic Sweet Spot

India does not lack potential, but on both the geopolitical and geoeconomic fronts it has yet to seize the moment.

Vietnam, Not India, is in a Geopolitical and Geoeconomic Sweet Spot

Indian Prime Minister Narendra Modi, arrives to welcome his Bangladeshi counterpart Sheikh Hasina at the Indian presidential palace in New Delhi, India, Saturday, June 22, 2024.

Credit: AP Photo/Manish Swarup

Vietnam has demonstrated a dexterity in its foreign policy that few other countries can claim, having hosted U.S. President Joe Biden, Chinese President Xi Jinping and most recently, Russian President Vladimir Putin within a span of nine months. This is even more impressive considering that it comes at a time of growing geopolitical polarization and renewed rivalry between major powers in the international system. 

Contrast this with India: While New Delhi claims to practice a foreign policy of multi or omni-alignment, India’s relations with China, Russia and even the United States are all strained to varying degrees.

This has been most obvious in the case of the India-China relationship, which has settled into a new normal since the border clashes in 2020. This put a halt to limited efforts to stabilize the bilateral relationship, which had occurred with a string of informal summits between Xi and Prime Minister Narendra Modi in 2018 and 2019. Modi’s recent X, formerly Twitter, exchange with Taiwan’s President Lai Ching-te and meeting with a U.S. Congressional delegation after it met the Dalai Lama, also gives pause to claims that Sino-Indian relations would improve under a third term Modi government.

On the India-Russia relationship, despite the breakdown in relations between Russia and the West, New Delhi has managed to maintain cordial relations with Moscow, as reflected in reports that the first state visit of Modi’s third term will be to Russia. However, it is also apparent that interactions between both countries are undergoing a managed decline. Putin and Modi have not held an annual summit meeting since the Russian invasion of Ukraine in February 2022. India’s relatively low-key chairmanship of the Shanghai Cooperation Organisation (SCO) last year and Modi’s absence from this year’s SCO Summit in Astana indicates that New Delhi is becoming increasingly estranged in forums where Russia (and China) play a prominent role. This comes as India seeks to offer a more benign worldview that is non-Western, but not explicitly anti-Western, which puts it at odds with Moscow’s belligerent position toward the West. 

The India-U.S. relationship, meanwhile, has gone from strength to strength over the last three decades. This was highlighted by U.S. National Security Advisor Jake Sullivan’s recent visit to New Delhi where both sides pledged to deepen cooperation in several strategically important areas. There is a high degree of bipartisan consensus in Washington, D.C. on viewing India as a long-term strategic partner (as much as there is on viewing China as a long-term strategic rival), and the U.S. election outcome in November will not change this.

Yet there are also signs of strain in the bilateral relationship. Biden pulled out of an invitation to attend India’s Republic Day parade in January, which would have been accompanied by a summit meeting in New Delhi with the leaders of the Quad, comprising Australia, India, Japan and the United States. This came at a time of latent tension in the bilateral relationship fuelled by allegations of Indian complicity in assassination plots targeting U.S. and Canadian nationals on their home soil. This issue has been revived recently with the extradition from the Czech Republic of an Indian national who was the alleged perpetrator of the U.S. assassination plot. 

The Vietnam-India comparison is even more apt considering that both countries face similar strategic compulsions with Russia being their key defense partner; the U.S. being a key strategic (but non-alliance) partner; and China being a key trade partner with which both countries maintain active and unresolved territorial disputes. The Modi government has referred to India as a Vishwamitra (or friend of the world), but Vietnam’s recent actions have demonstrated an ability to put this into practice.

The Real “China Plus One” Beneficiary

Parallel to Vietnam trumping India in the geopolitical space it is doing the same in the geoeconomic space. This has become evident in debates about de-risking or diversifying supply chains away from China where Vietnam has emerged as a more significant beneficiary than India. India’s exports are almost three-quarters that of Vietnam while foreign investment inflows into Vietnam were almost 30 percent higher than what went to India in 2023. This is even more impressive considering that Vietnam’s population is 1/14th that of India.

The Modi government has made a concerted effort to make India a more attractive investment destination, with improvements to the country’s digital and physical infrastructure and policies such as “Make in India” and production-linked incentives aimed at attracting investment into strategically important sectors. However, manufacturing as a share of GDP has stalled at about 17 percent while accounting for almost a quarter of Vietnam’s GDP.

At the root of this reality are several structural challenges that continue to plague the Indian economy, most notably the country’s low labor market productivity. India is not labor-constrained, but the quality of its labor remains a key challenge. Over 40 percent of India’s workforce continues to be employed in agriculture, which only contributes 15 percent of the country’s GDP. Only a third of women participate in India’s workforce, which compares to almost 70 percent in Vietnam. Skills shortages have contributed to high levels of youth unemployment and inequality, which partially explains the poorer-than-anticipated performance by the ruling BJP in the country’s recently concluded election.

Vietnam’s centrality to global supply chains is reaffirmed by its participation in Asia’s two key multilateral trade initiatives – the Regional Comprehensive Economic Partnership (RCEP) and the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) – as well as a string of bilateral agreements, from the European Union to the United Kingdom. 

Meanwhile, protectionism remains well-entrenched in India: The country is not a member of the CPTTP; withdrew from RCEP in 2019; and has been negotiating an FTA with the EU since 2007 and the UK since 2022. It has also discontinued most bilateral investment treaties (BIT), which has fueled a drop in FDI inflows and has threatened to revisit existing trade agreements with countries where it maintains a trade imbalance. The trade-weighted average duty in India is almost double that of Vietnam.

Translating Potential into Practice 

These developments do not detract from India’s potential given the sheer size of its economy and its demographic dividend. As the world’s fastest-growing major economy on course to be the world’s third-largest economy by the end of this decade, India is seen as an engine of global growth. The BJP’s election manifesto pledged to transform India into a “trusted global manufacturing hub” as part of its broader goal of “Viksit Bharat” (Developed India) by 2047. 

The surprising result of India’s recently concluded election has also renewed the country’s credentials as the world’s largest democracy. At a time when there is a growing emphasis on friendshoring supply chains by working with “like-minded countries” and “trusted geographies,” India’s imperfect democracy trumps Vietnam and China’s one-party states. Compared to India’s vibrant (and often messy) democracy, the opaque machinations of Vietnamese politics have been alarming with changes in four senior positions within a span of 18 months.

However, potential does not automatically translate into practice. This is not the first time the world has touted India’s pending arrival as a global power. When India launched its economic liberalization reforms in 1991, the country was seen to be on course to catching up with China; India’s GDP is now one-fifth that of China. In the mid-2000s, the conclusion of the US-India nuclear agreement and the country’s near double-digit growth also triggered claims that India’s moment had come. The recent Indian election result echoes what happened in the 2004 election when the then BJP government of Prime Minister Atal Bihari Vajpayee suffered a shock defeat after campaigning on a slogan of “India shining.” 

Hubris runs deep in India as reflected in the slogan of India as the “Mother of Democracy” and last year’s G-20 presidency being framed as the country’s coming out party. However, Vietnam’s recent geoeconomic and geopolitical achievements show that India has yet to reach the full potential of its “Amrit Kaal” (or golden era).