SG river

India and Vietnam have plenty in common. Demographically, they are eerily similar – Vietnam has a median age of 28 years while India’s median age comes in at 27. Both countries have experienced their “baby-boomer” phases and now, as these youngsters start entering the workforce over the next 2 decades, both will experience a sharp decline in their dependency ratios.

No other sizeable countries in the emerging world are as well positioned to realize a demographic dividend – in one camp you have China and Russia which are ageing rapidly even before they have become wealthy while in the other camp you have African countries like Nigeria with rapidly growing populations that are adding so many babies to their ranks that, despite having youthful populations, they will experience an increase in the dependency ratio for a while to come. In short, India and Vietnam are both in a rare demographic sweet-spot.

India and Vietnam also have virtually identical urbanization rates of around 32-33%. That means, both are still well poised to continue to ride one of the biggest drivers of economic growth – urbanization. Both countries have the exact same and high proportion of their workforce tied up on farms (47% for both countries) which means that the migration from agricultural work to higher-productivity factory and service jobs will continue to drive economic growth for a while to come. This is in sharp contrast to other emerging markets like China where the rural-to-urban and farm-to-factory migrations have already played out and future growth will have to come from productivity gains (54% of China’s population lives in urban areas and only ~ 35% of its workforce is now employed in agriculture).

Now for the economic vital stats. Both India and Vietnam are hovering around the USD 2,000 GDP per head (USD 5,800 for India and USD 5,700 for Vietnam on a PPP basis). This has empirically been observed to be an inflection point in the evolution of consumer demand patterns in several countries around the world – in particular, demand for branded food and beverages, consumer durables, etc. tend to take off at this point. This means that the vibrancy of domestic consumerism in each country is just the tip of the iceberg – the party has only just started and will be a long one.

Both countries are also growing their wealth at a rather similar and – may I add, rapid —   clip. Vietnam’s real GDP growth for this year is forecasted at around 6.5% while India’s is expected to come in at 7.5% according to the ADB; both countries are experiencing a cyclical recovery after a period of slow growth and surging inflation. If it were not for a bit of statistical tweaking employed by the Indian Statistic bureau which revised its GDP measurement methodology this year, India’s 2015 GDP growth rate would probably be virtually identical to Vietnam’s. And both countries owe a good deal of their improving economic prospects to the moribund global commodity price landscape.

Vietnam and India are both sizeable importers of energy and other commodities and both have inflationary tendencies. Vietnam’s inflation rate hit 20% in 2011 in large part due to skyrocketing commodity prices. India’s inflation also touched double-digits in 2012 driven by an overheating economy and high energy prices. This weighed on the currency of both countries – the VND tumbled by 9% in 2011 and the INR appeared to be in freefall in 2013 before the new central bank governor came to rescue with his hawkish inflation-targeting policies.

It seems that the Vietnamese leadership has also learnt a thing or two about the importance of managing inflation – the “growth-at-all-costs” approach of yesteryears seems to have given way to a focus on quality of growth and a strong distaste for boom-bust cycles. And regardless of whether the policy-makers in each country take their eyes off the inflation gauge or not, both countries should continue to see benign inflation through 2016 as the commodity outlook continues to be bleak. This gives them room to give that little extra push to growth.

Contrast that with the rest of the emerging world where commodity price declines are hammering currencies, leading to budget crises and putting the brakes on growth – Brazil, Russia, Indonesia, Malaysia and a host of sub-Saharan African countries come to mind.

Incidentally, both Vietnam and India are also beneficiaries of another tectonic shift underway in the global economic order – China’s declining cost-competitiveness and intentional transition away from a manufacturing export-led growth model. Average factory labour in both countries is just around a third of the levels in neighbouring China and, unlike Cambodia and Myanmar, both have sizeable-enough workforces to attract large manufacturers that are looking to move their bases out of China. Both countries are well aware of the opportunity and have been aggressively courting manufacturing FDI (worth noting that India had nearly bagged Intel’s $2 billion chip fabrication plant project before the company had a last-moment change of heart to head to Vietnam instead).

And both have been plagued, in their quest for manufacturing investment, by their weak infrastructure. India was ranked 54 globally in terms of logistics performance in 2014 while Vietnam came in at 48 out of a total of 160 countries surveyed. Pretty close if you ask me. Road transportation is a major bottleneck in both countries and the railways in both countries are antiquated relics of their respective colonial eras (although the British did build better railways than the French, to India’s benefit). Both countries have extensive coast lines (Vietnam ~ 3,260 km, India ~ 7,517 km) but rueful port capacity – clogged ports and just a handful of deep-water facilities.

The good news is that both countries have realized this and have started pushing infrastructure development aggressively; and because governments of both countries don’t have enough cash in their coffers to splash out on mega projects (public debt in both countries accounts for around 55-60% of GDP), both have been flirting with public-private partnerships with mixed results. And both have found a “sugar-daddy” to bankroll their infra spend – Japan.

India and Vietnam both have the same hostile 800-pound gorilla on their northern border – yes, China. And both had brief but fierce border wars with China rather recently – India in 1962 and Vietnam in 1979. The consequent hostility continues to shape foreign policy till today; tellingly, both countries experienced major incidences of Chinese violation earlier this year – the Chinese army came 18km into Indian territory and camped there for a week before withdrawing, causing severe embarrassment to the Indian leadership and defence establishment while Chinese ships and offshore rigs came deep into Vietnam’s territorial waters to purportedly kick-start exploration activities. Yes, at current crude prices.

Really. In comes Japan – another country that is bearing the brunt of China’s expansionist tendencies. At a time of growing alarm in Japan over China’s belligerence and Japan Inc’s building unease over its exposure to China as a manufacturing base, both Vietnam and India have become pivotal to Japanese initiatives to now build a “multi-polar” Asia to counter Chinese hegemony. Guess what that means? More Japanese funding for infrastructure projects and more Japanese FDI. Vietnam’s gleaming new expressways are being built with Japanese ODA and just last week, India signed a landmark deal with Japan to build its first high-speed railway connecting the industrial hubs of Mumbai and Ahmedabad. Similar talks of a Japanese built and funded high-speed railway linking Hanoi and Ho Chi Minh City have been doing the rounds in Vietnam of late – were it not for the land acquisition issues involved, this might have already started becoming a reality. And this is a symptom of another similar trait between the 2 countries – decentralized government.

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