Cambodia, Laos, Myanmar and Vietnam, a sub-bloc within ASEAN, are all former socialist economies transitioning to the market. India can help this process and increase its economic and strategic footprint across South East Asia.
The acronym CLMV would have elicited blank or quizzical looks at most gatherings even a few years ago. It is still not the stuff of regular cocktail circuit chatter, but many more people now know that it stands for Cambodia, Laos, Myanmar and Vietnam.
Many will also know that these countries, all part of the ASEAN, also make up a sub-group that is of particular economic and strategic interest to India.
On a recent visit to Hanoi en route to the G-20 summit in China, Prime Minister Narendra Modi promised a $500-million line of credit for buying defence equipment from India. Vietnam is keen on purchasing the supersonic Brahmos missiles, designed and built jointly by India and Russia, but New Delhi has not yet taken a decision on the issue.
This follows a $100-million line of defence credit to Vietnam that it will use to buy patrol-cum-interceptor boats from Larsen & Toubro.
Meanwhile, the Modi Cabinet recently approved a proposal to set up a Rs 500-crore project development fund to facilitate and increase the entry and presence of Indian companies in these countries, which have preferential access pacts with China, European Union and the US and so, can act as gateways for India Inc into these markets.
Addressing the 3rd India CLMV Business Conclave in Chennai recently, Commerce Minister Nirmala Sitharaman said: “Trade links and ties between India and the CLMV countries can be much better and the two governing principles, connectivity and economic integration with regional value chains, are crucial.”
Increasing trade ties
India's economic links with all ASEAN countries have been growing at a fast clip. But trade with the CLMV nations have been galloping along. Bilateral trade between India and this sub-bloc within ASEAN has leapfrogged from $460 million in 2000 to almost $12 billion in 2014.
These four countries, which are relatively less developed than their peers in the South East Asian trading bloc, account for 15 per cent of India's trade with ASEAN. To put things in perspective, these countries cover 32 per cent of ASEAN's land mass, account for a little less than 11 per cent of its gross domestic product and are growing at 7 per cent per annum.
Opportunities for India
The CLMV countries are all former centrally planned socialist economies that are transitioning to the market. They remain primarily agrarian economies with large gaps in their infrastructure and logistics chains as well as social infrastructure.
As these countries gradually open up to foreign investment large opportunities will open up for countries that have the expertise to help them. Right now, these gaps are being filled by companies from China and, to an extent, Thailand. But massive opportunities exist for Indian companies to step into the breech.
The advantages these countries offer are an abundant supply of raw materials and a low cost labour force.
Rs 500-crore fund
Recognising the economic and strategic potential of closer ties with the CLMV nations, the Narendra Modi government has cleared a proposal to set up a Rs 500-crore project development fund (referred to briefly above) to help Indian companies increase their presence in these countries.
“Cabinet approves creation of a Project Development Fund (PDF) to catalyse Indian economic presence in Cambodia, Laos, Myanmar and Vietnam,” a statement released by the government recently said.
Among other things, this fund will help Indian companies secure inputs, raw materials and intermediate goods for the manufacturing of finished goods for domestic as well as international markets.
Road to prosperity
As part of its outreach to the four CLMV countries, India is planning to extend the proposed trilateral highway connecting India's north east to Thailand via Myanmar to these countries.
The proposed highway, which is an integral part of the Modi government's Act East policy, has been facing delays having already missed several deadlines and is now expected to become operational only in 2018-19.
“Even as we work assiduously to enhance our physical connectivity and explore the extension of the India-Myanmar-Thailand Trilateral Highway into Lao PDR, Cambodia and Vietnam, I urge Thailand and Myanmar to join hands and find creative solutions for the early conclusion of the Motor Vehicles Agreement and I would also like to invite ASEAN countries to participate in the Sittwe Economic Zone,” V.K. Singh, India's deputy foreign minister said at the 14th ASEAN-India Foreign Ministers' Meeting in Vientiane on July 25.
Trade links and ties between India and the CLMV countries can be much better and the two governing principles, connectivity and economic integration with regional value chains, are crucial.-Nirmala Sitharaman, Indian commerce minister
The extension of the highway will give India direct access to Vietnam, a member of the Trans-Pacific Partnership (TPP) Agreement, which covers 40 per cent of global trade and includes the US as its lynchpin.
Vietnam has emerged as an important player in India's Act East policy, especially in the strategic sphere. The India-Myanmar-Thailand Highway could, in future, feed into the existing highway connecting Thailand with Da Nang, a port in Vietnam.
Closer ties with Vietnam could also play an important role in securing India's energy needs. It has allotted ONGC, India's public sector oil explorer, two oil blocks in the South China Sea, though China opposes these awards, claiming, without any rationale, that the oil reserves fall within its own territory.
ONGC Videsh, the overseas arm of ONGC, has stopped work on one block because of poor prospects of finding oil but has recently received an extension of one year to June 2017 for the other.
Bilateral trade between India and Vietnam was at $5.6 billion in 2014 and the two countries plan to increase this to $20 billion by 2020.
During Modi's recent visit, India and Vietnam decided to upgrade their bilateral ties to a “comprehensive strategic partnership”. The defence credit lines referred to above were a part of efforts to seal this partnership.
“We welcome India's economic integration with the CLMV countries. India and CLMV need to strengthen economic integration through connectivity, infrastructure, and trade facilitations. We also aim to focus on the added advantage from sectors such as seafood, manufacturing, engineering, automobiles and chemicals,” Nguyen Cam Tu, Deputy Minister, Ministry of Industry and Trade, Vietnam, has said recently.
Of the CLMV countries, only Myanmar shares a border with India. Indian companies have invested about $225 million in Myanmar since it began opening up to foreign investment a few years ago.
But this is minuscule compared to the $3 billion invested by China. So, as in Africa, India is playing catch up with its northern neighbour. But Myanmar itself is keen on reducing its dependence on China and diversifying the sources of foreign investment.
This is a window of opportunity that India can leverage to increase its investments in Myanmar. The Tata Group, India's largest conglomerate, recently inaugurated a new office in Myanmar. Group companies such as TCS, Tata Motors, Tata International and Tata Power have established a presence in this market and have plans to increase their presence across South East Asia, including in Vietnam.
The Myanmar economy is still primarily dependant on agriculture, which accounts for 70 per cent of employment and 30 per cent of its exports.
Given its production of coconuts, rice, oil palm, rubber, sesame seeds, mustard and beans, Myanmar has great potential to become a major manufacturing centre for value added food products, especially for foreign markets.
Then, the government there is encouraging the automobile (two and three-wheelers), cement, cotton and silk fabrics, cement, FMCG and some other industries. All these are sectors in which Indian companies have decades of experience.
Then, Indian telecom companies, which have the lowest operational costs in the world, can help increase the teledensity in Myanmar, which has a subscriber base of less than 5.5 million. Healthcare, education, power sector and road building are other sectors in which Indian companies can help Myanmar.
The country's hydropower sector can potentially generate40,000 MW across the nation's four major river basins. Plans are underway to set up 13 hydropower plants with a capacity of 2,500 MW. This is another area that Indian companies could focus on in Myanmar.
“Myanmar is trying to improve the trade policies and create attractive and investor-friendly policies. A new foreign investment law has been passed to attract more investors and the mass investment potential lies in the economic partnerships,” Pwint San, Deputy Minister, Ministry of Commerce, Myanmar, said recently.
And Exim bank report on Cambodia says: “With close to 60 per cent of the Cambodian population engaged in agriculture, this has been the primary industry of the country. Rice is the principal food crop, while rubber is the principal commercial crop... The food, beverage, and tobacco subsector continues to grow, but its relative importance has been diminishing with the rise of garments, textiles, and footwear.”
Cambodia is attractive to India Inc because it is a low-wage country with quota-free access to major markets. The country offers great opportunities for the manufacture of bicycles, two-wheelers, industrial clothing, textiles, garments, and footwear.
The country is blessed with abundant natural resources. So, its mining sector, still underdeveloped and comprising small local companies, offer ample opportunities for the mining f laterite, marble, granite, limestone, gravel and sand.
The tourism sector is another that is ripe for foreign investment. The country is expected to receive six million foreign tourists by 2020. So, building tourist infrastructure, roads, power stations, hotels and other associated assets and Indian companies, which has lots of experience in this sector, can help in this regard.
Lao PDR's economy has great potential in the mineral, hydropower and social sectors. Though small and featuring in the United Nation's list of Least Developed Countries, its economy grew at 8.2 per cent in 2013.
Like most of its CLMV peers, Lao's economy is heavily dependent on its agricultural sector, which contributed more than 50 per cent of its GDP and accounts for 80 per cent of employment.
“Significant potential for investments exists in rubber plantation and processing, specifically, in agro processing in the Savannakhet province, which is located near the port and is well connected with Thailand,” the Exim Bank report said.
“It's important to network and share best-practices and strengthen business ties between the countries. The trade investment between India and the ASEAN countries is crucial since the CLMV countries ... have a 165 million strong population. This will attract considerable amount of FDI from India. It has an open investment regime and does not discriminate between foreign and local investors. It is investing heavily into its transport infrastructure,” said Sun Chanthol, Senior Minister, Minister of Commerce, Kingdom of Cambodia, at a recent seminar.