Macroeconomic indicators of India and Vietnam - Essay Example

? MACRO-ECONOMIC INDICATORS OF INDIA AND VIETNAM ECONOMICS Introduction The national economies of South-East Asia have beengrowing at a rapid rate to become major service and production potential grounds for global investors. Many foreign organizations are outsourcing services and manufacturing input from the South-East Asia at countries like India and Vietnam. Before the selection of a possible outsourcing ground, it is necessary to develop a clear knowledge of the business environment of the economy. This paper will explore statistics on macro-economic indicators and economy reports, from Vietnam and India, towards evaluating the competitive attractiveness and the position of the economies to foreign investors. The paper will offer recommendations on the strategies that can improve the competitiveness of these national economies in order to increase investor response and economic performance (Robyn 2007). General information Area India Vietnam Political structure Federal Republic Communist Administrative structure 28 Federal states and 7 union territories 58 provinces and 3 metropolis/ Municipalities Surface area 3,287,000 Square Kilometres 331,000 Square Kilometres Population 1.19 billion 88.0 million Population Growth level 1.4 percent 1.1 percent Income category Lower Middle level Lower Middle level Current Account Balance 2012, -80.15; 2011, -46.91; 2010, -51.78; 2009, -25.92; 2008, -30.97 Billion (USD) 2012, -0.32; 2011, -1.8; 2010, -12; 2009, -7.4; 2008, -11.9 Billion (USD) GNI per capita (USD) 1,180 930 ‘General Information about India and the Vietnam’ (Minbuza 2011; Jain 2013) Outline of India and Vietnam India and Vietnam are the seventh and thirteenth largest countries in the world respectively. India is the world’s second-largest country by national population. Vietnam has a working class expansion, among the 18 and 27 years group. India is among the fastest growing economies in the world, with a GDP that averages 9 percent for the four economic years before year 2012. In the case of Vietnam, the 20 years of economic change and reforms have changed the Vietnamese economy into a dynamic, fast-growing emerging economy. The Indian economy has risen into a global leader in business processing, technology, pharmaceuticals and telecommunication industries (Robyn 2007). The working population of Vietnam is composed of a young, easy to develop labour force. Considering the high labour available at both India and Vietnam, foreign investors can invest in the food manufacturing sector, as the agricultural inputs are readily available. Through investing in food manufacturing, the investors will benefit from the readily available unskilled and semi-skilled labour force. In Vietnam, the improvement of the regulatory environment has fostered the credibility of the business environment, but corruption and the unequal implementation of regulatory standards is still hampering business development. As a former colony of the British, India has a large English-speaking and highly educated labour force. The agricultural sector of Vietnam is highly competitive, and the economy also draws a lot from the light industry and the aquaculture sectors. For instance, Vietnam is among the largest rice and coffee exporters in the world. Due to the high potential of the agricultural sector of Vietnam, investing in food manufacturing is likely to be encouraged by the government since it forms part of the transition to high-value production. Vietnam offers a higher level of “ease to do business,” which draws from the favourable nature of the licensing policies of the country. The policies on obtaining a business license and those on taxation are favourable to new market entrants. The ease of entry will help investors enter the Vietnamese economy easily, as well as enhance the economic potential of the agricultural sector. In outsourcing business, a well developed transport system plays a key role since better transport networks improve the distribution of goods from inland factories to airports and other export hubs. India has a relatively massive transport network, although it is also outdated. As a result, the Indian market is subject to major distribution insufficiencies and capacity constraints. The lack of modern transport systems, adversely affects time management and operational reliability. This shows that the food manufacturing business of investors will be hampered, mainly because it requires the transportation of inputs and finished products. In Vietnam, the transport system is considerably underdeveloped. Therefore, business may not run effectively, due to the transport difficulties. In the area of communication, particularly in areas like mobile networks, dynamic market communication, internet and broadband infrastructure, Vietnam is higher than India. Vietnam’s considerable growth in this area offers businesses a commendable alternative. At Vietnam, investors will have more problems with transportation, mainly because the transport network is poorer than that of India. Demographic statistics are critical in determining the working population, prospects of national consumption and future employment profiles. During the process of outsourcing and FDI, the success of business depends largely on the availability of a strong supply of young, educated and highly skilled employees. In this area, India has a large and young workforce. However, there is a lower participation of females in the economy. Investors should also know that the larger part of the population lives in rural areas (PricewaterhouseCoopers 2009). Further, different from Vietnam, there are religious and ethnic issues to be considered by investors. This shows that the investors will have a ready labour force, which can work at the food manufacturing industries, and where necessary increase the production of agricultural inputs. Vietnam has a high workforce, comprising of employees below the age of 30. Due to the increasing income levels, the living standards of many citizens are improving. Due to an increase in industrialization, many people are migrating to cities, which is an indicator of urbanization. This shows that the Vietnamese economy offers a better opportunity for the manufacturing industries at the urban areas, as well as the expansion of agricultural production. Labour Development Area India Vietnam Labour force 480.94 million 45.5 million Part-time employees 1.45 percent 2.56 percent Minimum monthly wage (FY 09) € 30.90 € 33.70 Average Monthly Wage (FY 11) € 120.94 € 99.02 ‘Labour development profile’ (WTO 2012; WTO 2012a) India has a young growing labour force, but is characterized by soaring unemployment, particularly among females. As a result of an improving economic growth and low literacy levels, India is still facing a major shortage of skilled labour. This shows that the food manufacturing ventures should plan to accommodate more women, as a strategy to curb gendered unemployment. The problem is made worse by the movement of experienced personnel to other national economies, where they can get better incomes. India has also grown into a major outsourcing centre, particularly among IT industries, which boosts the availability of highly skilled employees, especially scientific and technical personnel who are proficient in English language (Alamgir 2008). Similar to India, Vietnam has a young growing workforce. Its advantage above India is that the neighbouring economies offer low wages and salaries, which discourages labour movement. The national regulations on minimum wage levels depend on the type of industry and the regions of operation. Vietnam faces the major concern that it lacks technical, scientific, and managerial staff, which results from the inadequacy and the outdated nature of the nation’s university training. The problem is widened by the cross-border movement of skilled and experienced Vietnamese workers. The readily available young labour force will offer the prospective food manufacturing investors – with all the labour they need – as well as the ready labour required to expand agricultural production. Generally, economic growth is fostered by productivity improvement, while using the same capital, labour, resources and energy. Therefore, when outsourcing a number of economic indicators, including the DGP (overall growth and market outcome) and the economy’s’ price inflation (indicator of the price growth of services and production) should be inspected. Partly, due to capital inflow and an increase in the domestic consumption of India, the economy started a recovery process in the later quarters if FY 09. GDP USD 1.946 Trillion FY 2012 GDP Growth 5.3 percent for 2012-2013 GDP per Capita USD 3,944 (2011) GDP by sector Services: 56.4; Industry: 26.4 and Agriculture 17.2 percent (2011) Inflation (CPI) WPI: 7.18 percent and CPI 10.56 Percent (Dec 2012) 2011: 5.319; 2010: 9.303; 2009: 16.214; 2008: 10.448; 2007: 5.512 Population under Poverty line 29.8 percent (2010) Labour force distribution Industry, 14 % Services, 34 % and Agriculture, 52% (2009) Unemployment 9.4 percent (2011) Productivity USD 196.4 Billion (Revenues for 2011) (Jain 2011) Unit labour Cost USD 1,410 per annum (2011) ‘India’s Economy’ (WTO 2012a) India’s economy profile shows that investing in an industry, which is directly related to the agricultural sector will benefit from the high agricultural production capacity of the economy. Through investing in food manufacturing, the value of India’s exports will be increased, which will help in the reduction of unemployment and the high inflation rate (PricewaterhouseCoopers 2009). Vietnam, through government expenditure and exports, realised a growth level of 7 percent during financial year 2010, which is higher than the 5.3 percent realised during FY 09. Despite the economy’s improvement, the economy has remained susceptible to external shocks, mostly due to its current accounts deficits. Through investing in the manufacturing industry, the investors will help reduce the susceptibility of the Vietnamese economy, as well as increase the country’s price stability, which will help counter inflation. GDP USD 137.68 Billion 2012 GDP Growth 4.9 percent for 2013 Q 1 GDP per Capita USD 3,9545 (2012 estimates) GDP by sector Services: 38.6; Industry: 41.4 and Agriculture 20 percent (2011) Inflation (CPI) 8.14 Percent (2012) 2011: 18.7 (EST); 2010: 9.2; 2009: 6.717; 2008: 23.115; 2007: 8.349 Population under Poverty line 18.9 percent (2011 Est) Labour force distribution Industry, 20.3 % Services, 25.8 % and Agriculture, 53.9% (2009) Unemployment 4.46 percent (2011) Productivity USD 42.14 Billion (Revenues for 2012) Unit labour Cost USD 1,320 per annum (2011) ‘Vietnamese Economy’ Source: (WTO 2012) International Trade Overview Although India is on the negative side of the current account balance, capital inflows to the economy are not affected a lot since the economy continues to build foreign reserves. The deficit is caused by the importation of production resources and mineral fuels from other countries. This depicts the need to invest in the food manufacturing sector, as this will increase the export levels of India, which will in turn help cut the unfavourable foreign balance. In Vietnam, global demand for the economy’s goods remains strong. In effect, this fosters the expansion of production. Despite increased exportation, high inflow of imports will keep the trade deficit high. However, investing in food processing will increase the value of the country’s exports, which will help offset the unfavourable balance of payment maintained over time. FDI Trends The FDI regulation of India have been continually loosened, which has resulted in a higher inflow of foreign investors, and a positive outlook of the Indian economy. FY 09, FDI totalled about € 24.9 billion, reflecting a 306.1 percent growth between FY 05 and 09. Vietnam has become much dependent on FDI, which is likely to reduce due to the high inflation levels (PricewaterhouseCoopers 2009). During FY 09, FDI inflows amounted to €3.2 billion, which triggered a real growth of 99.2 percent between financial years 2005 and 2009. Through investing in the food manufacturing sector will help the Indian economy increase the country’s GDP, employment levels and reduce the foreign balance. Through investing in the food manufacturing sector of Vietnam, the country’s export levels will increase, despite the fact that the company will extend its dependence on FDI. Macro-Level recommendations to enhance the competitiveness of India and Vietnam include: 1. Vietnam and India should invest in the development of its working class population, as a strategy to increase the economies’ positioning in the global economy 2. The Vietnamese and the Indian economies should invest in the development of higher-value production areas like food manufacturing, compared to low-level production like agriculture. 3. The Indian and Vietnamese economies should abolish limiting policy structures, disproportionate policy implementation, bureaucracy and the evils of corruption, which limit the inflow of FDI 4. Like Vietnam, India should work on improving the level of “ease to do business” in its economy in order to encourage the inflow of FDI. 5. The Indian and Vietnamese economies should invest in the development of the available transport and communication networks, which will increase the efficiency of trade. 6. India and Vietnam should also invest in the development of other productive industries like IT industries and auto making, towards reducing its reliance on the agricultural sector Conclusion India and Vietnam are growing into important global outsourcing countries for other economies. India and Vietnam are among the major movers in the South-East Asia, including that they are major suppliers of services and labour. From the labour profile of Asia and India, investing in food manufacturing will be a good investment for the two economies. Investing in food manufacturing will be efficient, as the inputs for food processing are available, and labour is available at India and Vietnam. The factors that limit investing in India and Vietnam include the poor transport network, external shocks, and the demand for the economies’ goods. A number of recommendations have been presented for the Indian and the Vietnamese economies. Reference List Alamgir, J., 2008. India's Open-Economy Policy. New York: Routledge. Jain, S., 2011. Indian productivity ahead of China. The financial Express Accessed on March 30, 2013 from http://www.financialexpress.com/news/indian-productivity-ahead-of-china/741711 Jain, S., 2013. India Current-Account Deficit Widens to Record. The Wall Street Journal Accessed on March 30, 2013 from http://online.wsj.com/article/SB10001424127887323361804578388713872906732.ht ml Minbuza., 2011. Outsourcing Comparison Study South-East Asia: China, India, Vietnam 2011 – 2012 Accessed on March 30, 2013 from http://www.agentschapnl.nl/sites/default/files/bijlagen/Outsourcing%20Comparison% 20Study%20%20-%20April%202011.pdf PricewaterhouseCoopers., 2009. Destination India: A brief overview of Tax and Regulatory Framework. PricewaterhouseCoopers Accessed on March 30, 2013 from http://www.pwc.fr/assets/files/pdf/2011/03/pwc_destination_india_2010.pdf Robyn, M., 2007. Elephant and the Dragon, the Rise of India and China, and what it means for all of us, First Edition. New York: W.W. Norton & Company. WTO., 2012. Vietnam. World Trade Organization Accessed on March 30, 2013 from http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country =VN,IN WTO., 2012a. India. World Trade Organization Accessed on March 30, 2013 from http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country =VN,IN Read More