balance of payment between vietnam and india

8 Balance of Payments between Vietnam and India in 2020 20 LIST OF FIGURES 2... The balance ofinternational payments is an extremely important indicator for each country because a countr

NATIONAL ECONOMICS UNIVERSITY

SCHOOL OF TRADE AND INTERNATIONAL ECONOMICS

International Economics 2 Instructor: Assoc Prof Dr Nguyen Thuong Lang

STATUTORY DECLARATION

I herewith formally declare that I myself have written the submitted Assignmentindependently I did not use any outside support except for the quoted literature and other sourcesmentioned at the end of this paper

In particular, I would like to thank Assoc Prof Dr Nguyen Thuong Lang, who directlyguided me throughout the gift of doing the exercise During the time of working with him, I haveconstantly learned a lot of useful knowledge for me but also learned the spirit of serious andeffective work, these are very necessary for me in the process of studying and working later

Finally, I would like to sincerely thank my family and friends who have always encouraged,contributed ideas and helped in the process of learning and research to complete this exercise

Ha Noi, 22/08/2021

Ho Minh Chau

TABLE OF CONTENT

INTRODUCTION 1

1 Rationale: 1

2 Literature Review: 1

3 Objective: 2

4 Methodology: 2

5 Scope: 2

6 Research structure: 2

Chapter 1: Balance of Payments (BoP) 3

1.1 Definition of BoP: 3

1.2 Components of BoP: 3

1.2.1 Current Account: 3

1.2.2 Capital Account: 4

1.2.3 Financial Account: 4

1.3 Effects of BoP on National account: 4

Chapter 2: Vietnam – India Relations 6

2.1 Background: 6

2.2 Bilateral trade relations: 7

Chapter 3: Balance of Payments between Vietnam and India 8

3.1 Balance of International Payments in Vietnam and in India in 2020: 9

3.1.1 Balance of International Payments in Viet Nam: 9

3.1.2 Balance of International Payments in India: 13

3.2 Trade between Vietnam and India: 17

3.2.1 Vietnam exports to India: 17

3.2.2 Vietnam imports from India: 18

3.3 Foreign Direct Investment (FDI): 20

3.3.1 India’s Investments in Vietnam 20

3.3.2 Vietnam’s Investments in India: 21

3.4 Balance of Payments between Vietnam and India: 21

Chapter 4: Solution 22

LIST OF REFERENCES 23

LIST OF TABLE

2 2 Balance of International Payment in Vietnam in I/2021 10

3 3 Balance of International Payment in Viet Nam from II/2020 to I/2021 12

5 5 Balance of International Payments in India from II/2020 to I/2021 16

6 6 Some major exported goods from Vietnam to India in 2020 18

7 7 Some major imported goods from India to Vietnam in 2020 19

8 8 Balance of Payments between Vietnam and India in 2020 20

LIST OF FIGURES

2 2 Balance of International Payments in Viet Nam from II/2020 to I/2021 9

1 Rationale:

The balance of payments is a crucial part of the national economy The balance ofinternational payments is an extremely important indicator for each country because a country'sbalance of international payments represents its financial and economic status The balance ofpayments statement can be used as a statistical document to determine whether the value of acountry's currency is increasing or decreasing

Based on the balance of payments index, the government of each country can make the mostoptimal trade and fiscal policy decisions Balance of payments provides important information foranalyzing and understanding a country's economic transactions with other countries The balance ofpayments report shows us a comparison between the actual money received from abroad with themoney actually spent abroad in a given period of time The government makes decisions onmacroeconomic management such as import-export policy, exchange rate policy, etc

By studying the balance of international payments and its components, one will be able toidentify trends that can be beneficial or harmful to a country's economy From there, come up withappropriate solutions and strategies

In the current context of international economic integration, Vietnam has been promotingdiplomatic relations, especially trade relations with countries in the region India is one ofimportant partners As a result, the topic “Balance of Payments between Vietnam and India” hasbeen chosen

2 Literature Review:

“Vietnam – India: Increasing Investment and Trade relations”: Vietnam and India haveshared strong bilateral relations historically, and for the past two decades, trade between the twocountries has risen considerably These economic ties have materialized into several Indianinvestments in Vietnam in various sectors India, which is one of the fastest-growing economies inthe world, currently ranks fifth globally in terms of GDP The ASEAN-India Free Trade Area(AIFTA), which Vietnam is a part of, was established in 2009 as a result of convergence in interests

of all parties in advancing their economic ties across the Asia-Pacific

“Vietnam – India bilateral trade”: According to data of the General Department of Customs,bilateral trade between Vietnam and India in the first 11 months of the year reached $8.82 billion,

USD and import reached 4.06 billion USD, Vietnam had a trade surplus of 700 million USD WithIndia's application of many trade-restrictive measures, changes in regulations on considering theorigin of goods, along with the initiation of investigations into trade remedies such as anti-dumping, anti-subsidy, etc level has had a significant effect on bilateral trade.

3 Objective:

On the basis of the actual analysis of the international balance of payments of Vietnam andIndia, assessing the results as well as limitations of the balance of payments between Vietnam andIndia, thereby proposing orientations and solutions to solve the problems of the balance ofpayments deficit

5.1 Object: The Balance of Payments

5.2 Scope: The Balance of Payments between Vietnam and India from 2011 to 2020 and infinancial year 2020

6 Research structure:

In addition to the opening, ending, list of contents and list of references, topics are presented

in 4 chapters:

Chapter 1: Balance of Payments in general

Chapter 2: Relationship between Vietnam and India

Chapter 3: The Balance of Payments between Vietnam and India

Chapter 4: Solutions for the Balance of Payments Deficit

Chapter 1: Balance of Payments (BoP)1.1 Definition of BoP:

Balance of Payments (BOP) is a statement which records all the monetary transactions madebetween residents of a country and the rest of the world during any given period This statementincludes all the transactions made by/to individuals, corporates and the government and helps inmonitoring the flow of funds to develop the economy

When all the elements are correctly included in the BOP, it should sum up to zero in aperfect scenario This means the inflows and outflows of funds should balance out However, thisdoes not ideally happen in most cases

Tracking the transactions under BOP is something similar to the double entry system ofaccounting This means, all the transactions will have a debit entry and a corresponding creditentry

It also includes receipts from engineering, tourism, transportation, business services, stocks,and royalties from patents and copyrights When all the goods and services are combined, togetherthey make up to a country’s Balance of Trade (BOT)

There are various categories of trade and transfers which happen across countries It could

be visible or invisible trading, unilateral transfers or other payments/receipts Trading in goodsbetween countries are referred to as visible items and import/export of services (banking,information technology, …) are referred to as invisible items

Unilateral transfers refer to money sent as gifts or donations to residents of foreigncountries This can also be personal transfers like – money sent by relatives to their family located

Acquisition and disposal of non-produced, non-financial assets represent the sales andpurchases of non-produced assets, such as the rights to natural resources, and the sales andpurchases of intangible assets, such as patents, copyrights, trademarks, franchises and leases

There are 3 major elements of a capital account:

 Loans and borrowings – It includes all types of loans from both the private and public sectorslocated in foreign countries

 Investments – These are funds invested in the corporate stocks by non-residents

 Foreign exchange reserves – Foreign exchange reserves held by the central bank of a country

to monitor and control the exchange rate does impact the capital account

1.2.3 Financial Account:

The financial account measures the changes in the foreign ownership of domestic assetsand domestic ownership of foreign assets The flow of funds from and to foreign countriesthrough various investments in real estates, business ventures, foreign direct investments, … ismonitored through the financial account

1.3 Effects of BoP on National account:

A balance of payments surplus means the country exports more than it imports It provides

enough capital to pay for all domestic production The country might even lend outside its borders

A surplus boosts economic growth in the short term There are enough excess savings tolend to countries that buy its products The increased exports boost production in its factories,

allowing them to hire more people In the long run, the country becomes too dependent on driven growth It must encourage its residents to spend more

export-A balance of payments deficit means the country imports more goods, services, and capital

than they export It must borrow from other countries to pay for its imports It's like taking out aschool loan to pay for education Your expected higher future salary is worth the investment

In the long-term, the country becomes a net consumer, not a producer, of the world'seconomic output It will have to go into debt to pay for consumption instead of investing in futuregrowth If the deficit continues long enough, the country may have to sell its assets to pay itscreditors These assets include natural resources, land, and commodities

Table 1 Differences between BoP Surplus and BoP Deficit

Balance of Payments Surplus Balance of Payments Deficit

 Export more than Import

 Providing enough capital to pay for all

domestic production

 Boosting economic growth in the short

term

 Becoming too dependent on export

-driven growth in the long run

 Import more than export

 Borrowing from other countries to pay for imports

 This fuels economic growth in the short term

 It will have to go into debt to pay for consumption

(Source: Thebalance.com)

Chapter 2: Vietnam – India Relations2.1 Background:

Vietnam and India have a long-standing relationship, when Buddhism and Hinduism wereintroduced to Vietnam The traditional friendship and multifaceted cooperation between the twocountries, laid the foundation by President Ho Chi Minh and Prime Minister G Nero, hasdeveloped continuously

In 1954, India opened its Consulate General in Hanoi

In 1956, Vietnam established a Consulate General in New Delhi

On January 7, 1972, the two countries elevated their relations to Ambassador level

In 2007, the two sides officially announced the establishment of a strategic partnership andwas upgraded to a comprehensive strategic partnership on the occasion of Prime Minister NarendraModi's official visit to Vietnam in September 2016 An important framework for deepening andmore stable development of relations between the two countries, meeting the requirements of thenew situation

Vietnam - India relations are at a good and favorable time of development; cooperation in allfields, such as politics, diplomacy, economy, trade, national defense, security, energy, culture,education, science - technology, people's diplomacy increase The political relationship betweenthe two countries is increasingly trusting and close, as shown by the frequent exchange of high-level and high-level delegations between the two sides; The relationship between the CommunistParty of Vietnam and political parties of India is also expanding

The friendship and solidarity between the two countries and two peoples has always beenstable, steadfast and developed more and more deeply The two sides identified the common goal ofdeveloping cooperation for the prosperity of each country and contributing to regional andinternational peace and development Vietnam and India cooperate closely, have mutual trust,understanding and support in many regional and international issues; good cooperation atmultilateral forums

The Vietnamese people always remember the love and support and assistance of the Indianpeople in the past cause of national liberation and in the present national construction anddevelopment; expect the two sides to maintain a positive development momentum, strengthen theimplementation of bilateral cooperation mechanisms; strive to deepen economic cooperation and

become more substantive, especially to bring two-way trade turnover to high and stable growth inthe coming years

2.2 Bilateral trade relations:

India granted the MFN status to Vietnam in 1975 Both nations signed a bilateral tradeagreement in 1978 and the Bilateral Investment Promotion and Protection Agreement (BIPPA) onMarch 8, 1997

Over the past two decades, bilateral trade between Vietnam and India has steadily grownfrom US$200 million in 2000 to US$12.3 billion in the financial year 2019-2020

The two countries aimed to raise bilateral trade to US$15 billion by 2020, but COVID-19related trade disruption resulted in a 9.9 percent trade shrinkage to US$12.3 billion in the lastfinancial year Vietnam has emerged as the 18th largest trading partner of India, while the latterranks seventh among Vietnam’s largest trading partners

Exports from Vietnam to India include mobile phones, electronic components, machinery,computer technology, natural rubber, chemicals, and coffee On the other hand, its key importsfrom India include meat and fishery products, corn, steel, pharmaceuticals, cotton, and machinery

Figure 1 India’s Trade with Vietnam

(Source: Ministry of Commerce and Industry, Government of India)

2.3 Development Partnership:

India has a long-standing development partnership with Vietnam that has made positivecontributions towards capacity building, Sustainable Development Goals and socio-economicdevelopment of Vietnam India has also been providing assistance to Vietnam within the ASEANframework

Under the Mekong Ganga Cooperation (MGC) framework, India has been taking up QuickImpact Projects (QIPs), each valued at US$50,000, in different provinces of Vietnam fordevelopment of community infrastructure With their short gestation period, the QIPs bring directbenefits to communities at the grassroots level So far, since 2017, 18 QIPs have been completed in

17 provinces of Vietnam, while 8 new projects are under implementation during the period 2020-21

in 5 provinces

In addition, 7 grant-in-aid assistance projects for the benefit of the Cham community in Ninh

Thuan province were completed in December 2020 with an outlay of around US$ 1.54 million.

India is also providing technical assistance worth US$ 2.25 million for conservation and restoration

of ancient Cham monuments located in the Quang Nam Province of Vietnam, showcasing the deepcivilizational connection between the two countries

At the end of 2020, the heavy impact of the Covid-19 pandemic caused the Indian economy

to decline sharply, suffering negative impacts In response to that situation, Vietnam has voluntarilydonated VND100 billion (US$0.43 million) worth of ventilator and medical instruments to India

Chapter 3: Balance of Payments between Vietnam and India

3.1 Balance of International Payments in Vietnam and in India in 2020:

3.1.1 Balance of International Payments in Viet Nam:

Same as every country, Vietnam has faced to the growing economic challenges turned by theCovid-19 pandemic, and many forecasts suggest that it could be much more severe than the globalfinancial crisis of 2008-2009

However, in addition to the general difficulties of the epidemic, Vietnam's balance ofpayments also saw many good signals Vietnam's BOP is in a relatively strong position, therebystrengthening its protection against external risks Thanks to sustained FDI inflows, surplus capitalaccounts have helped to support the overall BOP surplus Meanwhile, a rapidly growing tradesurplus and rising remittances have also helped shift current accounts from deficit to surplus

FDI inflows into efficient export industries have also helped Vietnam's current balance shift

to a more favorable position, thereby helping to change the BOP situation of Vietnam in recentyears Besides, with the rise as an electronic assembly center, Vietnam has seen an increasing tradesurplus

Moreover, the rising secondary income surplus has also supported a favorable currentbalance position A large amount of it comes from the constant transfer of remittances Remittanceshave grown steadily over the past two decades, making Vietnam the fourth largest recipient in Asia

Figure 2 Balance of International Payments in Viet Nam from II/2020 to I/2021

(Source: State Bank of Vietnam)

Table 2 Balance of International Payment in Vietnam in I/2021

(Millions of USD)

Net Current and Capital Account 350

Portfolio investment: Liabilities -349