The Next Big Market for Vietnamese Companies

• Admin

India and Vietnam, two countries connected by history, culture, and trade, are the pillars of a flourishing bilateral partnership. Their alliance is a powerful force, from the ancient Buddhist relationships and Vietnamese companies to the modern trade agreements. As business flows effortlessly across borders, tourism flourishes, and educational exchanges soar, the stage is set for a new era of collaboration. This is more than just trade—it’s a fusion of heritage, ambition, and unstoppable economic synergy.

Since India stands as Vietnam’s 10th largest trading partner, it presents a golden gateway for Vietnamese enterprises to establish new ventures and expand their footprint. Supporting this promising potential, the following trade agreements pave the way for seamless collaboration:

Major trade agreements between India and Vietnam:

1. India-Vietnam Bilateral Trade Agreement – 1978

In 1978, both countries reached mutual agreements to promote smooth economic relations, which created great opportunities for people to establish/expand their businesses beyond territories with simplified procedures and cultural connections, ultimately ensuring ease of doing business.

The Bilateral trade between the two countries reached approximately $14.82 billion in 2023-2024, which is very good news for both countries. This agreement laid the foundation for strengthening commercial ties and facilitating trade by providing MFN (Most Favoured Nation) treatment on customs duties and trade regulations.

Key features of this agreement:

• To boost bilateral trade by simplifying the procedures, reducing barriers to trade, and fostering economic collaboration.
• Encourage investment and technical cooperation in key sectors such as Agriculture, Pharmaceuticals, textiles, and machinery.

For example, to smooth the trade procedure, a structured payment mechanism was introduced to facilitate smooth transactions between both countries.

Below are a few examples of structured payment methods that Vietnamese companies can consider when expanding their business in India.

Payment Mechanism	Details	Example (Company Setup in India & Vietnam)
SWIFT & Banking Channels	Foreign companies can remit capital investment via SWIFT transfers through authorized banks.	A Vietnamese electronics company setting up in India remits $1 million as FDI via Viet com bank to HDFC Bank in India.
Letter of Credit (LC) & Bank Guarantees	Used for securing payments in business transactions, including real estate leasing and vendor payments.	An Indian IT company expanding to Vietnam leases office space, paying through an LC issued by BIDV, confirmed by SBI.
Trade Finance & Business Loans	Companies can use trade finance, business loans, or venture capital funding to establish operations.	A Vietnamese furniture brand opening in India secures a business loan from ICICI Bank for setting up retail stores.
ASEAN-India Free Trade Agreement (AIFTA)	Helps companies reduce import duties on machinery, raw materials, and equipment needed for setup.	A Vietnamese garment manufacturer opening a factory in India imports textile machinery at lower duties under AIFTA, paying via bank transfers.

 

2. ASEAN-India Free Trade Agreement (AIFTA) – 2009

India has signed the India Free Trade Agreement (AIFTA) with the Association of Southeast Asian Nations (ASEAN), which includes Vietnam as a member country. This agreement aims to reduce or eliminate most tariffs on various goods, ensuring a smooth manufacturing setup for many industries.

Key aspects of AIFTA:

• Implemented on January 1, 2010, which covers agricultural products, textiles, chemicals, machinery, and electronics
• Gradually reduce or eliminate tariffs on a wide range of goods and adjust the preferential duty rates on many products to facilitate more straightforward trade between both countries.
• Rules of Origin (ROO):
• Products must meet origin criteria to qualify for tariff concessions.
• This prevents re-exporting goods from non-ASEAN countries.

Origin Criteria for Tariff Concessions

To qualify for lower tariffs under AIFTA, a product must either:

• Be wholly obtained in Vietnam or India (e.g., agricultural products, minerals extracted from the soil).
• Under substantial transformation, the minimum regional value addition (RVA) in ASEAN and India is 35%, meaning at least 35% of the product‘s value must originate from within ASEAN or India (through materials, labor, and production costs) to qualify as being from the region.

For example, suppose a company in Vietnam imports raw materials from China but processes them into a new product that meets the 35% value addition rule. In that case, the final product can qualify for preferential tariffs when exported to India.

3. Comprehensive Strategic Partnership – 2016

This partnership reinforces India’s Act East Policy and strengthens Vietnam’s role as a key strategic partner within ASEAN. It sets the stage for deeper integration, mutual growth, and stronger alignment between India and Vietnam. As both nations look ahead, the expansion of FDI and trade ties will be crucial for realizing the full potential of their partnership. Below are the key areas of this partnership.

Key Areas	Details
Defence & Security	– $500 million defence credit line for Vietnam’s military modernization.- Joint naval exercises, ship visits, and training programs.- Collaboration on cybersecurity and counterterrorism.
Trade & Economy	– Bilateral trade target of $15 billion.- Indian investments in Vietnam’s energy, pharmaceuticals, IT, and manufacturing sectors.- Vietnam’s increasing business presence in India.
Energy Cooperation	– ONGC Videsh involved in offshore oil & gas exploration in Vietnam.- Collaboration on renewable energy projects, including solar and wind energy.
Cultural & People-to-People Ties	– Shared Buddhist heritage, with India helping restore Buddhist sites in Vietnam.- Scholarships and training under the Indian Technical and Economic Cooperation (ITEC) program.
Regional & Global Cooperation	– Support for freedom of navigation in the Indo-Pacific and South China Sea.- Joint efforts in United Nations (UN), ASEAN, and multilateral forums.- Vietnam encouraged to join India-led initiatives like the International Solar Alliance (ISA) and Coalition for Disaster Resilient Infrastructure (CDRI).

 

4. Bilateral Investment Promotion and Protection Agreement (BIPPA) between India and Vietnam

On March 8, 1997, both countries took a significant step in stabilizing their economic and investment relations. These agreements mainly aimed to create a favorable environment for investments and ensure the protection and promotion of capital flows between India and Vietnam.

Businesses looking to invest their corpus in India must read about the opportunities available in the country.

Key features of BIPPA

• BIPPA provides a strong foundation for Vietnamese companies to explore investment opportunities in India.
• This agreement ensures protection against expropriation, nationalization, or any discriminatory actions.
• Investors are entitled to compensation in case of any losses due to political instability or other kind of disruptions.
• Provides a stable legal framework, encouraging companies to invest with confidence.
• It promotes collaboration in sectors such as infrastructure, manufacturing, and services.
• BIPPA ensures the treatment of the most favored Nations (MFN) between both countries.

Future Prospects

As India and Vietnam continue deepening economic ties under the Comprehensive Strategic Partnership, updating and reinforcing BIPPA will be crucial in:

• Encouraging more Vietnamese companies to invest in India.
• Expanding bilateral trade and economic cooperation.
• Providing a secure and transparent investment climate for businesses in both nations.
• By leveraging BIPPA and other trade agreements, India and Vietnam can unlock new economic opportunities and enhance FDI flows, fostering long-term growth and collaboration.

Vietnamese Companies in India

While all these agreements help both countries, Vietnam had 6 active projects in India with a total estimated investment of $28.55 million as of 2020. Vietnam’s investments in India have primarily been in pharmaceuticals, information technology, chemicals, and building materials.

PEB Steel: A Vietnamese-based steel manufacturing and construction company specializing in pre-engineered steel buildings. PEB Steel has a joint venture in Pithampur, India, operating a 90,000-square-meter facility.

VinFast: The Vietnamese company that has set up operations in India as an electric vehicle (EV) manufacturer. It is currently building a manufacturing facility in the southern Indian state of Tamil Nadu. Since the recent budget has provided an increasingly strong boost to the EV sector, this could be a strategic opportunity for the Vietnamese company in India.

Export-Import Relations between both Countries

A quick overview of India-Vietnam trade in the last year shows how far we have come in a short period, and there is much more to achieve.

Category	India to Vietnam (Exports)	Vietnam to India (Imports)
Total Trade (2023)	~$15 billion	~$15 billion
Key Export Items	Iron & Steel, Machinery, Cotton, Pharmaceuticals, Automobiles, Electrical Equipment	Mobile Phones, Electronic Goods, Chemicals, Coffee, Rubber, Textiles
Major Industries Benefiting	Steel, Textile, Pharmaceuticals, Automobile	Electronics, Agriculture, Chemicals
Top Export Products	Meat, Seafood, Spices, Auto Parts, Iron Ore, Cotton	Mobile Components, Computers, Footwear, Coffee, Natural Rubber
Bilateral Trade Growth	Increasing due to Free Trade Agreements	Increasing, strong supply chain links
Trade Agreements	ASEAN-India FTA, India-Vietnam Bilateral Agreements	ASEAN-India FTA, RCEP (India opted out)
Investment Flow	India has invested in Vietnam’s energy, pharma, and IT sectors	Vietnam invests in India’s electronics, infrastructure, and food processing sectors

 

Key Sectors for Vietnamese Companies to Expand in India

All of the above-mentioned treaties between India and Vietnam built a trustworthy relationship between both countries. Vietnamese companies, who are increasingly looking for opportunities beyond their borders, can look at India as a great opportunity that offers them a large consumer base, robust industrial ecosystem, and supportive policies that make it an attractive destination. Some of the key sectors where Vietnam can invest in India include:

1. Electronics and Manufacturing
India’s “Make in India” and Production Linked Incentive (PLI) schemes provide lucrative incentives for foreign investors in electronics and manufacturing. Vietnam companies, which have developed a strong manufacturing sector, can leverage their expertise by setting up production units or project offices/branch offices in India, benefiting from lower costs and access to a vast market.

2. Agro-Processing and Food Industry
Vietnam is a major exporter of seafood, coffee, and agricultural products. With India’s growing demand for processed foods and an expanding retail sector, Vietnamese companies can invest in food processing plants, supply chains, and retail partnerships to tap into the Indian market.

3. Renewable Energy and Green Technology
India has already leaped in the renewable energy sector, particularly in solar and wind power. Vietnamese firms specializing in green technology, solar panel manufacturing, and energy storage solutions can use these opportunities to invest in India’s expanding clean energy sector, benefiting from government incentives and policy support.

4. Pharmaceuticals and Healthcare
India’s keen interest in the healthcare sector opens unlimited options for Vietnam’s pharmaceutical industry, which has grown significantly. Collaborations with Indian pharmaceutical companies can lead to joint ventures, research partnerships, and investments in India’s expanding healthcare market. The demand for generic medicines and affordable healthcare solutions presents an opportunity for Vietnamese investors.

5. IT and Startups
India’s booming startup ecosystem and IT sector offer prime opportunities for Vietnamese tech firms, especially in fintech, e-commerce, and AI. With a rapidly expanding digital economy because the digital economy accounted for 4-4.5 percent of the total GDP in 2014 and is currently at 11 percent and set to exceed 20% of GDP by 2026—India’s market is ripe for investment.
As Vietnam undergoes a digital transformation, Indian IT firms can play a key role, with HCL Technologies’ 2020 entry setting a precedent. For Vietnamese companies, India presents a gateway to a vast market, top-tier IT expertise, and strengthened trade ties.

Conclusion

In conclusion, India stands as a gateway of opportunity for Vietnamese businesses seeking expansion and long-term growth. With a robust economy, investment-friendly policies, and key trade agreements, India offers an ideal environment for Vietnamese enterprises to thrive. From IT and manufacturing to renewable energy and healthcare, the potential for collaboration is immense. As both nations strengthen their economic ties, Vietnamese companies have a golden chance to tap into India’s vast market, drive innovation, and forge lasting partnerships in this era of dynamic global trade.

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