10 Lessons from Bangladesh and Vietnam | UPSC

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IASbhai Daily Editorial Hunt | 10th Nov 2020

“You may be disappointed if you fail, but you are doomed if you don’t try.” – Beverly Sills

Dear Aspirants
IASbhai Editorial Hunt is an initiative to dilute major Editorials of leading Newspapers in India which are most relevant to UPSC preparation –‘THE HINDU, LIVEMINT , INDIAN EXPRESS’ and help millions of readers who find difficulty in answer writing and making notes everyday. Here we choose two editorials on daily basis and analyse them with respect to UPSC MAINS 2020-21.

EDITORIAL HUNT #234 :“10 Lessons from Bangladesh and Vietnam | UPSC

10 Lessons from Bangladesh and Vietnam | UPSC

Ajay Srivastava
10 Lessons from Bangladesh and Vietnam | UPSC

Ajay Srivastava is an Indian Trade Service officer.

      HEADLINES:

Lessons from Vietnam and Bangladesh

      CENTRAL THEME:

With reforms promoting innovation and lowering the cost of doing business, India is poised to attract the best investments

SYLLABUS COVERED: GS 3 : Trade : Ease of doing business

      MAINS QUESTION:

Reforms in current taxation regime and loosening the grip over cost of doing business can substantially increase the net exports of a country ; as seen with Bangladesh and Vietnam. Examine -(GS 3)

      LEARNING: 

  • Export Indices
  • Two Nations and Success Story
  • Organic growth of exports

      INTRODUCTION: 

Vietnam and Bangladesh are on a roll.

  • EXPORT INDICES : Bangladesh has become the second largest apparel exporter after China, Vietnam’s exports have grown by about 240% in the past eight years.

      BODY: 

TWO NATIONS AND THEIR SUCCESS STORIES

VIETNAM

  • OPEN TRADE AND EASY LABOUR : An open trade policy, a less inexpensive workforce, and generous incentives to foreign firms contributed to Vietnam’s success.
  • COMMON TRADE : Vietnam pursues an open trade policy mainly through Free Trade Agreements (FTAs)

This ensure that its important trading partners like the U.S., the EU, China, Japan, South Korea and India do not charge import duties on products made in Vietnam. 

  • COMMERCE AND MERCHANDISE : Vietnam’s domestic market is open to the partners’ products.

EXAMPLE
 99% of EU products will soon enter Vietnam duty-free.

  • INVITING INVESTMENTS : Vietnam has agreed to change its domestic laws to make the country attractive to investors.
  • FREE COMPETITION : Foreign firms can compete for local businesses.

EXAMPLE
EU firms can open shops, enter the retail trade, and bid for both government and private sector tenders. 

  • MULTI SECTORED INVESTMENTS : They can take part in electricity, real estate, hospital, defence, and railways projects.

This model may not be good for India as it offers no protection to farmers or local producers from imports.

  • PARLIAMENTARY SETUP : Vietnam being a single-party state can ignore domestic voices.
  • EASY MANUFACTURING POLICIES : Over a decade or so, large brands such as Samsung, Canon, Foxconn, H&M, Nike, Adidas, and IKEA have flocked to Vietnam to manufacture their products.
  • NET FOREIGN INVESTMENT : Last year, Vietnam received investments exceeding $16 billion.
  • TOTAL EXPORTS : As a result, Vietnam’s exports rose from $83.5 billion in 2010 to $279 billion in 2019.

BANGLADESH

  • EXPORT STORY : In Bangladesh, large export of apparels to the EU and the U.S. make the most of the country’s export story.
  • UNTAXED TRADE : The EU allows the import of apparel and other products from least developed countries (LDCs) like Bangladesh duty-free.
  • RISING PER CAPITA INCOME : Sadly, Bangladesh may not have this facility in four to seven years as its per capita income rises and it loses the LDC status.

Bangladesh is working smartly to diversify its export basket.

  • INDIA BANGLADESH TRADE : India, as a good neighbour, accepts all Bangladesh products duty-free (except alcohol and tobacco).
  • ENORMOUS TRADE : Trade has created wealth and employment and lifted millions above the poverty level in less than two decades.

10 Lessons from Bangladesh and Vietnam | UPSC

KEY LEARNING

  • SUPPORTING LARGE FIRMS : The key learning from Bangladesh is the need to support large firms for a quick turnover.
  • BOOSTING INVESTMENT : Large firms are better positioned to invest in brand building, meeting quality requirements, and marketing.

Small firms begin as suppliers to large firms and eventually grow.

  • AMENDING LAWS : Vietnam has changed domestic rules to meet the needs of investors.
  • DIVERSITY IN TRADE : The Economic Complexity Index (ECI), which ranks a country based on how diversified and complex its manufacturing export basket is, illustrates this point.

The ECI rank for China is 32, India 43, Vietnam 79, and Bangladesh 127

  • CAPITAL INTENSIVE GOODS : India, unlike Vietnam, has a developed domestic and capital market.
  • SECTORIAL INDUSTRIAL ZONES : To further promote manufacturing and investment, India could set up sectoral industrial zones with pre-approved factory spaces.
  • EASE OF DOING BUSINESS : A firm should walk in to start operations in a few weeks.
  • LIMITED PAPERWORK : There should be no need to search for land or obtain many approvals.
  • EXPORT FACILITIES : The quick build-up of exports in Vietnam resulted from large MNC investments.
  • FINAL GOODS : But most of its electronics exports are just the final assembly of goods produced elsewhere.
  • NET PROFIT SHARE : In such cases, national exports look large, but the net dollar gain is small.

      IASbhai Windup: 

FOCUS ON ORGANIC ECONOMIC GROWTH

TRADE AT THE EXPENSE OF OTHER SECTORS

To understand this, let’s look at the export to GDP ratio (EGR).

  • ENERGY-TO-GDP RATIO : The energy-to-GDP ratio (EGR) is an indicator often used as a proxy for economy-wide energy efficiency in policy formulation and analysis.
  • VULNERABLE TO ECONOMIC IMBALANCES :  Vietnam’s EGR is 107%. Such high dependence on exports brings dollars but also makes a country vulnerable to global economic uncertainty.
  • DEVELOPED COUNTRIES EGR : The EGR of large economies/exporting countries is a much smaller number.

The U.S.’s EGR is 11.7%, Japan’s is 18.5%, India’s is 18.7%.Even for China, with all its trade problems, the EGR is 18.4%. 

  • INDIA’S EXPORT POLICY : India, follow an open trade policy, sign balanced FTAs, restrict unfair imports, and have a healthy mix of domestic champions and MNCs.

While export remains a priority, it is not pursued at the expense of other sectors of the economy.
 

  • ORGANIC STIMULATION : The focus is on organic economic growth through innovation and competitiveness.

With reforms promoting innovation and lowering the cost of doing business, India is poised to attract the best investments and integrate further with the global economy.

SUGGESTED READING : INDIA-BANGLADESH RELATIONS 
       SOURCES:   THE HINDU EDITORIAL HUNT | 10 Lessons from Bangladesh and Vietnam | UPSC

 

TRENDING NOW : Important The Hindu Editorials 

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