FDI In India By China +1 Companies : Why Vietnam Is Ahead And Remedies Needed
Rajiv Upadhyay
China’s aggressive actions internationally has made many companies and countries acutely aware of the need of diversifying their supply chains and reducing their dependence on China. From 2018 to 2025 USA’s trade deficit with China has fallen from 418 billion dollars to 203 billion dollars . By 2026 first half , America’s trade deficit with Vietnam and Taiwan were larger than its deficit with China ( HT 8 th Sept ) .
However in spite of its huge manpower , manufacturing and customer base , India has lost out to Vietnam in most of the sectors including machinery, knitted apparels , furniture , toys, foot wear , plastics etc . India has done equally well only in steel and electrical machinery . US imports from Vietnam nearly tripled between 2017 and 2024 while the China’s export to Vietnam more than doubled.
Vietnam’s main advantage is shared border with China and low transit time and cost of bringing raw materials and semi finished goods. Many companies are still dependent on Chinese raw material and components and by setting up parallel manufacturing facilities in Vietnam are able to get the benefit of both .
In addition, Vietnam has a free trade agreement with not only RCEP but with 50 countries . India is not a member od RCEP and has just concluded agreement with Australia , UK , UAE etc . EU FTA agreement has been signed but not yet ratified by all countries .
India is a preferred FDI destination for American and European countries seeking benefit of large markets while Vietnam is more popular with Asian countries . India’s PLI scheme has been a great success particularly in large scale manufacturing . But textiles and smaller industries create far more jobs and cannot be neglected.
However Indian labour is less disciplined and less productive than Vietnamese labour . In addition in Vietnam one agency finalises investment while in India State governments and even Municipalities have a big say thus irritating the investors . Indian procedures are far more complicated . Due to single decision making body Vietnam is able to make more effective marketing plans and implement them quickly.
After losing massively to China, losing to Vietnam or Mexico is just a beginning . Many more countries like Thailand , Sri Lanka Bangladesh or Indonesia will soon become more favoured FDI destinations unless we simplify our procedures and make our labour as disciplined and productive .
India need to tackle it on war footing.
