A beachhead for entry into ASEAN

Cambodia, Laos, Myanmar and Vietnam (CLMV) collectively hold a lot of promise for Indian companies, both as a market and source of raw materials. Most Indians are quite familiar with Vietnam. Apart from etching itself into the India's (and the world's) collective consciousness for its heroic and successful fight against a superpower in the 1960s and 1970s, it has also emerged recently as a close Indian ally in South East Asia against a new Chinese assertiveness. Vietnam's offer of a couple of oil blocks in the South China Sea to India, in face of stiff opposition from China, has bolstered its reputation as a country that does not fear others, regardless of economic or military heft. Given this convergence of interests, Prime Minister Narendra Modi, on a recent visit to Hanoi, promised a $500-million line of credit for buying defence equipment from India. This follows a $100-million line of defence credit to Vietnam that it will use to buy patrol-cum-interceptor boats from Larsen & Toubro. New Delhi has not yet taken a decision on selling Brahmos missiles to Hanoi. But few Indians will know that Vietnam is part of a cluster of nations that go by the acronym CLMV or Cambodia, Laos, Myanmar and, of course, Vietnam. And an even smaller number know that these four are, simultaneously, also a part of ASEAN. They may not be part of the so-called Tiger Economies that stunned the world with their high growth rates in the 1960s and 1970s but they are no longer the poor cousins of ASEAN's more prosperous members. Far from it; these four countries have collectively emerged as the new cynosure of investors' eyes - both for their economic potential as well as for their strategic value. Not only can these countries - still relatively underdeveloped compared to their more prosperous ASEAN peers - provide Indian companies new markets for their products and services, they can also serve as important sources of raw materials. Then, Vietnam and Myanmar, in particular, can also act as beachheads for Indian companies in the ASEAN and provide India twin platforms from which to combat China's efforts to sideline and push it to the periphery of the Asian economic and strategic discourse. Recognising these advantages, Prime Minister Narendra Modi has reached out to this hitherto neglected sub-group within ASEAN. Of the four countries, which are all former state-controlled economies making a transition to market economies, India has the deepest ties with Vietnam and these are expected to endure for a number of reasons. Till recently, about 55 per cent of India's investments in the four CLMV countries have gone to about 90 projects in Vietnam. The total outlay in these joint ventures: $1 billion. These have been channelled into agriculture, agri-processing, agro-chemicals, mining, oil and gas, energy, healthcare, information technology, skill-development and textiles. This makes it clear that India's focus on the CLMV countries are skewed heavily in favour of Vietnam. To correct this tilt and to facilitate the entry of Indian companies into these countries, the Indian government has approved a Rs 500-crore project development fund for trade with these countries, which have preferential access pacts with China, European Union and the US and so, can act as gateways for India Inc into these markets. Among other things, this fund will help Indian companies secure inputs, raw materials and intermediate goods for the manufacturing of finished goods for domestic as well as international markets. Bilateral trade with the CLMV nations has grown exponentially from $460 million in 2000 to almost $12 billion in 2014. These countries, which are still at early stages of industrialisation still depend primarily on farm produce to sustain the livelihoods of their people. As is to be expected in such countries, there are large gaps in their infrastructure and logistics chains as well as social infrastructure. Indian companies with expertise in these sectors will find good opportunities for their frugal engineering skills in the CLMV nations. The advantages these countries offer are an abundant supply of raw materials and a low cost labour force. As part of its outreach to the four CLMV countries, India is planning to extend the proposed trilateral highway connecting India's north east to Thailand via Myanmar to these countries by 2018-19. Of the CLMV countries, only Myanmar shares a border with India. Indian companies have invested about $225 million in Myanmar since it began opening up to foreign investment a few years ago. But this is minuscule compared to the $3 billion invested by China. So, as in Africa, India is playing catch up with its northern neighbour. But Myanmar itself is keen on reducing its dependence on China and diversifying the sources of foreign investment. This is a window of opportunity that India can leverage to increase its investments in Myanmar. The Tata Group, India's largest conglomerate, recently inaugurated a new office in Myanmar. Group companies such as TCS, Tata Motors, Tata International and Tata Power have established a presence in this market and have plans to increase their presence across South East Asia, including in Vietnam. Cambodia is attractive to India Inc because it is a low-wage country with quota-free access to major markets. The country offers great opportunities for the manufacture of bicycles, two-wheelers, industrial clothing, textiles, garments, and footwear. Lao PDR's economy has great potential in the mineral, hydropower and social sectors. Though small and featuring in the United Nation's list of Least Developed Countries, its economy grew at 8.2 per cent in 2013. These countries also offer good opportunities for small and medium Indian companies, which can find a ready market for their products. Since systems in CLMV countries are still relatively underdeveloped - much as things were in India till a few years ago - Indian companies of all sizes should be able to steer through them with comparatively fewer problems than competitors from other more developed markets. So, Indian companies grappling with a demand slowdown at home could do well to look at these markets for their future growth and expansion. And perhaps without knowing it, they will push India's strategic interests in a virgin region while beefing up their own bottom lines.