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India-Latin America and Caribbean

Economic Relations

A Brief Note

July 2009

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INTRODUCTION

India and the Latin American and Caribbean (LAC) region stand at opposite ends of the globe,

yet view each other with friendship and warmth. India shares a common history of colonialism

and struggle for independence with the region. In modern times, the two sides have articulated

common positions on global issues such as global trade, climate change, and energy. With

some of the Caribbean nations, India shares a special bond of people of Indian origin, who

form a valuable link of friendship and understanding between the two regions.

Given these factors, economic relations could have been closer, especially in the context of

the rapid globalization process since the turn of the Millennium. Although mutual interest has

deepened considerably, this has not translated into higher trajectory of trade and investment.

Despite being separated by long distances, there is significant potential in stepping up

economic relations on the foundation of large markets, complementary economic strengths

and common status as rapidly-emerging economies.

Recognising this, both sides have displayed keen interest at the political level to facilitate

expansion of trade and investment. There is need for far greater interaction of private sectors

in order to alleviate lack of information, low mutual interest, and the challenges of distance.

Key recommendations for boosting economic cooperation include:

Building on operational preferential trade agreements to negotiate comprehensive

economic partnership agreements

Focusing on investment-led trade as entry points to regional markets

Greater emphasis on services trade across sectors such as software, education and

skill development, tourism, etc

Higher business-to-business interaction through dedicated sectoral and regional

dialogue platforms

Incentivising new sea lines of communication

With committed and dedicated measures from both sides, India and LAC regions can develop

a paradigm of cooperation for developing economies, building on each other’s strengths and

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helping each other develop strengths in new areas. A target of tripling merchandise trade to

$36 billion by 2013 from the level of $12 billion in 2007-08 can be envisaged, implying a

modest CAGR of 25%.

OVERVIEW

The Latin American and Caribbean region consists of 44 countries encompassing Central and

South America and the Caribbean. The LAC region has a population of around 567 million,

one of the most diverse in the world with a composite mix of ancestries, ethnic groups, and

races. Spanish and Portuguese are the predominant languages.

The major trade blocs in the region are the Union of South American Nations comprising of the

Mercosur (Argentina, Paraguay, Uruguay and Brazil) and the Andean Community of Nations

(Bolivia, Ecuador, Colombia, Peru and Chile). The minor blocs or trade agreements are the G3

Free Trade Agreement, the Dominican Republic – Central America Free Trade Agreement

(DS-CAFTA), the Caribbean Community (CARICOM), Central American Common Market

(CACM), Enterprise for the American Initiative (EAI), Latin American Integration Association

(LAIA) and the Central American Integration System (SICA). Mexico is also a member of the

NAFTA.

Many of the LAC countries are resource based economies, endowed with notable reserves of

ores, and oil and gas. The region also has half of the world’s ten most economically unequal

countries. At the same time, according to the Goldman Sach’s BRIMC report, by 2050 two of

the world’s top economies would be from Latin America.

ECONOMY

The total GDP in terms of purchasing power parity of 32 LAC countries amounted to USD 5.9

trillion in 2008. According to the IMF, GDP (PPP) is expected to grow to more than USD 7.5

trillion by 2014. The growth is expected to come from domestic sources, notably consumption

and investment. The GDP in the region grew by 4.2% in 2008.

The LAC economy, which is heavily dependent on markets in the US and Europe, was

affected by the global financial turmoil. According to IMF’s April 2009 World Economic Outlook,

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the Latin American region is expected to suffer a contraction of 1.5% in 2009. Mexico is

expected to be the worst hit with a contraction of 3.7%, while Brazil’s GDP is expected to

reduce by 1.3% and that of Argentina and Venezuela by 1.5% and 2.2% respectively.

The IMF predicts the region’s economy to rebound in 2010, expanding 1.6%.

LAC’s GDP (PPP):

USD Billions

5

1.6

572.9

9.2

5.2

2.5

43.4

1981.2

243.0

396.6

48.7

0.7

76.3

107.0

43.7

1.2

67.0

3.1

11.6

32.7

21.0

1548.0

16.6

38.6

29.4

245.9

0.8

1.8

1.1

4.4

27.0

42.5

358.6

5983.5

Antigua

Argentina

Bahamas, The

Barbados

Belize

Bolivia

Brazil

Chile

Colombia

Costa Rica

Dominica

Dominican Republic

Ecuador

El Salvador

Grenada

Guatemala

Guyana

Haiti

Honduras

Jamaica

Mexico

Nicaragua

Panama

Paraguay

Peru

St. Kitts and Nevis

St. Lucia

St. Vincent

Suriname

Trinidad and Tobago

Uruguay

Venezuela

Total

Source: www.imf.org

(Countries not included: Montserrat, Bermudas, British Virgin Islands, Cayman Islands, Cuba, French Guiana, Falkland Islands, Guadeloupe, Netherland Antilles, Martinique, Turks and Caicos Islands and US Virgin Islands)

LAC’s GDP (PPP) Growth:

6

4000.0

4500.0

5000.0

5500.0

6000.0

6500.0

7000.0

7500.0

8000.0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Year

US

D B

illion

s

Source: www.imf.org

(Note: Estimate starts from 2008)

Main economic indicators – LAC:

2008 2009

Population (million) 567 -

GDP (PPP) (USD Trillion) 5.98 -

GDP Growth (%) 4.2 -1.5

Inflation (%) 7.9 6.6

Unemployment (%) ** 6.4 7.8 - 8.1

Current A/C Balance (% of GDP) 0.75 2.2

FDI Inflow (USD Billion) * 128.3 - Source: IMF, ECLAC* and www.latin-focus.com**

INTERNATIONAL TRADE RELATIONS

The LAC region is the third largest exporter and importer of merchandise among all developing

regions. About 46% of the region’s merchandise is directed to the US, making it the region’s

largest trading partner. An additional 25% was directed to other high income economies.

According to the Latin Business Chronicle estimate, exports of the region in 2008 grew by 18%

to USD 902 billion while imports increased by 23% to USD 857 billion. Service exports went up

by 18% to USD 116 billion and service imports increased by 20% to USD 145 billion.

LAC’s top 5 trade partners (2008): USD Billions

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Rank Exporter Value Importer Value

1 US 349.9 US 313.1

2 China 63.9 China 82.8

3 Canada 29.4 Japan 42.5

4 The Netherlands 26.7 Germany 37.4

5 Japan 23.7 Italy 19.1 Source: IMF

In the Latin America and the Caribbean regions, exports are dominated by either agricultural or

mining commodities. For some Central American countries and Mexico, due to the significance

of “maquila” activities [import of items duty-free for value-addition and re-export],

manufacturing is also an important sector. Important export commodities include food, animals,

beverage and tobacco; crude materials; mineral fuels; chemicals; machinery and transport;

and manufactured articles. Major import commodities include food, petroleum products, capital

goods, consumer goods, equipments and machinery, articles of iron and steel, plastic resins

and polymer, etc.

LAC region is an important exporter of primary products and enjoys strong comparative

advantage in commodity exports. Brazil and Argentina are major suppliers of soybean, while

Chile and Peru are leading copper producers in the region. However, due to the financial and

economic crisis, high-income economies are importing less and the region’s export revenues

are on the decline. In February 2009, merchandise exports from Brazil and Mexico declined by

29% and 25% respectively, compared to February 2008.

LAC External Trade: USD Billions

2004 2005 2006 2007

LATIN AMERICA

Exports 472.7 568.7 676.7 762.6

Imports 414.7 491.4 585.3 696.9

Total Trade 887.4 1060.1 1262 1459.5 Growth %age of Total Trade - 19.5% 19.0% 15.6%

Trade Balance 58 77.3 91.4 65.7

CARIBBEAN

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Exports 10.8 14.7 17.9 18.3

Imports 14.8 17.9 20.6 22.7

Total Trade 25.6 32.6 38.5 41

Growth %age of Total Trade - 27.3% 18.1% 6.5%

Trade Balance -4 -3.2 -2.7 -4.4

TOTAL TRADE 913 1092.7 1300.5 1500.5

TOTAL TRADE BALANCE 54 74.1 88.7 61.3 Source: ECLAC, Statistical yearbook for Latin America and the Caribbean, 2008

LAC’s top exporters (2008) USD Billions

269.3

199.6

115.9

71.3 69.6

38.4 29.519.7 17.9 16.2

Mexic

o

Bra

zil

Ven

ezu

ela

Chile

Arg

entina

Colo

mbia

Peru

Ecuador

Trinid

ad

&T

obago

Costa

Ric

a

Source: IMF, Direction of Trade Statistics

LAC’s top importers (2008) USD Billions

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304.7

184.7

56.6 55.9 52.8 41.4 39.527.6 17.0 16.6

Mexic

o

Bra

zil

Ven

ezu

ela

Chile

Arg

entina

Colo

mbia

Pan

am

a

Peru

Neth

erl

ands

Antil

les

Ecuador

Source: IMF, Direction of Trade Statistics

FDI AND INVESTMENT CLIMATE

According to the Economic Commission for Latin America and the Caribbean (ECLAC), FDI

flows to the LAC region in 2008 amounted to USD 128.3 billion which was a 13% increase

over that of the previous year (USD 113 billion). This is in contrast to the decline in global FDI

by 15%. However the FDI flows to the region are expected to fall between 35% – 40% during

2009.

Argentina, Brazil, Chile, Colombia and Mexico were the main recipients of FDI in the region.

South America received 24% more FDI in 2008 amounting to USD 89.8 billion. This was

primarily due to high prices of basic commodities (metals and hydrocarbon) and sub-regional

economic growth. The increase of FDI flows to South America was strongly driven by the rise

in natural resource seeking FDI, especially in the mining industry in Chile and Colombia. FDI

flows to Mexico and the Caribbean Basin however decreased due to their close ties with the

US. Chile stands out in terms of volume of FDI it received as well as the proportion of FDI to

GDP.

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LAC’s FDI inflow 1999-2008 USD Billions

1999-2003

2004-2008

2007 2008Difference 2007-2008

Relative Difference 2007-2008

Total FDI inflow 68.9 91.6 113.2 128.3 15.1 13.4%

Source: ECLAC

LAC’s top ten FDI recipients USD Billions

Source: 2008: www.businesswithlatinamerica.com

2007: UNCTAD, FDI Database

LAC’s top ten FDI investors (2007) USD Billions

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22.6

8.37.1

3.82.7 2.6 2.2

1.2 0.8 0.4

Brit

ish

Virg

inIs

land

s

Mex

ico

Bra

zil

Chi

le

Pan

ama

Cay

man

Isla

nds

Ven

ezue

la

Arg

entin

a

Per

u

Ber

mud

a

Source: UNCTAD, FDI Database

The main sources of FDI in the region in 2008 were the United States (24%) and Spain (7%).

Canada (8%) and Japan (6%) increased their presence in the region by way of natural

resource projects.

The upward trend in outward FDI by the LAC region continued in 2008 amounting to USD 34.6

billion which was 42% above the 2007 level. This was largely due to the major investment

plans of trans–Latin corporations and the fact that these companies’ investments in the

natural-resources sector are less sensitive to the current situation because they correspond to

long term projects. Brazil is the region’s leading foreign investor with investments of USD 20.5

billion followed by Chile and Venezuela.

INDIA LAC BILATERAL RELATIONS

India has always had a very amicable relationship with the LAC region enjoying close bilateral

as well as multilateral interaction. This has been further cemented by high level visits

complemented by a number of official and exchange visits. A concentrated effort has been

made to enhance bilateral cooperation in the economic field. India has trade and economic

agreements with a number of LAC countries and has also set up joint business councils with

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various countries of the region. Exhibitions and joint seminars are organized to discuss and

explore the potential of mutual interactions through India’s ‘Focus LAC’ programme. At the

institutional level, there are cultural, educational and scientific exchange programmes that

provide the framework for meaningful cooperation and interaction between academicians,

scholars and scientists.

The Latin American and Caribbean countries are becoming increasingly important to a

globalizing India. In the backdrop of the emerging global economic architecture, India and LAC

countries are expected to benefit in trade and investment terms by entering into well-defined

business partnerships. Today, India and the LAC countries are ambitious, outward-looking

economies. India’s commercial trade with the LAC countries is on the upsurge. The two

regions are also already aligned on a number of issues that figure in the WTO negotiations.

India and the LAC region share some special relations with each other. For instance,

Nicaragua authorizes its Honorary Consulate in Mumbai to issue visas. From April 2009 the

new Argentine Consulate in Mumbai has also started issuing visas. Ecuador has abolished

visa for entry of foreigners including Indians into the country for stay upto 90 days.

Focus LAC

India has had a Focus LAC program in place since 1997 to catalyse greater economic

interaction with the 44 countries of South America, Central America and Caribbean. Special

stress is laid on eight major trading partners in the region, viz. Argentina, Brazil, Chile,

Colombia, Mexico, Peru, Venezuela and Panama. Products identified for added promotional

efforts are textiles, carpets and handicrafts, chemicals and pharmaceuticals, engineering

products and software. Mechanisms for increasing trade missions, setting up business

councils and trade commissions, incentivizing exports, extending lines of credit through EXIM

Bank, and others are taken under this program.

A Preferential Trade Agreement was signed between India and Mercosur in 2004. Tariff

concessions of 10% to 100% have been offered by India on 450 tariff lines and on 452 tariff

lines by Mercosur. The major product groups covered in the offer of Mercosur are food

preparations, organic chemicals, pharmaceuticals, essential oils, plastics & articles thereof,

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rubber and rubber products, tools and implements, machinery items, electrical machinery and

equipments. The major products covered in India’s offer list are meat and meat products,

inorganic chemicals, organic chemicals, dyes & pigments, raw hides and skins, leather articles,

wool, cotton yarn, glass and glassware, articles of iron and steel, machinery items, electrical

machinery and equipments, optical, photographic & cinematographic apparatus. The

agreement includes annexes on rules of origin, safeguard mechanisms, and dispute resolution

mechanisms. The PTA is operational from 1 June 2009.

PTA has also been signed with Chile in 2006 and is in operation.

TRADE WITH INDIA

The LAC region accounts for 5% of the world’s trade. However, India and the region have still

not been able to enjoy a significant trade partnership. The region comprises of 3.47% of India’s

total global exports while imports constitute 2.61% of India’s global imports. Trade has been

showing a continuously rising trend over the last decade. India’s exports to the region

increased from USD 699.9 million in 1997-98 to USD 5.67 billion in 2007-08 registering a

growth of around 709% over the decade. During the same period, imports increased from USD

572 million to USD 6.56 billion.

Following the implementation of the PTA between India and the Mercosur, it is estimated that

trade can double to $10 billion in the next five years.

India’s trade with LAC USD Billions

2007-08 % Share 2008-09 (Apr-Dec) % Share

India's Export to Latin America 5.67 3.47 5.12 3.9

India's Import from Latin America 6.56 2.61 8.14 3.46

Total Trade 12.23 13.26

Source: www.commerce.nic.in

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India’s total trade with Latin America amounted to USD 13.26 billion in 2008-09 (April-

December). India’s exports increased by 33% in 2007-08 from USD 4.27 billion in 2006-07.

Imports also went up in 2007-08 but by a smaller level of 7% from USD 6.1 billion in 2006-07.

This increase in trade comes despite the global recessionary conditions that hit global trade

since September 2008.

Brazil, Colombia and Mexico are the top three importers of Indian products. Brazilian imports

amounted to USD 2.52 billion in 2007-08. The important goods exported to Brazil are mineral

fuels, organic chemicals, electrical equipment, man-made filaments and machinery. About

40% of exports to Brazil was diesel oil exported by Reliance Petrochemicals.

Chile was the top exporter to India in 2007-08 with exports amounting to USD 1.84 billion. The

major products imported from Chile were primarily copper ore and some inorganic chemicals,

edible fruits and nuts, paper and iron and steel. Mexico and Brazil are other major exporters to

India from the region.

India’s Exports to LAC (2007-08) USD Billions

5.66

2.52

0.760.59

0.3 0.29 0.25 0.14 0.14 0.1 0.07

Tota

l

BRAZI

L

COLO

MBIA

MEXI

COAR

GEN

TINA

PERU

CHILE

VENEZ

UELA

TRIN

IDAD

HOND

URASG

UATEM

ALA

Source:

www.commerce.nic.in

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India’s Imports from LAC (2007-08) USD Billions

6.56

1.84

1.180.95 0.91

0.4 0.25 0.22 0.17 0.16 0.16

Tot

al

CH

ILE

ME

XIC

O

BR

AZI

L

AR

GEN

TIN

AVE

NEZU

ELA

PA

NAM

AR

EPU

BLI

C

EC

UA

DO

R

TR

INID

AD

CAY

MAN

IS

PE

RU

Source:

www.commerce.nic.in

Top ten commodities traded between India and LAC USD Millions

S. No. India's Export Commodity

2007-08 2008-09

(Apr-Dec)

India's Import Commodity

2007-08 2008-09

(Apr-Dec)

1

Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes

1967.9 1476.9 Ores. slag and ash 2189.3 1675.4

2

Vehicles other than railway or tramway; rolling stock and parts and accessories thereof

415.9 407.3

Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes

1515.4 4550.9

3 Organic chemicals 405.3 375.3

Animal or vegetable fats and oils and their cleavage products; pre edible fats; animal or vegetable wax

705.8 334.1

4Pharmaceutical products

295.6 263.5 Ships, boats and floating structures

440.0 41.3

5 Cotton 232.3 235.6 Iron and steel 246.5 358.7

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6

Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers and parts

212.9 240.9

Nuclear reactors, boilers, machinery and mechanical appliances and parts thereof

232.3 167.8

7

Nuclear reactors, boilers, machinery and mechanical appliances and parts thereof

208.7 198.6 Cereals 205.6 3.5

8 Iron and steel 193.6 212.6

Natural and cultured pearls, precious or semi precious stones, pre metals, clad with pre metals and articles thereof; imitation jewellery and coins

144.0 86.8

9Miscellaneous chemical products

188.7 191.7

Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers and parts

114.6 80.8

10Articles of iron and steel

156.0 187.0 Organic chemicals 86.1 75.0

Source: www.commerce.nic.in

Although exports from India are dominated by the category of mineral fuels, manufactured

products also constitute a significant share of LAC’s purchases. India’s non-fuel exports are

diversified and reflect its strengths in key industries such as automotives, chemicals and

pharmaceuticals. This points to India’s potential as a significant supplier of these goods to LAC

in the future.

Regarding LAC exports to India, as can be expected, primary commodities such as ores and

petroleum predominate. As these are the main exports from the region, India’s increasing

access to natural resources in LAC is a positive feature of the globalization of both sides.

BILATERAL INVESTMENTS

Indian investment in the Latin American and Caribbean region is relatively small but is growing

quickly. In 2008 the cumulative total of Indian investments in the region was USD 9 billion.

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Latin America is becoming a stable and an increasingly growing and prosperous market

offering many opportunities. The interest of Indian businesses in investing in LAC signifies

long-term commitment to the development of the region and a partnership approach as

opposed to a resource-grab approach.

With a total investment of around USD 3 billion, Mexico has received the largest investment

from India. A Bilateral Investment Promotion and Protection Agreement was signed on 21st

May, 2007. Indian pharmaceutical companies have invested in production units in Brazil.

Indian agrochemical companies have manufacturing plants in Argentina.

The total volume of the Indian pharma business in the LAC region amounted to USD 500

million in 2008. Prominent Indian companies like Ranbaxy, Dr. Reddy’s Labs, Sun Pharma,

Claris Life Sciences and Glenmark have made their presence felt in the region and other

pharma companies are planning investments or joint ventures.

In terms of agribusiness, Bajaj Hindustan has set up a subsidiary in Brazil and also earmarked

USD 500 million for investment. There is also scope for investment and joint ventures in

Argentina, Chile, Uruguay and the Caribbean.

Indian IT companies have established software development centers, BPOs and KPO’s in the

region employing 8000 people locally. There is a huge Spanish-language market that is waiting

to be tapped. Prominent Indian IT players like TCS, Iflex and Sasken Communications have

already started operations. BPOs and joint ventures in the LAC region and other IT companies

such as Infosys, WIPRO and HCL are in the process of establishing their presence.

Reliance Industries acquired the Bojoro off-shore oil bloc in the Tumaco basin on the Pacific

coast of Colombia. OVL acquired oil fields in Brazil, Trinidad and Tobago and Colombia and is

expected to invest over a billion dollars in projects in Cuba and Venezuela. There is also scope

to acquire oil acreage in Ecuador and Argentina.

The region is endowed with large reserves of minerals, which India needs. The Jindal Group

invested USD 2.3 billion in the El Mutun iron ore project in Bolivia, being the first Indian

company to invest in this sector. There is scope for mining ventures in Argentina, Brazil, Chile,

Peru, Bolivia, Mexico and the Caribbean.

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INDIA LAC BUSINESS RELATIONS- ISSUES

The primary reason for low trade is cited as long distances and complicated sea routes,

resulting in high transportation cost and allied costs such as insurance, etc. There are no direct

sea trade routes and shipments have to go through different ports. Business travelers have to

undergo several transits in reaching each other.

Apart from this, several other deterrents to trade are present:

Lack of information on how to do business in LAC and India adds to business risks and

deters businesses from exploring opportunities. Mutual mistrust and low confidence

arise from insufficient knowledge and understanding.

Opaque regulations and long delays in dealing with administrative issues is a hurdle.

Both sides have fairly strong governmental intervention in business, with a high level of

controls and clearances.

There are misinformed apprehensions about law and order and security on each side.

Wide economic fluctuations and instability in some LAC countries during certain periods

has also led Indian businesses to be wary of doing business in LAC.

Banking and trade credit issues are also a problem. Exim Bank has established Lines of

Credit with many banks in the region, but these may not be sufficient.

Problems of counterfeiting and piracy aggravated by lax in enforcement mechanisms

act as a barrier to trade and investment. This is especially a concern in key sectors of

opportunity such as pharmaceuticals, biotechnology, IT, etc.

Trade facilitation infrastructure is inadequate on both sides due to lack of infrastructure

development, insufficient connectivity with the hinterland, rugged terrain, lack of

common standards, customs regulations, etc.

India has high tariffs in place for agricultural goods, which are major exports from the

LAC region.

Existence of various preferential trade agreements within the region as well as with

other countries and regions leads to lower mutual attention.

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KEY RECOMMENDATIONS

In the era of globalization, it is necessary for India and LAC to forge closer economic

relationships. India and LAC nations should strategise to use their complementarities in a

mutually advantageous manner. There is high political interest on both sides, which has been

giving a fillip to business interaction. India’s Focus LAC scheme has helped uncover the low-

hanging fruits in the relationship, and to build greater understanding between the business

communities; yet, vast unexplored areas of cooperation are still to be tapped.

While all countries are grappling to contain the impact of the global economic slowdown, the

lull in trade could help businesses look beyond their traditional markets and to examine new

opportunities to restructure their operations. In this context, India and LAC can forge ahead on

new partnerships which would serve well once global trade is revitalized. They should perceive

each other as partners in accessing regional markets. LAC companies can consider India as a

stepping stone for the larger Asian market, while India can view LAC region as a continental

market and a low-cost base for North American markets. The web of free trade agreements of

both sides needs to be examined for emerging areas of cooperation. This would need a

thorough academic study.

The two sides can envisage a target of tripling trade from current $12 billion to $36 billion by

2013. This would involve a CAGR of 25%, a relatively modest pace. At the same time, they

must step up engagement in services sectors and mutual investments.

In view of increasing India-LAC trade and investment relations, it is imperative that the

participating governments expand engagement through new cooperation arrangements

building upon those already agreed. With the PTAs with Mercosur and Chile in

operation, these can now be expanded into larger agreements covering all areas of

interest such as trade in goods, trade in services, movement of people, investments,

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mutual recognition of standards, harmonization of customs procedures, etc.

Comprehensive Economic Cooperation Agreements, with regional blocs as well as

bilaterally, should be set in motion.

Private sectors of both sides are increasingly showing interest in business opportunities

on each side. There is need to build greater trust and confidence so that mutual

understanding is strengthened. Governments can help by translating their desire for

greater economic cooperation into concrete measures such as incentives in transport,

air travel agreements, better access to trade finance, and other trade facilitation

measures. Steps by the governments of both sides would demonstrate commitment and

reinforce private sector confidence.

The pace of business momentum must be accelerated through greater interaction on

dedicated forums. Industry associations, with the help of governments, can take the

lead in organizing sectoral and regional interaction platforms in the major trading

partners of India. There is good scope for diversification of traded goods and expanding

on the major items of trade through focused intervention. Some possible sectors of

trade cooperation are mentioned below.

In this regard, the Focus LAC program has helped create more opportunities for

interaction and enlarged the space for private sector to step in. Funds available under

Focus LAC could be enhanced to cover trade offices/representation from industry

associations with strong presence in the region such as CII. Professional offices

dedicated to trade promotion could reduce the information gap and provide assistance

in negotiating markets and regulations.

Many Indian and LAC region companies with finance, logistics, supply chain, local

connections and distribution expertise are capable of participating in joint ventures in

processing, seeds development, equipments and infrastructure. There is need to bring

such companies together through structured dialogue platforms on specific sectors.

Given the distance between the two sides and the current challenges to rapid

movement of goods, there is a good case for investment-led trading. Companies could

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set up their own manufacturing centers to access domestic and regional markets,

adding value to local and imported intermediate goods for ultimate delivery to either

India or to other markets. This would expand opportunities beyond just trading on

available goods.

Distance challenges can also be overcome with greater exchange of services. The

services sectors of both sides are growing rapidly; at the same time, both sides have

large youth populations eager to engage in the workforce. For India, the service sector

has become a growth driver, and it is the largest exporter of software services in the

world. With this capability, it can drive engagement with LAC region. The areas that can

be examined are telecommunications, IT and software services, business and

professional services, healthcare, education and skill development, tourism, etc.

While each of the LAC countries would have its own strengths, there are several sectors in

common that match with Indian strengths.

Agriculture, agri-business, and food processing- The Latin American region has

succeeded in leveraging its agro-climatic diversity and seasonal differences with the northern

hemisphere into a vibrant and progressive trade in cereal, fruits and vegetables, dairy and

meat products, sugar, etc. LAC countries, apart from Mexico, Venezuela and Caribbean

countries, are net food exporters, with many of the smaller nations dependent on single-food

exports. Chile has restructured its fruits, vegetables and wine production to become a

significant global player, while Argentina beef and Brazil corn are large exports. The LAC

region has efficiently functioning logistics and cold chains as well as a quality certification

regime that can match the stringent regulations of markets in developed countries.

It would be instructive for Indian agriculture to form partnerships with agronomists and agri-

producers in LAC region for the purpose of raising productivity and building the missing cold

chain in India. As per the PTA with Mercosur, India will reduce tariffs on certain products such

as wool, leather, and meat.

Telecommunications- India is the world’s fastest growing telecommunications market and

Indian companies have strengths in providing services for economically weaker sections of the

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population. The LAC region has a teledensity above the global norm, with some countries at

100% penetration. At the same time, rural telephony, internet connectivity and broadband

services are challenges in both regions. There is synergy in moving to the next level of

broadband, convergence, 3G and services. Indian companies such as Bharti Airtel and Tata

Comm are partnering global companies for services provision, reverse outsourcing, or

mergers. Productive ventures could be examined by both sides.

Renewable energy- While conventional energy has been a growing sector of cooperation,

especially in trade with Venezuela, there is also scope in renewable energy sources. South

American countries have used oil revenues to expand their renewable energy programs with

biogas being a significant policy focus. Wind farms are under construction in Chile, Mexico and

Argentina, while ethanol is a major industry in Brazil. Given India’s dependence on imported oil

and its aspiration to expand renewable energy sources, there is potential for cooperation on

technology, services, grids, equipment manufacture and upstream and downstream activities.

India has the potential to generate 85,000 mw of renewable energy and has a policy package

of incentives for biofuels and waste-to-energy projects. It is estimated that the market for

energy efficiency in India stands at $3 billion. Both sides can explore synergies and co-develop

innovative ways of partnering, with the assistance of governments.

Software services- Software services are rapidly growing in the LAC region and India is the

world’s largest supplier of such services. In Argentina, software accounted for half the growth

in the IT industry, estimated at over $3 billion. Mexico has seen slow growth in IT although

many Indian companies are active. Infosys and TCS have seen rapid revenue growth in Latin

American markets and have subsidiaries in Mexico. Indian IT companies are employing local

people for accessing Latin American markets as well as providing services to North America

which is within the same time zone. Small and medium-sized software services and software

education providers can follow in the footsteps of the larger Indian companies to set up

business in Latin America.

Drugs and pharmaceutical products- Currently, the Indian pharmaceutical industry is one of

the world's largest and most developed, ranking 4th in volume terms and 13th in value terms.

The country accounted for 8 per cent of global production and 2 per cent of world markets in

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pharmaceuticals. India exported drugs worth US$ 7.2 billion in 2007-08 to the US and Europe,

followed by Central and Eastern Europe, Latin America and Africa. Given the large population

in LAC and healthcare challenges of affordable care and drugs, Indian companies have a good

chance to expand operations in the region.

LARGE LAC COUNTRIES

Mexico

India and Mexico share a warm and close friendship based on a common commitment to

democracy and free markets. Both countries have enjoyed robust economic growth and have

built a large and diversified base of industries, with strong and sound macroeconomic

fundamentals. Bilateral political and cultural ties have been expanding, particularly with the

visit of His Excellency Mr. Felipe Calderon Hinojosa to India in September 2007. However, the

economic relationship is far below potential. Although total trade has increased from US$ 0.33

billion in 2003-04 to US$ 1.77 billion in 2007-08, this is not commensurate with the economic

strength enjoyed by both countries. It is also necessary to diversify exports.

Automotive sector- According to the UNIDO International Yearbook of Industrial Statistics

2008, India features among the top 15 auto-makers. India is becoming a source for

automotives for the world, and Mexico is well-placed to synergize its strengths in this sector

with India’s. Mexico’s automotive sector is closely linked to that of the US and is in trouble

following the problems faced by the Big Three car companies in USA. However, it is expected

to recover in 2009 as US companies take advantage of lower costs in Mexico. Indian

companies could examine OEM, and tier 1 and 2 supplies as well as aftermarket parts. The

market is still under-penetrated by Indian exports and there exist opportunities for stepping up

export levels in this sector.

Chemicals, textiles, and other manufacturing sectors offer good potential for investments

by Indian companies. Mexico is a member of NAFTA and a major supplier to US markets.

Services- In the services area, tourism is of special interest to both countries, and there is

need to enhance people-to-people linkages through greater travel and tourism. India also has

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strengths in the information technology sector and education area. Indian companies would be

happy to examine the potential of training and capacity-building in Mexico.

Argentina

Automotives- Demand for automotive items in Argentina has been increasing over the last 5

years, with most of its needs satisfied by its Latin American neighbor, Brazil. Reports however

suggest that, with the growth in Argentine imports, the market is still under-penetrated by

Indian exports and there exist opportunities for stepping up export levels in this sector.

Agriculture- Argentina is one of the world’s top producers of agricultural products, mainly

edible oils, cereals, and maize. India, though a big agri-exporter by itself, still has needs in the

sector that it meets through imports from resource-rich, agricultural export-intensive

communities such as Argentina. India’s consumption levels are increasing steadily and are

expected to increase faster than the growth in domestic production. Argentina could be a solid

trade partner to fall back upon in case of temporary demand-supply mismatches in the

domestic market due to the vagaries of the monsoon, etc.

Argentina also encourages foreign investment in productive activities, including agriculture.

Indian investment in this area makes business sense, particularly in view of Argentina’s low-

cost, highly cultivable land area. Apart from hard-core production, there is also scope for

strategic alliances between the two countries leading to sharing of know-how, modernization of

cultivation techniques and overall development of the agricultural sectors of both economies.

Energy- Argentina is not only self-sufficient in energy, but also generates substantial surpluses

for export, especially in petroleum products. India, being a producer itself, is a net importer in

this sector and a significant portion of its energy requirements are satisfied through petroleum,

in its various forms. Importantly, India is threatened by a forecasted depletion of natural

resources in this area within the next ten years. Therefore, the time has now come for India to

consolidate its ties with an energy-rich nation like Argentina to guarantee the future

generations a sustainable and assured supply of energy.

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Forestry- Commercial Forestry in Argentina is a very lucrative business proposition today. The

growth rates in this sector are very promising and the industry is focusing on high-value added

products. However, the lack of infrastructure inhibits exploitation of the entire potential this

sector offers. This challenge could translate into an opportunity for Indian investors to bridge

the infrastructural gap. The investment climate is all the more attractive because of the

availability of significant portions of high quality land at affordable prices and the

incentives/support offered by the Argentine Government mostly in the form of tax benefits

including tax stability for over 30 years, accelerated depreciation on capital goods etc., which

are available to both local and foreign investors.

Mining- Argentina has a strong potential in the mining field, creating opportunities for mining

services companies to establish a presence and participate in growth. India could take part in

some of these new international mining projects. Both exploration and exploitation of minerals

are permitted and investors enjoy tax incentives.

Biofuels- With growing environmental consciousness and the search for eco-friendly energy

alternatives, the bio fuels industry is assuming significance the world over. The Argentine

Government has proactively adopted policies to encourage use of environmentally favourable

alternatives such as bio-diesel and bio ethanol, which incidentally offer an investor-friendly

atmosphere in Argentina. The Government also offers tax incentives in the form of deductions

and exemptions. One particular area where Argentina is looking for investment is R&D in this

sector and this could be an opportunity for Indian companies to provide the necessary financial

and intellectual capital to meet Argentina’s knowledge-based requirements

Brazil

The bilateral trade between India and Brazil has almost trebled over the last three years to $

3.12 billion in 2007-08 and has already reached $ 3.5 billion within the first nine months of this

year (2008-09). Many Indian pharma companies and IT firms have already opened up their

offices or production facilities in Brazil. Similarly Aviation Company and other companies from

Brazil also have already invested in India. It is expected that the India-Brazil total trade

between the two countries in 2010 may be in the vicinity of $ 5.5-6 billion.

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Brazil’s highly diversified and industrialized economy is the largest in Latin America. It has

extensive natural resources and is the world leader in agro-industry. Brazil has a huge

population with a young, highly educated middle class and an innovative and entrepreneurial

private sector.

The following are the recommendations for co-operation between India and Brazil.

Natural resources- Brazil and Latin America’s enormous resource advantages could be

exploited by India to serve its growing economy and large population. Specific opportunities

include wood pulp and timber, iron ore, pig iron, agricultural commodities, precious stones,

agriculture, movies and tourism. Specific challenges include infrastructure, lack of freight

efficiency due to lack of direct shipping lines.

Technology- Unique factors have given rise to specific technology leads for Latin America and

India. Business could be built around these technology leads which are applicable for a similar

profiled consumer.

Synthetic raw material- India/Asia have large domestic markets and therefore larger sized

production facilities. As growth ensures and logistics becomes efficient, increasing free trade

will make synthetic raw material made in India competitive in Brazil. Specific opportunities

include synthetic fiber, viscose fiber. Acrylic yarn, bulk drugs, petrochemicals. Companies in

India that could benefit from this opportunity are Reliance, Aurobindo Pharma, Ion Exchange,

etc.

Biofuels- Brazil’s success in ethanol fuel is well-known. It is the second largest producer of

ethanol fuels and the largest exporter. It has had major success in engineering cars that use

flexible mixes of ethanol and petroleum. As the world grapples with energy deficiency and

climate change, Brazil’s large land mass suitable for cane cultivation and advanced R&D will

be an advantage for its industry. India too is trying to capitalize on biofuel production through

the National Biofuel Policy of 2008 using jatropha rather than cane, aiming at deriving 20% of

its diesel needs through biofuels. It has much to share with Brazil in innovative uses of plants

and technology for conversion to usable fuels. The two countries need to study each other’s

processes and conduct joint studies.

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Colombia

Although Colombia is the fourth largest economy in LAC region, its trade with India is low.

Exports to the country stood at less than $800 million in 2007-08, while imports were less than

$100 million. At the same time, Colombia is rich in natural resources such as coal, petroleum,

natural gas, iron, etc. and a producer of agricultural goods such as coffee and bananas. India’s

exports to Colombia consist of automotives, chemicals and drugs, and cotton and man-made

yarns. It imports mineral fuels, teak and iron and steel products, but of very low volumes.

Given the size of the Colombian market at 46 million, there is scope to increase exports from

India in already traded goods, particularly pharma products and chemicals. India must also

strategise to increase and diversify its import basket from Colombia.

Chile

Software services - Chile should look at providing access to the Indian services sector

including IT. This might involve mutual recognition of professional degrees, facilitation of travel

and work permits, access to higher education, and greater movement of personnel. Chile is

particularly interested in positioning itself as an outsourcing hub with the help of Indian

companies. While TCS, Evaluserve, NIIT and other companies already have operations in the

country, these can be substantially stepped up. In addition, IT education and training as well as

language training could be an area of opportunity for Indian companies.

Agriculture and agricultural logistics - India needs to learn about raising agricultural

productivity from Chile. Best practices in commercial agriculture management, supply chain

linkages including cold storage, warehousing and transport, setting up a robust infrastructure

for meeting international quality and sanitary and phytosanitary norms, and strengthening the

link between agriculture and industry can be focus areas. Experts from Chile could provide

consultation, advice and handholding to Indian corporates as well as government in these

areas.

For Chile also, this would be a profitable area to consider as India’s natural advantages in

climate and other conditions are very different from those of Chile. India is the world’s second

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largest producer of fruits and vegetables, but has high wastage in the supply chain. With the

help of Chile, India can expand its international agricultural activities.

The two countries need to actively explore newer areas of cooperation in areas such as

Mining, Manufacturing, Railways, and Textiles. India’s engineering goods, machinery,

equipment and machine tools may find a good market in Chile. Defense production and trade

is also an area of high potential. The two countries need to expedite the proposed

Comprehensive Economic Cooperation Agreement that can cover protection of bilateral

investments, services, and education.

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Intercontinental Connectivity

A key initiative of India, Brazil and South Africa (IBSA) has been to start a dialogue on

transcontinental cooperation. Given the challenges of transport linkages between the three

continents, it is useful to go deeper into the issue. Following are excerpts pertaining to

facilitating transport linkages from ‘IBSA: Redefining South-South Co-operation: Issues

and Strategies towards Creating a Trilateral Multi-Sectoral Partnership of Global

Consequence’ by Dr. Jayanta Roy, Principal Adviser, Confederation of Indian Industry,

and Pritam Banerjee, School of Public Policy, George Mason University, October 2008:

“Two crucial elements of such an agreement [on transport facilitation] would have to be

the identification of specific routes and targets, and a clause that binds all three parties to

implementation by certain time-frame. Such an agreement would include the following

elements:

Encouraging private sector participation in IBSA routes

Promotion of long-term arrangements between shippers and carriers using

incentives such as reduced port and berthing fees for parties with such agreements

and tax-holidays for companies that take part in the initiative

Direct services and trans-shipment arrangements, especially the development of a

India-Brazil route via a South African trans-shipment point. The development of

direct India-South Africa and South-Africa-Brazil routes with a dedicated IBSA

trans-shipment facility in South Africa (to connect India and Brazil) would be a

tangible example of IBSA commitment to trilateral co-operation

Complementary integrated transport services through strategic partnerships

between the large domestic logistics operators such as CONCOR (India), Transnet

Limited (South Africa), and Companhia Vale do Rio Doce (Brazil).

Coordination between feeder services and mainline services could be ensured

through a common feeder structure similar to Mediterranean markets where

mainline carriers agree to use regional feeders operating as a pool. Private sector

stakeholder can be made responsible for developing the strategic relationships

necessary to ensure such an arrangement as a part of the proposed Business

Facilitation agreement protocol discussed in the next section.

Development of a Common Container Electronic Identification (CCEI) facility.

This would include an electronic identification (barcode) for every container and a

electronic locking system that prevents tampering with containers that have already

been inspected (by pre-shipment inspection facilities). The details of the

container’s cargo, cargo-valuation, rules of origin documentation, health and safety

certification, bill of lading and all other relevant documents will be fed into a

central database corresponding with the container identification. Once the container

reaches its destination, scanning the barcode will provide all relevant information

to the authorities. This would allow seamless movement (including trans-shipment)

of cargo between IBSA countries and would serve as an example to rest of the

world. For this purpose, India’s IT and ITES (back-office support to documentation

and logistics) could be leveraged to create a world-class trading environment.

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CII ACTIVITIES WITH LAC:

2008

Organized India LAC Project Partnerships - AUTOMETERING Seminar on Opportunities in the

Automotive Sector in the LAC Region inh January in New Delhi.

Seminar on “India and Latin America & Caribbean: Great Opportunities for Trade and Investment” was

organized on 13th March in New Delhi.

Visit of Minister Miguel Jorge, Minister for Development, Industry & Foreign Trade, Brazil on 25-26th

March in New Delhi.

A VVIP CII Delegation accompanied the President of India to Brazil, Mexico and Chile on 13-22 April.

Organized the seminar on India-Colombia: Opportunities in Trade and Investments which was attended

by Mr. Luis Guillermo Plata, Minister for Trade, Industry and Tourism, Colombia on 28th April in New

Delhi.

CII led the Indian delegation for the IBSA Inter Ministerial meeting held in Capetown, South Africa on 9-

11th May.

Organized visit of H E Mr. Eduardo Escandell, Deputy Minister, Cuba along with the trade delegation

members from Cuba in New Delhi on 20th May.

CII Delegation with the Commerce Secretary to Argentina on 8-10th June.

Organized interaction with the Foreign Affairs Ministers of SICA (Central American Integration System) in

New Delhi on 11th June.

Visit of the High-level Delegation from Chile and visits to CII and its member companies in New Delhi and

Mumbai on 2-5th July.

Organized CII’s Latin America & Caribbean Committee Meeting and India-Brazil: Interaction with the

Brazilian Minister of Health and his delegation on 28th July in New Delhi.

CII delegation to the Amazon International Fair and CII Seminar on “Doing Business with India” in Brazil

on 10-13th September.

Organized India-LAC- Opportunities for Trade and Investments; Interaction with the LAC Head of

Missions in India in Hyderabad on 30th September.

Third IBSA Business Summit held on 13-15th October in New Delhi.

Hosted Luncheon Meeting on "Doing Business with Latin America and Caribbean" on 23rd October in

New Delhi.

CII Delegation to Havana, Cuba and onward delegation to Brazil between 2 - 8th November.

2009

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Organized the Second Meeting of the CII-LAC Committee in New Delhi on 20th January.

Third CII India Latin America and Caribbean Conclave held in Bangalore on 24-25th February.

Organized a meeting on India-LAC- Opportunities for Trade and Investments; Interaction with the LAC

Head of Missions in India on 27th February in Ahmadabad.

A high profile visit of the President of Chile, followed by a seminar on “Chile-India: Growing Business

Opportunities and Cooperation” on 16th March in New Delhi.

Organized a workshop on Business Opportunities with Brazil in New Delhi on 21st May.

CII delegation and India-Caribbean Conclave on 22-24th June in Trinidad and Tobago.

CII delegation and India-Latin America Conclave on 29th June to 3rd July in Uruguay and Argentina.

IBSA Summit/Delegation to Brazil to be held in New Delhi on 7th October.

LIST OF CII’s MOU PARTNERS IN LAC

Union Industrial Argentina (UIA) – Argentina

Brazil India Chambers of Commerce – Brazil

Confederation of National Industries (CNI) – Brazil

Federation of the Industries of the State of Sao Paulo (FIESP) – Brazil

Federation of Industries for the State of Rio Grande Do Sul (FIERGS) – Brazil

National Industrial Apprenticeship Service (SENAI-DN) – Brazil

Federacao das Industrias do Estado do Rio de Janeiro (FIRJAN) (Federation of Industries of the State of

Rio de Janeiro) – Brazil

Federação das Indústrias do Estado do Amazonas (FIEAM) (Federation of Industries of the State of

Amazon) – Brazil

National Association of Industries (ANDI) – Colombia

Sociedad De Fomento Fabril FG (SOFOFA) – Chile

Foundation Pais Digital – Chile

The Export and Investment Corporation of Ecuador (CORPEI) – Ecuador

Comision Nacional De Promocion De Exportaciones E Inversiones of El Salvador (CONADEI) – El

Salvador

The Confederation of Industrial Chambers of the United Mexican States (CONCAMIN) – Mexico

India-México Business Chamber – Mexico

Mexican Business Council for Foreign Trade, Investment, and Technology (COMCE) – Mexico

Paraguay Oilseeds Crushers Association (CAPPRO) – Paraguay

Sociedad Nacional de Industries (SNI) – Peru

Camara de Comercio Peru-India (Peru-India Chamber of Commerce) – Peru

Trinidad & Tobago Chamber of Industry and Commerce - Trinidad & Tobago

Trinidad and Tobago Tourism Development Company (TIDCO) - Trinidad & Tobago

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Trinidad & Tobago Manufacturers Association - Trinidad & Tobago

Chamber of Industries of Uruguay (CIU) – Uruguay

Federacion Venezolana De Camaras Y asociaciones De Comercio Y Produccion (FEDECAMARAS) –

Venezuela