Focus India-LAC - November 2016

On the sidelines of the BRICS Summit in Goa, PM Modi had a bilateral meeting with President Michel Temer of Brazil. Both reasserted their interest in permanent membership of the UN Security Council. President Temer reportedly conveyed Brazil’s ‘understanding’ for India’s case at the Nuclear Suppliers Group. At the plenary meeting in Seoul in June, Brazil supported India but wanted a "non-discriminatory process", not country-specific admission. 
 
Four MOUs were signed: natural resources and fisheries; pharmaceutical products regulation; cattle genomics and assisted reproductive technologies; and investment cooperation and facilitation. Discussions covered cooperation in areas of ship building, pharmaceuticals, defence production, ethanol production and oil and gas. Brazil’s cattle breeders have cross-bred Indian strains like Ongole, Zebu for decades but face Indian regulatory obstacles on import of embryos. India submitted in 2012 information on seeds of pearl, millet, sorghum, corn seeds, rapeseed and cotton. Brazil in turn wants market access for its cotton, maize, soybean, grapes, apples, oats and avocado.
 
India's sugar and ethanol manufacturer Shree Renuka Sugars Ltd (SRSL) is to sell Madhu Mill, one of the two belonging to its Brazilian subsidiary Renuka do Brasil S/A (RdB). SRSL acquired RdB in 2010 for around $600 million, but with sharp decline in sugar prices, its debt burden became unsustainable. Its creditors agreed to an overall reduction of 70 percent in August.
 
A V Birla group’s Hindalco Industries announced plans to sell its alumina plant and mines in Brazil after prices collapsed. Hindalco has bauxite mining rights of up to 50 million tons in Brazil. The alumina refinery in Ouro Preto in Brazil has a capacity to produce 145,000 tonnes per annum. This exit will leave Hindalco with two aluminium assets in Brazil owned by Novelis, which the Birla group acquired in 2007.
 
Brazilian aircraft manufacturer Embraer may have sourced bribes through a UK-based agent to sell 3 aircraft for India’s Airborne Early Warning and Control Systems in 2008. The Ministry of Defence has asked the Central Bureau of Investigation and the Enforcement Directorate to investigate the allegations and has also taken up the matter with the Brazilian authorities through diplomatic channels. With an FIR registered, the issue casts a shadow on India’s most promising strategic relationship in Latin America, though the company has offered to pay a fine to settle the case. 
 
Perto S. A., a high technology and IT Brazilian company and the world's leading manufacturer of Automatic Teller Machines (ATMs) and Cash Dispenser Machines (CDMs), inaugurated its first Indian plant in the Mahindra World City in Jaipur on 19 October, reportedly with an initial investment of $31 million with further investment projected at $34 million.
 
The fall in prices of commodities worldwide, accompanied by a global downturn, further complicated by the Petrobras and Embraer scandals, have impacted India’s economic relations with Brazil. Petrobras’s crisis could turn up opportunities for India, which exports refined products but imports crude. A loosening of Brazil’s regulations is good for India’s upstream sector. India’s BPCL and ONGC have multi-billion dollar investments in Brazil’s offshore. Indian companies investing in Brazil need to study market conditions carefully, and leverage the political relationship to manage adverse regulatory and market conditions.
 
The agreement for expansion of the India–Chile Preferential Trade Agreement (PTA) was signed on 6 September. The existing PTA offered 178 tariff lines from India with the margin of preference (MoP) ranging from 10-50 percent at 8-digit level and from Chile 296 tariff lines with MoP ranging from 10- 100 percent at 8-digit level. Under the expanded PTA, Chile has offered concessions to India on 1798 tariff lines with MoP ranging from 30-100 percent. India has offered concessions to Chile on 1031 tariff lines at 8-digit level with MoP ranging from 10-100 percent. 
 
Chile was India’s third largest trading partner in LAC in 2015-16, with India’s exports at $680 million and imports at $1.96 billion, principally copper. India's exports comprise transport equipment,
pharmaceuticals, tyres and tubes, apparel, chemicals, textiles, readymade garments and leather products. Under the new PTA,  86 per cent of India's exports to Chile can avail concessions.  
 
The third meeting of the Joint Administrative Committee (JAC) on the expansion of the India-Mercosur PTA was held on 29th September in Brasilia. The ‘wish lists’ exchanged by both sides in July, 2016 were discussed. India’s bilateral trade with MERCOSUR fell to $ 10,081.42 million in 2015-16 compared to US$ 14,240.46 million in 2014-15. This constituted 37.01% and 39.96% of LAC trade during 2014-15 & 2015-16 respectively. Expansion of the existing PTA could double this trade. 
 
A meeting in Lima, Peru on 26-28 September finalised a Joint Study Group report on the feasibility of a wide-ranging trade agreement within an agreed time frame. India’s trade with Peru stood at US$ 1,523.35 million in 2015-16. 
 
Pharmaceuticals Export Promotion Council (Pharmexcil) organised a business tour of 18 pharma companies to four Latin American countries – Peru, Colombia, Panama and Mexico - from 21 August to 3 September. India´s exports of pharmaceutical formulations and bulk drugs to these four countries exceeded $450 million in 2015-16 (www.dgft.gov.in) with much more potential.
 
Recent political developments in Mercosur have thrown up governments eager to make up for lost time with India. The negotiations concluded with Chile, those commenced with Mercosur, and those to come with Peru will open LAC markets by lowering tariff and other barriers. They will also hopefully improve India’s protectionist image. Attempts to open LAC markets have encouraged Indian companies to acquire local companies and set up offices in the region. Higher exposure to Indian markets for more value-added LAC products will help create vested interests there which can further enable India’s penetration of the region.
 
 
 
November 4, 2016

 

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About the Author

Ambassador Deepak Bhojwani

Former Ambassador of India to Colombia, Venezuela and Cuba and Distinguished Fellow, Ananta Centre

Ambassador Deepak Bhojwani joined the Indian Foreign Service (IFS) in 1978. He retired in February 2012. During his career, he was accredited as Ambassador in seven Latin American countries, resident in Colombia, Venezuela and Cuba, concurrent in Ecuador, Costa Rica, Cuba and the Dominican Republic, and was Consul General in Sao Paulo. He served abroad in three Continents – Asia (Indonesia and Malaysia), Europe (Spain and Czech Republic) and Latin America.

In the Ministry of External Affairs, he served in the Divisions dealing with Administration; West Asia and North Africa; US and Canada; and had a brief stint at the United Nations.

Ambassador Bhojwani also served as Private Secretary to the Prime Minister of India, Mr P.V.Narasimha Rao for two years from 1994 to 1996, and as Special Assistant to the Minister of State for External Affairs and for Science and Technology, Mr K.R.Narayanan, from 1985 till 1988.

He writes extensively on Latin America and its relations with India. He has written a book published in 2015 titled ‘Latin America, the Caribbean and India: Promise and Challenge’.

He is currently a Consultant for Latin America and the Caribbean through his firm LATINDIA (www.latindia.in)

Ambassador Bhojwani also serves as Independent Director on the Board of Bharat Petroleum Corporation Ltd., one of the largest state oil and gas companies of India.

Since January 2017 he has been Country Manager and Director, Magotteaux Industries Pvt. Ltd.

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