Tuesday, 4 September 2012

LAC (Latin American and Caribbean Region) and India

The Latin American and Caribbean (LAC) region consists of three principal sub-regions: 
-The South American continent; 
-Central or Meso-America from Mexico to Panama; and 
-The Caribbean. 
The region comprises 44 disparate countries from tiny island States to mighty Brazil.  There are linguistic, historical, political and economic differences which have complicated efforts at regional integration. 5
Potential of Latin America 
- region with the largest bio-capacity and biodiversity, 
- one with the biggest fresh water reserves anywhere. 
- Almost all countries have now democratically elected governments. 
- a peaceful region, with few inter-state wars, and accordingly, with the lowest defence expenditures. 
- economy as a whole, measured in purchasing power parity (PPP) terms, is the fourth largest in the world — bigger than Japan's, and only behind the EU's, the U.S. and China's.
a desire to maintain and enhance economic growth
governments have made efforts to adopt more harmonious and coordinated policies.
- a population of 580 million, a GDP of $4.9 trillion (four times larger than that of India) and six per cent of the world's merchandise trade.
- it has shown remarkable resilience in the face of the Global Financial Crisis (GFC).

LAC and India
This is the New Latin America, open for business. The economies of the region are on a sound footing. Much progress has been made in lowering poverty. Expanded trade with Asia will support its steady growth. This leads us to India's role in the region. India's high savings and investment rate and rapidly expanding middle class (whose demands for western consumer products is growing in leaps and bounds) offer enormous opportunities for expanded international trade.
Traditionally relations between India and  the countries of Latin America have remained close and cordial. However commercial relations have not grown commensurately. The main reasons affecting our trade with this region are: distance,language barriers, inadequacy in the exchange of information and the absence of direct shipping and air links. 

Although present trade numbers may seem meager (a little over $20 billion in 2010) or of Indian FDI in LAC (some $11 billion), these are not insignificant numbers. Although it is highly concentrated, with Chile, Brazil, Argentina and Paraguay providing the bulk of the region's exports to India, and Brazil, Peru, Colombia and Nicaragua a significant amount of the imports. Preferential Trade Agreements (PTAs) with Chile and with Mercosur have boosted inter-regional trade.
There are some advantages for increased trade with LAC.
  • Latin America is becoming a significant source of natural resources for India — oil, copper, soya, and iron ore, among others.
  • Food security will emerge as a critical issue in years to come, and India-LAC partnerships in this area could be highly profitable. The Latin American industry also needs to get into the Asian value chains that have become such a critical part of international trade. 
  • India's IT and IT-enabled services industry have played a major role in India's outward expansion — and Latin America has benefited. TCS has established a presence in eight of the larger Latin American countries; Wipro and Evalueserve, among others, are also there. This implies significant technology transfer in a cutting-edge economic sector. 
  • The Latin American countries are welcoming the entry of Indian companies in their markets. IT, pharmaceuticals, energy, steel  etc. are the main sectors of Indian investments in the region
To realise the full potential of India-LAC ties, the density of these exchanges, and  interactions needs to be increased. This implies institutionalising them, making them part of the regular agenda of government and the private sector. The ECLAC report (on India-LAC trade opportunities) suggests the following steps.
1) developing joint strategies for trade and investment promotion;
2) working together on infrastructure, competitiveness and innovation; and
3) launching a series of policy dialogues on inter-regional cooperation.
The hottest topics these days is the new impetus acquired by South-South trade and investment flows in the wake of the Great Financial Crisis (GFC).  And the potential of India-LAC  cooperation has been realised by several agencies:
  • U.N.'s Economic Commission on Latin America and the Caribbean (ECLAC) released a report on India and India-LAC links.( 2011)
  • Inter-American Development Bank — India: Latin America's Next Big Thing?

Considering the potential of the market in the Latin American region an integrated  programme “Focus:LAC” was launched in November 1997 by the Commerce Ministry. The Programme has been reviewed from time  to time and extended up to March 2014. This 
programme aims at: 
•  Sensitizing the organizations viz. Export Promotion Councils Chambers of Commerce & Industry, EXIM Bank, ECGC,  etc. involved in trade promotion efforts.  
•  Granting various incentives to Indian exporters and launching of export promotion measures   
•  Focussing on the Latin American region with added emphasis on major trading partners of the region.  
•  Focussing on the following major product groups for enhancing   India’s exports to the Latin American region

The Focus:LAC programme may be broadly categorized as under:  

A. INSTITUTIONAL MECHANISM (PTA with Mercosur and Chile; Joint Commissions/Committees; Commercial Attaché; Joint Business Councils)


  • 1. Foreign Trade Policy initiatives:  DOUBLE WEIGHT, Focus Market Scheme, 
  • 2. Market Development Assistance: Grant to Individual Exporters, Participation in Fairs/Exhibitions in LAC region by Export Promotion Councils; Reverse Trade visits of prominent foreign buyers/delegates/journalists to India for participation in BSMs/Exhibitions etc
  • 3. Market Access Initiatives (MAI) Scheme is envisaged to act as a catalyst to promote India’s export on a sustained basis. The scheme is formulated on focus product-focus country approach to evolve specific market and  specific product through market studies/survey. For enhancement of export through accessing new markets or through increasing the share in the existing markets.

C. Economic infrastructure facilities

  • 1. ECGC Cover: The Export Credit Guarantee Corporation of India (ECGC) undertakes periodically a comprehensive review of the grading of the countries based on the methodology of risk scoring. As per ECGC Country Risk and  Cover Policy on LAC region (reviewed as on 30.06.2011) sixteen (16) Latin American countries have been placed in low risk categories
  • 2. Lines of Credit:  EXIM Bank extends Lines of Credit (LOCs) to overseas financial institutions regional development banks sovereign governments and other entities overseas to enable buyers in those countries to import goods and services from India on deferred credit terms. The Indian exporters can obtain payment of eligible value from EXIM Bank without recourse to them against negotiation of shipping documents.

The effectiveness of the Focus:LAC programme is evident from that:
  • The total merchandise trade with the region grew from a modest US$ 1.97 Billion in 2001-02 to about US$ 24.59 Billion in 2010-11. 
  • During the same period, the total Indian exports to the region grew from a modest US$ 960.30 million to US$ 10.71 billion, indicating a growth of about 1012% over these ten years. 
  • Similarly our imports grew from about US$ 1.01 billion to US$ 13.88 billion over this period, showing a growth of about 1151%.
Building on this base, India should consider joining the Inter-American Development Bank as an observer (as China has done). 
New Delhi should also consider working more closely with the Economic Commission for Latin America and the Caribbean (ECLAC), the region’s think tank.
The first India-CELAC dialogue will also lift the level of exchanges from the purely economic to the loftier realm of high politics and global governance.  4

Please also read CELAC.

1. http://www.thehindu.com/opinion/lead/article2916996.ece
2. http://commerce.nic.in/flac/flac1.htm

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