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If you take a bus in Kolkata or Mumbai, there’s a good chance it was built in India, but with Brazilian technology.

“In the late 1990s, Marcopolo made a strategic decision to internationalize its operations by opening plants to manufacture buses and other transport solutions in major global markets,” said André Armaganijan, director of international business strategy for the Brazilian vehicle manufacturer.

“The sheer size of India and its population immediately pointed to it being a key destination for the company.” The size of India's economy is now over US$11 trillion, making it the third-largest GDP in the world, when measured by purchasing power parity (PPP).  

Marcopolo partnered with Indian counterpart Tata Motors several years later. Today, Tata Marcopolo has a production capacity of more than 12,000 vehicles per year.

The joint venture exemplifies a nascent trend, as firms in the Latin American and Caribbean region and India begin to explore new market potential. Indian carmaker Mahindra has set up 50 dealerships in Chile and hired local motorcycle icon Pablo Quintanilla to pitch its SUVs to the country’s growing middle class. Peruvian mining-equipment firm Resemin is aiming to grow at a 50% annual clip in India on the strength of its specialized drilling rigs.

Trade, too, is “scaling up rapidly,” says IDB trade economist Paolo Giordano. Commerce has ballooned from $2 billion in 2000 to $40 billion today, and Latin America and the Caribbean now export more to India than to Japan or Korea. However, those numbers pale in comparison to the potential, according to a new joint study by the Inter-American Development Bank and the Export-Import Bank of India.

 

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“We estimate that with targeted reforms, it could flourish into a vibrant relationship that better reflects its natural and human potential,” says Giordano, who coordinated the study.

Currently, trade is concentrated in a few countries and products. Venezuela, Mexico and Brazil accounted for two-thirds of the region’s shipments to India in 2018. Those shipments consisted mainly of petroleum and copper. India, for its part, mainly exports industrial manufactured goods to Latin America and the Caribbean, but has the potential to export much more.

How much more? The study projects that with a set of reforms geared toward reducing trade costs, exports to India could grow by 42 percent, or $7.6 billion, in the medium term. Likewise, Indian exports to the region could increase by 46 percent.

 

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A look at the two economies reveals a high degree of complementarity – to the extent that exports from Latin American and Caribbean countries to India could potentially reach around $69 billion or more. India could expand its own exports to $263 billion or more.

What’s holding the numbers in check? The cost of trade. On average, the cost of a good in 2016 had doubled by the time it made its way from the Latin America-Caribbean region to India and vice versa, the report estimates. Behind that figure are tariffs, non-tariff barriers, and inefficiencies along transport and logistics routes.

 

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In terms of tariffs, Latin American and Caribbean exporters face average duties of 12.3 percent in India. Indian firms pay an average tariff of 8.1 percent when exporting to the region. Averages, however, only tell part of the story. In India, tariffs tend to be low for fuels and very steep for agriculture products, where Latin American countries tend to be most competitive. As a result, some countries pay more than others; Central American and Caribbean countries pay higher tariffs than Brazil, for example. Likewise, India pays less to export to the Pacific Alliance countries –Chile, Colombia, Mexico and Peru– than to others.

 

A look at the two economies reveals a high degree of complementarity – to the extent that exports from Latin American and Caribbean countries to India could potentially reach around $69 billion or more. India could expand its own exports to $263 billion or more.

 

The report recommends increasing the coverage of trade and investment agreements; enhancing trade-facilitation measures; undertaking proactive and targeted trade-promotion activities. In logistics, both sides are impacted by customs bureaucracy, and the infrastructure networks of both regions lag those of more developed nations. Investment and reform in these areas could yield sizeable benefits.

By unclogging the choke points, the biggest winners in Latin America and the Caribbean are the mining and food sectors, according to the report. India could see big gains in the petrochemical and auto sectors.

Some barriers are informational, including insufficient business-to-business and people-to-people connections. One important step in improving those ties occurred on June 11, at an event co-organized with the Federation of Indian Chambers of Commerce & Industry. Top CEOs, senior IDB officials and authorities met in New Delhi to discuss the report’s findings and the trade and investment potential it describes.

Even if governments do their part, Marcopolo’s Armaganijan says, a less visible kind of change is also necessary: “Understanding the culture of the countries where you want to operate is fundamental to succeeding. It’s the only way you can hope to achieve your company’s global goals.”

To know more, download our study, A Bridge Between India and Latin America: Policy Options for Deeper Economic Cooperation here!

 

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