Monday, June 08, 2015

Pacific Alliance, a new business and cultural partner of India

Mexico, Colombia, Peru and Chile, the four members of the Pacific Alliance (PA), is called by some as the Pumas of Pacific. It is the latest addition to the new power house of Asian Tigers, Indian Elephant and the Chinese Dragon.

PA is the new kid in the block in Latin America which has four other regional groups: Mercosur, Andean Community, Alba and Sica. PA stands out as distinct from the other four blocs as the most vibrant, dynamic and ambitious group while they are struggling with existential difficulties. 

The members of the PA distinguish themselves qualitatively from the other Latin American countries. 

The macroeconomic fundamentals of PA countries are stronger and more solid than the other Latin American countries. They have higher growth with lower inflation. They are projected to grow by three percent and more in 2015 while Latin America as a whole is expected to grow only by about one percent. The average inflation of PA region is less than 4% and half of the annual Latin American inflation.

The policies and tax regimes of the PA countries are more stable, transparent and predictable as well as investor-friendly. The four countries are the leaders of the region in the World Bank Ease of Doing Business Survey 2014. Their global rankings ( Colombia-34, Peru-35, Mexico-39 and Chile-41) are way ahead of India's lowly 142nd rank.

They have lower tariffs, more liberal foreign trade policies and have signed the most number of FTAs. Chile has signed FTAs with 60 countries, Peru with 50, Mexico with 44 and Colombia 30. All the four have  FTAs with US as well as European Union. Mexico, Peru and Chile are in the TPP and Colombia is also keen to join. Chile and Peru have FTAs with China and Colombia has just announced its intention to negotiate a FTA with China.

The Indian business is attracted by the large and growing market of PA which has a total population of 214 million, GDP of 2 trillion, trade of one trillion and average per capita GDP of over ten thousand dollars. 

India's trade with PA has been growing rapidly reaching 15.4 billion dollars in 2014 accounting for forty percent of the trade with Latin America. It has the potential to double to 30 billion in the next four years. Mexico, Colombia, Peru and Chile are the second, third, fourth and fifth largest destination of India's exports in Latin America. Mexico and Colombia have become regular source of crude oil while Chile and Peru are the sources of copper and gold imports for India. 

Over thirty Indian companies have invested in PA in areas such as IT, Pharmaceuticals, energy, mining and manufacturing. Ten companies from PA have invested in India. The most notable is Aje from Peru which has successfully entered the cola drinks business in the Indian market with its brand ' Big Cola'. 

What could be done to improve the win-win partnership with the Pacific Alliance? India could sign FTAs with Mexico, Colombia and Peru to enable its exports competitive vis-a-vis the products imported by PA countries from their FTA partner countries. India already has a PTA with Chile which is being widened and deepened. India should open a large line of credit of at least 500 million dollars to promote and facilitate investment and project exports of Indian companies. India has become a observer in PA since 2014. Using this status, India could engage with the group and consider participation in the next summit of the PA to be held in Peru this year.

India could learn from the Mexico Pact under which a dozen major reforms have been brought about in the last two years under an unprecedented consensus between the ruling and the opposition parties. The success of Mexico in making itself as a manufacturing hub of the Americas has lessons for the 'Make in India' campaign. The Left in India could find inspiration from the success of the leftist governments of President Michelle Bachelet of Chile and President Olanta Humala of Peru who pursue pragmatic and balanced mix of pro-poor and business-friendly policies. 

The four PA countries account for five out of the six Nobel Prizes for literature won by Latin Americans. Chile has won twice while the other countries have won one each. This includes Octavio Paz who was Mexican ambassador to India and has written essays and poems on India. His book ' Vislumbres de la India'( In the light of India) was the first major book on contemporary India by a Latin American and it was an eye opener. Satish Gujral had learnt from his apprenticeship in Mexico with Diego Rivera. Building on these, India could enhance the literary and cultural interaction with the countries of Pacific Alliance.

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