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India, Brazil aim to strengthen bonds

Financial Express, India

India, Brazil aim to strengthen bonds

Trade between the two countries will be the cornerstone of their relationship as Brazilian President Lula comes visiting in June

By Huma Siddiqui

30 May 2007

One of the major outcomes of the visit of the President of the Federative Republic of Brazil Luiz Inacio Lula da Silva’s visit a couple of years ago (2004) was the signing of a market access treaty that established tariff preferences between India and the countries of Mercosur (Southern Common Market), made up of Argentina, Brazil, Paraguay and Uruguay. Brazil’s Mercosur partners sent representatives as part of Lula’s retinue.

Soon after that, within a short time both countries identified products that were to have reduced tariffs in bilateral trade, and decided on rules of origin and dispute settlement mechanisms. The accord, a first step towards future free trade, “inaugurated a new era in South-South cooperation”.

Five other agreements-on cooperation in space research, including the joint launch of satellites, and on cultural exchange and tourism-were also signed in New Delhi. More than a hundred Brazilian business executives accompanied the President on his visit then and the same number of business companies is coming with Mr Lula this time too.

Both sides have been exploring a range of possibilities for bilateral trade, investment and technology transfer. But trade between Brazil and India today is relatively modest. According to MEA officials, bilateral trade could grow five-fold in five years. The current annual flow of $5 billion in trade between the two countries is no exaggeration, considering the size of the two markets-Brazil has a population of 174 million whereas India has 1.1 billion.

Trade forms an important aspect of the intensive diplomacy that the Brazilian President is carrying forward, both in terms of strengthening the national economy and firming up international alliances. “His top priority right now is to consolidate and expand the Group of Three (G3), comprising Brazil, India and South Africa,” according to officials.

BRIC countries comprising Brazil, Russia, India and China are set to emerge as the world’s top four economies by 2050 and have the potential to shape the global power system.

“There is an inbuilt complementarity between these four countries. To sustain their growth, India and China needs a lot of raw materials which Russia and Brazil have in abundance,” R Viswanathan, joint secretary in charge of the Latin America and Caribbean division in the external affairs ministry, told FE.

According to him, the growth of BRIC economies has profound implications for the evolving world order and would signal a shift in economic power towards Asia and would entail a reshaping of international institutions. The explosion in the middle class in these countries will be a key driver of global growth in the decades to come.

Holding out the possibility of Brazil, a country which is two-and-a half times the size of India, emerging as an agricultural superpower, Viswanathan said that `God and history’ had been kind to Brazil in so far as in its 180-year-old history as an independent nation, it has enjoyed stability and now is surging ahead to take its rightful place as a leading country on the world stage. Besides agriculture, Brazil has already emerged as the world leader in eco-friendly ethanol fuel and plans to collaborate with India and other important powers to form an international forum for marketing bio-fuels.

Fuel alcohol mixed with gasoline is becoming more and more common in India, which throws open the door for massive Brazilian exports of this alternative fuel and related technology. The two countries are leaders in the production of sugarcane, the raw material for alcohol, and over the past three decades Brazil has developed an intensive programme for substituting gasoline with ethanol.

In fact, the Brazilian firm Dedini transferred technology to India last year that has led to the construction of alcohol distilleries and there will be as many as 15 of these fuel alcohol plants operating in India in two years, announced the company.

With Brazil and India recognising that their relationship has now reached the level of a strategic partnership, they have resolved to create an enabling environment to deepen and diversify the growing commercial and economic interactionencompassing trade, investment and technology.

According to Ficci officials, “Brazil and India would be amongst the fastest growing economies of this century. On the bilateral front, one of the prime aims today is to intensify the economic and trade cooperation between the two countries.”

Both countries may find it useful to co-operate in sectors such as science and technology, aviation, tourism, food processing, drugs and pharmaceuticals, hydrocarbon and infrastructure sectors.

While India’s competencies in the pharmaceutical sectors, gems cutting and polishing, IT and IT education, cotton and textile machinery, infrastructure and project exports are well-recognised, Brazil’s strengths lies in commodities, edible oil, food processing sector, aviation as well as utilising ethanol as additive in petrol.

Meanwhile, bilateral trade between the two countries for 2006 are fairly impressive considering geographical distances-exports from India : $ 1, 470 million ; imports by India : $ 937 million. The principal items of India’s exports are : diesel ($767 million), organic chemicals ($ 230 million), pharma ($ 91 million), engineering products ($ 107 million), polyester yarn ($ 44 million), and plastic items ($ 35 million) whereas the top 10 items of India’s imports are : crude oil ($ 200 million), minerals and ores ($ 146 million), soya oil ($ 108 million), airplanes ($ 83 million) and iron and steel ($ 87 million). Reliance accounts for about 40% of the trade, with their export of diesel oil and import of crude oil, according to Ficci reports.

From the Indian side, the pharmaceutical companies have made a success story of their entry in Brazil. Almost all the major pharma players from India have established their presence in Brazil with supply of bulk drugs, finished formulations and establishment of manufacturing units and joint ventures.

Brazil’s pharma market is expected to increase from $ 9.2 billion in 2004 to $ 11.7 billion in 2005 and to $ 13.5 billion in 2007. And it is this success of pharma players in Brazil, that has encouraged other industry houses such as Tatas, Birlas, Reliance, Bajaj, Bilcare, Essar, NIIT, Aptech, Infosys and i-flex to enter the Brazilian market in a serious manner for business and investment. TCS has a joint venture with TBA, a Brazilian company for software services in Brasilia, Brazil’s capital.

The joint-venture employs over 300 Brazilians. The entry of the big players from both the sides has given a new dimension and momentum to Indo-Brazil business. To this end, exchange of business delegations, increased participation in each other’s trade events and promotion of mutual investment and setting up of joint ventures has been undertaken in a concerted manner.

According to MEA officials, India and Brazil has emphasised the significance of bilateral technological cooperation in all aspects of energy research and development, with a view to improve and diversify the energy supply and to develop more efficient, affordable and cost- effective energy technologies. To this end, they decided to create a joint committee on bio-fuels.

A few Brazilian companies are planning to establish businesses in India and will open representative offices in the next few months, a senior official from the Latin American country said.