The Print - 29 November 2023
Looking for lithium in the Andes — Peru is key to India’s Latin America push
By Dishha Bagchi
India has been pursuing a trade agreement with Peru since 2017. The two countries held the 6th round of negotiations last month and talks are scheduled to be held again in December.
Peru has emerged as a key part of India’s trade interests in the Latin American and Caribbean (LAC) region. This is mainly because India is one the largest importers in the world of lithium batteries, which is made of a critical mineral that Peru, a small South American country, is rich in.
India has been pursuing a trade agreement with Peru since 2017. The two countries held the sixth round of negotiations last month and the next round of talks is scheduled to be held in December.
Lithium, a non-ferrous metal, is a critical mineral, along with copper, nickel, cobalt, and rare earth elements. These minerals are considered important because of their uses — from mobile phones to electric vehicles, solar panels, semiconductors, and wind turbines, all modern technologies are dependent on them. Such minerals are also essential in transport and defence.
In 2018, roughly 2.5 million tonnes of high-grade lithium were found in southern Peru’s Puno region, making the country significant for India. While the country does not currently have a law to mine lithium, Peru is surrounded by the ‘lithium triangle’ consisting of Bolivia, Argentina and Chile, which are believed to hold around 56 percent of the world’s lithium supply.
The country is also a major producer of lead, zinc, gold, copper, and silver.
India’s negotiations with Peru come at a time of rising geopolitical tensions with China — a country that controls 77 percent of the world’s lithium-ion battery manufacturing. It also comes at a time when India’s Narendra Modi government is pushing for domestic manufacturing, through its ‘Make in India’ initiative.
According to geopolitical experts, it’s crucial that India finds alternative sources of the critical mineral.
“Currently, India is not linked to the lithium supply chain. Countries like Argentina and Chile with vast reserves of lithium have been shipping it to China where it gets made into batteries,” Vivek Mishra, fellow at Delhi-based think-tank Observer Research Foundation’s (ORF) Strategic Studies Programme, told ThePrint.
According to him, a comprehensive trade agreement would allow for this linking, with the electric vehicle (EV) industry being the largest beneficiary. The Indian government has set a goal of increasing the EVs’ share in the country’s vehicles to 30 percent by 2030.
“However, without such an agreement [on lithium supply], costs of a domestic EV revolution would skyrocket,” said Mishra.
Experts also note that a trade agreement with Peru can additionally be used to tap into the Andean countries of Bolivia, Colombia, Ecuador, and Venezuela — all four of which, along with Chile and Peru, are part of the four-member Andean Integration System (Sistema Andino de Integración or SAI) grouping, and hold major reserves of the world’s critical minerals.
“As India is focusing on becoming a manufacturing hub with ‘Make in India’, it requires minerals and raw materials. Mineral exports are a key component of Peru’s economy, accounting for more than 60 percent of overall exports,” said Sandeep Wasnik, director of international trade and foreign investment at Grupo 108 — an international business development company that specialises in Latin America.
He added that Peru was working on a legislation to allow for the mining and extraction of lithium and the law was likely to be passed next year.
However, while India and Peru have strong diplomatic ties, the South American country is also a close ally of China.
Trade deficit, revolutionised industries
India currently imports nearly 70 percent of its lithium requirement from countries like China and Hong Kong — according to a statement released by the government in March last year, New Delhi imported Rs 8,811 crore worth of lithium-ion and Rs 173 crore of lithium in 2021-2022.
In June this year, India announced its first critical minerals strategy, releasing a list of 30 critical minerals that it considers essential for its economic development and national security. Lithium was on the list.
New Delhi and Lima have shared close diplomatic ties over the past six decades, with negotiations for the India-Peru Trade Agreement ongoing since 2017. The latest round of negotiations was held on 10-11 October, after a four-year gap owing to the Covid-19 pandemic.
According to data from the Union Ministry of Commerce and Industry, the past few years have seen bilateral trade between the two countries rise steadily, reaching $3.11 billion in the last financial year (2022-2023) — a slight decline from $3.6 billion in 2021-2022, but a substantial increase from $2.28 billion recorded in 2020-2021.
In the last fiscal, India exported goods such as motor vehicles and cars, cotton yarn, iron and steel, and pharmaceuticals to Peru worth $865.8 million. It imported products like gold, copper ores, pearls, synthetic filaments, phosphates of calcium, fresh grapes, fish, and blueberries, worth $ 2.25 billion to the South American nation.
Experts like ORF’s Mishra believe that while this trade deficit of $1.38 billion is “structural”, owing to the different nature of the products involved, and a trade agreement could help bring some parity.
Aprajita Kashyap, an assistant professor at Jawaharlal Nehru University’s Centre for Canadian, US & Latin American Studies, agrees.
“India is a major exporter of manufactured goods, while Peru is a major exporter of natural resources. Easing out the number of tariffs and other trade barriers that make it more expensive for Indian goods to be exported to Peru would ease the deficit,” she said.
However, India isn’t the only country seeking a trade agreement with Peru. According to information available on the US government’s International Trade Administration website, the South American nation currently has bilateral trade agreements with roughly 20 countries and blocs — among them China, the US, Canada, the European Union, Japan, and the United Kingdom. Many of these have been signed over the past 20 years.
In 2021, Peru became a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a free-trade agreement between 11 countries — Canada, Mexico, Peru, Chile, New Zealand, Australia, Brunei, Singapore, Malaysia, Vietnam and Japan.
According to Wasnik, factors such as location and population demographics have contributed to countries wooing Peru.
“Peru’s strategic location on the Pacific coast of South America and its politically secure climate make it a desirable trading and business partner,” he said. “With a young and growing population and an emerging economy, Peru promises a potential market for foreign businesses and protects investments.”
China & hurdles in negotiations
India’s attempt to court Peru comes despite the South American country’s close ties with China. Peru counts China among one of its closest allies — the two signed a free-trade agreement in 2009 and Lima is part of the Belt and Road Initiative (BRI), Beijing’s ambitious infrastructure project spanning the historic Silk Road, an ancient network of Eurasian trade routes.
According to the online data platform Observatory of Economic Complexity (OEC), over the past 26 years, exports from Peru to China have increased at a rate of 16.1 percent annually, going to $17.7 billion in 2021 from $363 million in 1995.
However, experts believe this close relationship with Beijing will not impact trade ties with India. “Peru’s relationship with China does not impact its trade relations with India because they are involved in different sectors. While Chinese interests lie in the infrastructure and development sector, India remains confined to the natural resources and automobile sector,” Kashyap from JNU’s Centre for Canadian, US & Latin American Studies told ThePrint.
According to ORF’s Mishra, critical minerals like copper, gold and lithium, among others, have been crucial to Peru’s industrial growth over the past few years. The potentiality of the lithium market has driven numerous port projects such as Chancay port, which is expected to be functional by the end of next year, Mishra added.
“The nation has signed roughly 15 FTAs [free trade agreements] in the past few years,” he further said, adding that Peru is also looking at India as a direct market for its exports — including gold.
India is the largest importer of Peruvian gold — government data shows that last year, New Delhi imported roughly $1.8 billion worth of gold from Lima.
This, according to Mishra, makes Peru view India as a “direct supply chain destination”.
He added: “Therefore, the current trade negotiations between the two countries include a relatively large number of items from gold, steel, automobiles, energy to fruits and vegetables such as avocados, grapes, and fresh fish.”
Mishra added, however, that negotiations with the South American nation could take longer than expected, about “five-to-ten years, as both countries are trying to achieve a comprehensive agreement rather than simply looking at market access”.
“We should not expect an inflection point here as India’s connectivity with Latin and South America is expected to grow over the next decade”, Mishra said.
So what appears to be the biggest challenge in these negotiations? Agricultural products due to market access, according to Mishra. This, he says, is because “farmers in India get subsidies”.
Conversely, energy appears the easiest, “as India already has an established supply chain as it imports a majority of its energy needs”, he told ThePrint.