Tuesday, May 21, 2013

Peru - the new Billion Dollar trade partner of India in Latin America

India's trade with Peru crossed the one billion dollar mark in 2012 reaching 1.128 billion dollars. With this, Peru has joined the Billion-Dollar club of the other six countries namely Brasil, Venezuela, Mexico, Chile, Colombia and Argentina with whom India's trade is over one billion dollars.
The increase in trade with Peru was an impressive fifty percent from 750 million dollars in 2011. In 2007 the trade was 470 million dollars and it has been increasing steadily. The bilateral trade could reach 2 billion dollars by 2015.
India's exports to Peru reached a record 742 million dollars in 2012 from 510 million in 2011 and 250 million dollars in 2007.  This is more than the exports to Argentina ( 573 million dollars in 2012), the third largest market of Latin America. 
The main exports of India in 2012 were: iron and steel products including pipes - 100  million dollars;  motorcycles and cycles- 72 million;  cotton yarn and fibre-74 m, vehicles-59 m and polyester yarn- 41 m.
India's imports from Peru in 2012 were mostly minerals and metals. The major items were: copper-140 million dollars; gold-107 million; other minerals- 120 m. Peru has started exporting fresh fruits such as grapes. Fishmeal is another regular import from Peru. 
Peru has transformed itself politically and economically in the recent past. Democratic instituitions have taken strong roots. The current President Ollanta Humala pursues a pragmatic and balanced policy (Lulaism) of pro-poor and pro-market- policies. He has helped millions of poor people to come out of poverty through government projects as well as through job creation by the flourishing private sector. His spending power for his Inclusive Agenda has increased thanks to the higher tax revenue generated by the dynamic corporate sector. Although he is a leftist, he has not allowed his convictions to distort the foreign policy. He maintains good relations with US and the neighbors and does not get into any ideological fights or promotion as Chavez did. Labelled as the Chavez of Peru by the opposition, Humala lost the elections in 2006. But in the 2011 elections he rebranded himself as the Lula of Peru and won easily. 
The country is enjoying a virtuous circle of economic growth. Over the period 2002–12, the Peruvian economy almost doubled in size, real GDP grew at an average annual rate of 6.3 percent (the highest 10-year average growth in Peru’s history) despite the impact of the US and European crises, and the average annual inflation rate fell to 2.7 percent, one of the lowest in the region. In 2013, the projected GDP growth rate is is six percent after a growth of 6.3% in 2012. The macroeconomic fundamental are strong and healthy.
Foreign investment is pouring into mining, hydrocarbons and big infrastructure projects. The FDI in 2012 was 12.2 billion dollars, an increase of 49% over 2011. Peru is one of the seven countries in Latin America which has an Investment Grade rating. There are four big mining projects which will double Peru’s output of copper, its largest single export, in the next four years. Peru is one of the leading mining countries of the world with reserves of minerals such as copper, gold, zinc, silver, lead and tin. The Peruvian mining sector expects to see an investment of 52 billion dollars in the next ten years. There are oil and gas potentials too which are being explored. Peru has already started exporting gas.
The Peruvian government has an innovative corporate taxation policy. It gives companies the option of paying part of their tax bill in the form of regional infrastructure works in the poorest regions. The companies can choose from approved lists of public works projects in various regions, or make their own proposals. The companies love this new mechanism which enhances their Corporate Social Responsibility image more than what they would gain by simple payment of taxes. The people also like it since the projects are done more efficiently and cost-effectively. 
There are investment opportunities in Peru for Indian companies in mining, energy and services sectors.The foreign investment policies of the Peruvian government are positive, transparent, predictable and stable. Four Indian companies have invested in mining with modest amounts. This includes IFFCO which has invested in a potash mine in Peru in collaboration with a Canadian company. TCS and Aegis have opened IT/BPO centres in Lima. Some Indian pharma companies have offices in Lima. There is a vibrant Indian community and some of them are in business. An Indian owns a chain of cinema halls while another has set up pharma manufacturing and distribution units. A Peruvian soft drinks company has opened a bottling plant in Maharashtra to produce and market its BIG Cola brand of fizzy drinks. Their audacious act of competing with Coke and Pepsi in India ( although the competition is not significant) is admirable since even Indian cola producers have given up.
India's exports to Peru should cross a billion dollars in 2014, given the high rate of growth in recent years. But India's exports are at a disadvantage vis-a-vis the exports from Peru's FTA partners. Peru has signed FTAs with a number of countries including China, US, Japan, Thailand, Singapore and is a member of regional economic groupings such as Pacific Alliance, APEC and Andean Community.   It is in India's interest to initiate negotiations to sign a FTA/PTA with Peru as India has done with Mercosur and Chile. 

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