Brazilian president Luiz Inacio Lula da Silva?s recent visit to India with a 100-strong industry team should be seen against the need to contextualise south-south cooperation amidst the fait accompli of globalisation. That apart, the visit highlights the good fit between Brazil and India in the matter of economic cooperation. The simplest interpretation of that is it revolves around the changes that have been wrought in Brazil?s trade and investment rules. This ?strategic partnership? which was formalised last week had been tacitly okayed in September 2007, during Prime Minister Manmohan Singh?s tour of the South American country. Now it has been reiterated with specific inputs on trade and technology.
Meanwhile, on the multilateral front, the strategic dialogue for closer ties in multilateral forums (the UN and the WTO) was begun in Brasilia and that will be taken forward. The trilateral trade pact among the Southern African Customs Union (Sacu), Mercosur and India will also be energised.
India and Mercosur (which, apart from Brazil, comprises Argentina, Paraguay, Uruguay?and member-in-waiting, Venezuela) have already shared their lists of ?free trade? items. So the two have gone on to discuss the contours of a comprehensive agreement for enhanced economic cooperation?including tariff reductions on identified goods. As far as bilateral matters are concerned, the volume of trade between India and Brazil is still quite modest?way below potential. The two-way amount stood at just $2.4 billion in 2006, and the number that is being looked at is $10 billion by 2013-14.
India?s exports to Brazil were $1.470 million in 2006, whereas imports were $937million, and President Lula plans to construct a ?new trade geography?. But, not only does he want the trade Atlas to depict south-south trade, he would also like to carry on the trade with rich countries.
That, in turn, would entail the identification of new channels, reducing dependence, and uniting the south to negotiate on equal terms. Indeed, the most significant sequel to Lula?s India visit has been the signing of a market access treaty with tariff preferences between India and the Mercosur (Southern Common Market) countries? made up of Argentina, Brazil, Paraguay and Uruguay.
The optimism, despite the failure to reach targets set in previous years, stems from the fact that the two economies are complementary to each other in myriad ways, a natural incentive for greater trade. Then again, Brazil is geologically rich and has a huge landmass. It has developed some unique technologies in areas like agro and food-processing, mining, industrial application of biofuels and even oil exploration and nuclear power. India is keen that alliances between Indian and Brazilian corporations should result in the transfer of such technologies. In return, India would have the technologies for wind power, solar energy and even bulk drugs for medicines, production of which is much less expensive here, thanks to domestic skills in process chemistry.
What is especially heartening encouraging is that there is no resistance from Brazilian industry to the proposal to transfer the technology for motor engines designed specifically to run on flexi-fuel (ethanol-gasoline mix). ?Its adoption would significantly reduce India?s dependence on hydrocarbons,? said Ajay Sahai, director-general, Federation of Indian Export Organisations (FIEO). Brazil has to deal with both sides of the FDI pie. Outflows have not slackened, and the Real?s recent appreciation has facilitated the expansion of Brazilian firms abroad. The FDI was initially directed mostly to Argentina and the US. Brazil?s stock of outward FDI stood at $107.5 billion by end-2006, or, 10% of GDP.
So, the saving grace?one that considerably counter-balances such capital outflows?is that there have been FDI inflows too. One example of which is the green-field investment in the auto industry. Investment in it, over 1995-2002, amounted to $16 billion, compared to $6.6 billion over 1987-1994. That doubled car production in 1997, when compared to the early 1990s. Telecommunications, meanwhile, provides an example of post-privatisation investment whereby new capacity was added with the help of FDI. The number of fixed phone lines increased from 15 million in 1995 to 50 million in 2003?and annual investment in the industry rose from $520 million in 1994 (in constant 2001 prices) to $10 billion in 2001.
No less than 227 of the top 500 firms, and 10 of the top 20, are owned by foreign nationals, and there are upwards of 24 such firms in telecom, 17 in the automotive sector, eight in computer hardware and electronics, and eight in pharmaceuticals. Indeed, the most recent figures recent suggest that TNCs now account for almost half of national sales and total business assets. Finally, the impact of FDI has been beneficial in certain functional areas like capital inflows, investment, and the expansion of output in industry and exports, but however the impact on technology transfer or spillovers to local firms has been limited.