Connecting India and Central America: Growing economic relationship

November 08, 2021 4:14 PM

The Central American region is represented by a trade bloc called SICA (Central American Integration system), similar to its counterparts MERCOSUR and CAFTA.

The value of India's Exports to Central American countries has increased steadily since 2010.

By Syed Ali

After several centuries of Spanish colonization and subsequent liberation from the repressive regime, the Central American countries marked the bicentennial independence around the world in September 2021. This was an occasion for Central American nations representing different degrees of success and limited within a relatively small landmass albeit playing a crucial role in the geopolitics of the Americas region. In India, three Central American countries, Republic of Guatemala, El Salvador, and Costa Rica organized a celebration with music from the region by Manuel Obregon and Indian Sufi musician Sonam Kalra attended by the Minister of External Affairs Dr. S. Jaishankar. Additionally, the Indian Council for Cultural Relations (ICCR) also organized an art residency program for Costa Rican artist Raudyn Alfaro. In the last two years Government of India’s interaction with Central American nations has been emboldened with a recent visit by MoS Shri V. Muraleedharan visit to Guatemala, Foreign office consultations (FOC) headed by Secretary (East) Ms. Riva Ganguly in Costa Rica and El Salvador. This string of high level engagements is the result of the growing economic relationship between India and Central America vying increase trade further.

Since 2010, there has been a steady rise in Indian exports to Central America, with exports reaching nearly US$ 1.2 billion in 2019. On the other hand, the imports from Central America have fluctuated, with an overall rise of more than US$ 600 million being observed from 2010 to 2016, followed by a sharp decline of 45% from 2016 to 2019. A growth of 33% in imports was observed between 2015 and 2016, mainly attributed to a boost in Gold imports from the Dominican Republic, which showed an increase of 25.83% from US$ 378.87 million in 2015 to US$ 510.86 million in 2016, and a massive growth in Tanker imports (ships designed to transport or store liquids or gases in bulk), from Panama, increasing from US$ 27.18 million in 2015 to US$ 140.85 million in 2016.

The Central American region is represented by a trade bloc called SICA (Central American Integration system), similar to its counterparts MERCOSUR and CAFTA. The Total Trade Volume (Exports + Imports) between India and SICA was the highest in 2016-2017, valued at US$ 2.12 billion, followed by US$ 1.96 billion and US$ 1.89 billion in 2017 and 2018 respectively. Due to a sharp decline in SICA exports to India, the total trade volume has been decreasing since 2016, the year when SICA exports to India were the highest at US$ 988.19 million. In 2017, SICA exports dropped to US$ 800.1 million, mainly due to a halt in Oil Tanker exports from Panama and Gold in semi-manufactured form from Dominican Republic, however, export of gold in unwrought form continued. In 2018, SICA exports further dropped to US$ 698.86 million due to a decline in exports of Tropical Wood and Ferro-Nickel. In 2019, SICA Exports further declined to US$ 535.52 million as a result of large decline in Gold exports, from US$ 536.87 million in 2018 to US$ 338.55 million in 2019. On the other hand, India’s exports to SICA have continued to grow reaching more than US$ 1.2 billion in 2019.

In 2019. The value of India’s Exports was almost double the value of India’s Imports from SICA Countries. Since 2010, the volume of Trade between India and SICA has almost doubled, reaching nearly US$ 1.75 billion. Mainly due to a high increase in the percentage of India’s Trade volume with Dominican Republic (484.51%), El Salvador(180.62%), Nicaragua(123.29%), Guatemala(105.49%) and Honduras(217.23%) that has been observed between 2010 and 2019, while the Trade Volume with Costa Rica (11.70%), Panama(0.53%) and Belize(4.77%) has more or less remained the same between 2010 and 2019. Trade between India and Central America has grown over the years; however, it is far from reaching its potential. This potential can only be obtained if the restrictions on trade are lifted by policies that would lower tariff and non-tariff barriers and increase productivity levels in the cost of transportation.

Figure 2: India-SICA, Share of Total Trade (Imports + Exports) by Country (2010 and 2019)
Source: Ministry of Commerce, India

As it can be seen in Figure 2, the increase in trade has been concentrated due to Dominican Republic’s gold exports and in a lesser fashion due to Guatemala’s imports. In 2019-2020, India’s main Imports from Central America have been Gold and Tropical Wood. At US$ 338.55 million, Gold Imports from the Dominican Republic account for more than 60% of the Total Imports by Value, while Tropical Wood imports account for more than 16% of the Total Imports by Value. Other main commodities that were imported are Copper Ores and Concentrates, Ferrous Waste and Scrap, and Aluminum Waste and Scrap. Total Imports from Dominican Republic went above US$ 600 million in 2015, however, they have shown a slightly decreasing trend since then. Imports from Panama showed a healthy increase in 2016 due to import of oil Tankers, however, no Tankers were imported in the subsequent years.

Figure 3: India’s Imports from Central American Countries 2010 – 2019 (In US$ Million)
Source: Export-Import Data Bank, Indian Ministry of Commerce

Figure 3 shows Indians imports from Central America by country, equivalent to the exports of the Central American countries. As can be seen, Imports from Dominican Republic, Panama and Costa Rica make up 2/3rd of the Value of Total Imports from Central America to India, mainly the former country has had a major growth in trade due to a boom in gold exports, attributed to the extraction of gold on a large scale from the Pueblo Viejo mine in the country. The mine is run by the Pueblo Viejo Dominicana Corporation, which is owned jointly by Barrick Gold(60%), a Canadian company and Newmont Goldcorp(40%), an American company.

The value of India’s Exports to Central American countries has increased steadily since 2010. India is making its presence felt in the region, however, still very gradually. In 2019-2020, India’s exports to Central America valued at about US$ 1.2 billion, with main exports being Medicines, Motorcycles and Reactive Dyes. Exports to Guatemala, valued at US$ 290.85, million comprised nearly 1/4th of India’s total exports to Central America. The main exports to Guatemala were Motorcycles and Medicines. After Guatemala, Panama has been the second highest receiver of Indian exports in Central America, at US$ 238.29 million, comprising 19.65% of the total Value of India’s exports to Central America. India’s main exports to Panama are Cruise Ships and Vehicles. The majority of commodities exported by India to Central America are Industrial in nature.

A bird’s eye view of the existing trade between the Central American Trade bloc SICA and India showcases the vacillating nature of trade between India and SICA with only constant being the Indian IT service sector represented by a plethora of IT giants. However, in order to unravel the trade potential between India and SICA, this has to be extended to commodities and integrate SICA region as a reliable supply chain for India’s timbre, metals, and mining and energy demands. Moreover, India also presents the opportunity for SICA to up-skill their workforce in agriculture and space sciences and diversify their basket of offering to the world.

(The author is an independent analyst on Policy and Sustainability. Twitter: @Alinyst Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited)

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