WASHINGTON, CMC – A new study by the Inter-American Development Bank (IDB) is urging governments in Latin America and the Caribbean to foster closer relations with India so as to take advantage of the commercial opportunities and competitive challenges arising from stronger integration with the South Asian country.
“With 1.1 billion people and a scarcity of natural resources, relative to other continent-size nations, India has the potential to be a large buyer of agricultural and mineral goods,” according to the study.
Currently, India represents just 0.8 per cent of this region’s overall trade, compared with China’s 7.7 per cent share, the IDB added.
The study “India: Latin America’s Next Big Thing?” looks into recent development and economic trends in India and their possible impact for Latin America and the Caribbean.
It argues that India has the potential to mirror the recent economic performance of China, which has become a major market for Latin American and Caribbean exports but also poses a challenge for the region’s manufacturing sector.
“The region and India are increasingly together at the table when major decisions are taken,” said IDB President Luis Alberto Moreno
“We are starting to see greater integration among them and there is a tremendous opportunity for more trade and cooperation. Latin America and the Caribbean are poised to advance confidently into a promising future and India is increasingly interested in being an active partner in that process.”
In order to boost trade, both India and Latin America and the Caribbean must lower tariffs and trade barriers, the study said.
India’s average tariff on Latin American agricultural goods is 65 per cent, more than five times China’s 12.5 percent tariff.
The study said there is also a need to reduce transport costs since unlike, China, there is no direct shipping between the two regions.
“Goods have to be shipped first to Singapore or Europe, which increases both freight rates and shipping times.”
High trade costs are also preventing Latin America and the Caribbean from reaping full benefits from its current trade with India and undermining the flow of investments between the two regions.
The study said that a one per cent growth in China’s gross domestic product generates a 2.4 per cent increase in this region’s exports to China, while a similar increase in India’s gross domestic product yields just a 1.3 per cent growth in the region’s sales to the country.
“There is a policy action that can be taken in the short term: removing most obvious and costly obstacles to trade,’’ said IDB economist Mauricio Moreira Mesquita, who coordinated the study.
“As trade brings these two economies together, the investment incentives between India and Latin America and the Caribbean will grow.”
The IDB study also calls for the two regions, which have signed numerous cooperation agreements covering 21 economic sectors in the past decade, to increase opportunities to exchange valuable development and economic lessons.