Indo-Chilean Trade Partnership: Diversification at its Core
Centre Right Governments in India, and Chile, once Piñera takes over, resting on its pro-market credentials ensures compatibility in the terms of trade and viability of trade diplomacy. Performance of heavily traded stocks at Santiago Stock Exchange have been underlined by various financial experts on account of the return of Piñera. It would act as a lamp post for investors and prospective financial health of the Chilean economy. – Binay Prasad*
Chile has in the past two decades highlighted a reasonably stable system in political and economic terms with a remarkable rate of economic growth. The strength of Chilean economy lies in the fact that it has one of the most robust and developed financial institutions in Latin America and the Caribbean (LAC) region implanting the desired ‘economic freedom’ and ‘competitiveness’. The administrative apparatus, with ‘perceptively’ lower corruption has proved to be propelling. Despite few bottlenecks, a steady rate of growth, i.e. roughly two percent at present, which is relatively low but above average in the Latin American region is still laudable. The dip is chiefly accounted to fall in the commodity prices and deceleration in Chinese economy which was a chief importer of Chilean copper – a strong determinant of Chilean forex reserves. Added to it, internal policy modifications prioritising social programmes introduced by Michelle Bachelet (March 2014 – March 2018) contributed to the dip in the growth figures.
Public opinion quite in favour of conservative and pro-market leader Sebastián Piñera who was elected as Chilean President in December 2017 underline the consensus on the accelerated path to the neo-liberal policies. Sebastián Piñera denoted as ‘markets’ favourite’ would be taking Office in March 2018. He has promised a substantial reduction in the cost incurred to the businesses and reduce the proportion of taxation on the entrepreneurial class. The present regime is gradually moving beyond a subsidised system to a market-friendly arena in the sectors where it was not and modifies restrictive policies in compliance to the Organisation for Economic Co-operation and Development (OECD) norms of which Chile is a member. This opens the route for private investment in the erstwhile subsidised sectors. However, the onus lies on Piñera to balance the budget of social programmes while maintaining an appreciative rate of growth. Interestingly, Chile has continued to retain one of the strongest law in favour of private property in the Latin American region. The current prospects as resembled from the November 2017 figures released by the Central Bank of Chile show an apparent expansion of economic activity, notably in the non-mining sector. This is a good trend as Chilean dependence on copper prices and other mining sectors have often induced fluctuations that could be sidestepped with diversification. Chile is gradually building upon its “Productivity, Innovation and Growth Agenda” instituted by Bachelet to ensure diversification at a required pace.
Indeed, Chile like various other countries in LAC has long relied on their conventional partners in the Americas and Europe. United States’ deemed indifference to the concerns of Latin American nations and the saturation in the European market has also prompted this Andean Country to redefine its relations with developing nations where scope for trade are more varied and far from saturation. While Chile’s and Latin American nations’ export of raw materials to China is ‘perceived’ to be de-industrializing LAC and instituting a form of ‘new dependency’ the same does not stand true of partners like India.
In fact, the only thing that withstood Indo-Chilean partnership over the decades, more so in recent years is diversification. As a matter of fact, various Free Trade Agreements in place elsewhere has failed to materialise beyond a certain point, rather India-Chile Preferential Trade Agreement (PTA) has been further enhanced in 2017 increasing the goods under the agreement numerically ten times. India-Chile trade volume stood at approximately 1900 million USD in the period 2016-2017 as per statistics of Indian Ministry of Commerce.
India’s domestic market and export quality production have resulted in trading of goods and services that are so diverse that it cannot be classified into a single set. Chile has also become an avenue for Indian goods like Tea that were once supplied by other South Asian countries. Indian Tea Board has embarked on an ambitious journey targeting Chile as its next expedition. With India demonstrating a business-friendly environment and projecting itself as one of the fastest growing economies with ever increasing domestic consumption and gradual increase in the purchasing power, it comes handy to Chileans eyeing for partnership. Chile, being a high- income country and one of the five rapidly growing economies in the South American region, and India currently the world’s seventh largest economy projects a mutually beneficial and profitable partnership. India’s demand for raw materials for industrial consumption as well as the requirement for Chilean edible items for the domestic population in India would drive the supply chain from the Chilean side in a long run.
Centre Right Governments in India, and Chile, once Piñera takes over, resting on its pro-market credentials ensures compatibility in the terms of trade and viability of trade diplomacy. Performance of heavily traded stocks at Santiago Stock Exchange have been underlined by various financial experts on account of the return of Piñera. It would act as a lamp post for investors and prospective financial health of the Chilean economy.
At the same time, India is witnessing a phase of state-led promotion of entrepreneurship and is loosening the bureaucratic hurdles. Appreciably, India is also working on reducing the liability on investors and cutting down the red-tapism concerning environmental clearances. Special Economic Zones (SEZ) and Tax Waivers are only a few of the numerous business and investor-friendly reforms undertaken by the Indian Government. Flagship programme of Indian Government “Make in India” launched by Prime Minister Narendra Modi makes that evident. At the other end, India has deeply delved into internal restructuring with a focus on small and medium scale enterprises.
India’s interaction with South American regional groupings, Pacific Alliance being the one would further embolden India-Chile Trade Relationship. Most importantly, Indo-Chilean trade relation is nowhere obstructed by a political or ideological baggage, a significant determinant in the Chinese interaction with Latin American nations. Chile and India both are witnessing internal restructuring but projections for 2018 are quite good. Given the size of Chilean and Indian Economy, it is an opportune moment that trade partnerships are elevated to the next possible level so as to accomplish the realisable goals of Free Trade eventually.
*Binay Prasad is a PhD candidate in the Latin American Studies Programme at the School of International Studies, Jawaharlal Nehru University, New Delhi.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Kootneeti Team.
The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of The Kootneeti Team