India Inc. dreams of reaching US market through Mexico
Trading Markets | Tuesday, September 18, 2007
INDIAN INC. DREAMS OF REACHING US MARKET THROUGH MAXICO
Sep 17, 2007 (Asia Pulse Data Source via COMTEX) — WIT | charts | news | PowerRating — Encouraged by the visit of Mexican President Felipe Calderon, a large number of Indian companies like TCS, Wipro are dreaming to expand their presence in the US and vast Latin American market by investing in Mexico, which enjoys duty concessions in the vast market of the US and other countries with 75 per cent global GDP, under NAFTA and other trade pacts.
During the visit of Mexican President, both countries agreed to more than double their bilateral trade to five billion dollars a year by 2010, and signed double taxation avoidance agreement, extradition treaty, besides pledging to work together on international issues like terrorism.
Mexican President Felipe Calderon came on a two-day visit to India — the first by a Mexican president in two decades, accompanied by over 100 business representatives — met Indian Prime Minister Manmohan Singh and other political leaders and Indian business chambers.
Inviting Indian companies to invest in Mexico, he said his country offered free trade access to more than 44 countries which makes it a privileged market with free access to more than one billion people of the world. In May this year, India had signed a bilateral investment protection agreement (BIPA) with Mexico, which was also expected to boost the investment by Indian companies in NAFTA region.
Apart from Mexico, the US and Canada are other members of the North American Free Trade Agreement (NAFTA). Notably, the North American trade bloc was created by the North American Free Trade Agreement signed on January 1, 1994.
The grouping initially instituted a schedule for phasing out tariffs to encourage free trade between the three North American countries. Today, it has become a powerful trade body, having strong trading relations with European, African and Latin American markets.
Analysts said being part of NAFTA and having a large number of important partners, including the EU, Mexico offers excellent opportunity for India to go for enhanced market access through investments and joint ventures.
That is one of the reasons that Indian government has decided to further strengthen economic ties with the North American nation. Indian entrepreneurs have also woken up to the manifold attractions of Mexico. Its proximity to the rich US-Canada market and its membership of the NAFTA makes it an ideal hub for Indian industries. Covering almost two million square kilometers, Mexico is the fifthlargest country in the Americas by total area and 14th largest in the world. With a population of almost 109 million, it is the 11th most populous country and the most populous Spanish-speaking country in the world. Mexico has a free market economy, and is firmly established as an upper middle-income country. It is the 12th largest economy in the world in terms of Gross Domestic Product in purchasing power parity.
After the 1994 economic debacle, Mexico has made an impressive recovery, building a modern and diversified economy. Recent administrations have also improved infrastructure and opened competition in seaports, railroads, telecommunications, electricity generation, natural gas distribution and airports. Oil is Mexico’s largest source of foreign income. Mexico, the cradle of ancient Maya and Aztec civilisations, has been quick in response. After years of dilly-dallying, it has liberalised its visa regime for Indian business persons.
In fact, Mexico has set a high premium on Indian investment. Three months ago, Calderon himself inaugurated a ’global tech development center’ set up by Tata Consultancy Services in Guadalajara. The Aditya Birla Group is also said to be eyeing Mexico as a base to produce tyres for the US market. Ranbaxy, Reliance, ONGC Videsh and Wipro are all looking at Mexico with renewed interest. It’s not just business that is bonding the two nations together. Strategic calculations and a sense of shared interests in global area promise to push them closer.
It was the Mexican president who floated the idea of a G-5 grouping of nations comprising China, South Africa, Brazil, India and Mexico, as outreach nations to the G8 at the last summit of the world’s wealthiest nations. The proposed grouping, when it turns real, could open another important window of cooperation between India and Mexico. India has maintained good relations with Mexico. Government leaders of the two countries have met in both the countries on several occasions. A reflection of good relations is the growing India-Mexico trade. From the level of 251 million dollars in 1999, the total trade between the two countries has now crossed 1.5- billion dollar mark. Important sectors with strong Indian exports are engineering goods, chemicals and pharmaceuticals, gems and jewellery, and textiles.
Mexican exports to India are dominated by crude and petrochemicals. According to the latest figures, investors of Indian origin have injected over 1.6 billion dollar in over 67 business ventures in Mexico - the scenario dominated by LN Mittal group in steel and related sectors in the country. Besides, new joint ventures have recently been signed in pharmaceuticals and IT sectors. With proximity to the US, the joint ventures would enable Indian companies to increase their presence in the US, the country?s largest trading partner. It?s here that the benefits enshrined under SAFTA would help the Indian investors. Assuring a congenial business environment, Indo-Mexico Business Board, Comce, Mexico, Chairman Luis Wertman said," The government plans to increase the Indian investment in Mexico to USD 10 billion within 5 years." Mexico is looking at sectors like steel, automobile education, IT, pharmaceutical, tourism and infrastructure to draw investment, he said. "We look forward to companies like Tata and Mahindra to invest in Mexico and are ready to provide all the facilities", Luis added.
Mexico and India are both emerging economies that have seen rapid expansion in recent years. However, two-way trade totalled only 1.8 billion dollars in 2006. Mexican exports to India comprise mostly crude oil. Engineering goods, gems and jewelry make up most of its imports from India. Another agreement on Double Taxation Avoidance Agreement (DTAA), aimed at avoidance of double taxation and tax evasion, was signed by Indian Finance Minister P. Chidambaram and Mexicean Foreign Minister Patricia Espinosa Cantellano. The DTAA provides for taxation of dividend, interest, royalties and fees for technical services-both in the country of residence as well as in the country of source.
However, the rate of tax in the country of source shall not exceed ten percent of the gross amount of payment in case the beneficial owner of the payments is a resident of the other Contracting State. The legal assistance treaty, signed by both countries, will help deal with crimes related to terrorism, and the extradition treaty is aimed at suppressing crime by ensuring that fugitives are available for trial, an official statement said.
Later, Calderon also visited the technology city of Bangalore to get glimpse at the success of Indian outsourcing companies. Several Bangalore-based information technology companies operate centres in Mexico to provide service to U S -based clients. Referring to vast potential through investment in Mexico, CII Senior member V K Mathur said: "Oil is the need of the hour and India has to focus on new markets to get the momentum going. We have to go beyond Europe and build economic cooperation." Engineering goods, chemicals, pharmaceuticals, gems and jewellery, and textiles are the main exports of India. Crude oil accounts for 90 percent of the imports from Mexico. Indian and Non-resident Indian investment in Mexico is about 3 billion dollar.
Two steel plants of NRI businessman Lakshmi Mittal account for bulk of the Indian investments in Mexico. Videocon has acquired a Mexican TV manufacturing plant for about USD 300 million and Dr Reddy’s Laboratories has acquired a pharmaceutical unit for 59 million dollar.
