Let’s do a trade tango with Mexico

Mexico is fast emerging as a major trade partner for India. India’s exports to Latin America as a whole declined in 2016. But exports to Mexico have increased by an impressive 22 per cent from last year ($2.77 billion) and doubled from $1.56 billion in 2012. ( see table ) In Latin America, Mexico overtook Brazil ($2.3 billion) in 2016 as the largest market for India's exports.

The context is hugely significant. Mexico is keen to strengthen its economic partnership with large markets such as India, after Donald Trump’s trade threats.

The Mexican ambassador to India has invited Indian IT professionals to use Mexico as the base for near-shore US operations, after Trump’s H-1B visa restrictions.

Mexico has emerged as the biggest market for India’s vehicle exports. ( see table ) Mexico accounts for 13 per cent of India’s global exports of vehicles which stood at $14.98 billion in 2016. This is remarkable in view of the fact that Mexico itself exports $80 billion of vehicles and is the fourth largest exporter in the world. India’s vehicle exports to Mexico have increased by an incredible 56 per cent from 2015 ($1.17 billion), 83 per cent from 2014 ($1 billion) and from a mere $397 million in 2012.

Besides vehicles export of $1.83 billion in 2016, India’s exports to Mexico included engineering goods, chemicals, textiles, plastics ($83 million) and pharmaceuticals ($47 million).

India’s imports from Mexico were $2.44 billion in 2016, down from $3.44 billion in 2014 due to the drastic fall in the prices of crude oil which accounts for 60 per cent of India's total imports from Mexico. Crude imports in 2016 were $1.48 billion, down from $2.74 billion in 2014. India is the third largest destination for Mexican crude exports which have the potential to increase in the coming years. The other major import items are: engineering products, ($593 million), gold ($77million), chemicals ($76 million), optical products ($57 million), and ores ($54 million).

Mexico is the second largest market in Latin America with a population of 126 million and a GDP of $1.15 trillion. It is politically stable with democratic credentials. The macroeconomic fundamentals are healthy and strong. The average inflation in the last decade was just 4.3 per cent. The Mexican economy grew over 2 per cent in the last two years, while Latin America as a whole suffered GDP contraction in 2015 and 2016.

Mexico’s GDP growth rate in 2017 is projected to be around 2 per cent. Mexico is the largest trading nation in Latin America, accounting for about 40 per cent of the region’s external trade. Its market is open with low tariffs and a predictable, investor-friendly policy regime. In the last four years, it has carried out many reforms, opening up hitherto restricted sectors such as energy. It has become a manufacturing hub of the Americas with a global leadership position in some consumer appliances; it is competitive in aerospace and high-tech industries.

Manufactured products account for over 80 per cent of exports, unlike the South American countries which are dependent on exports of raw materials and commodities. Mexico is blessed with rich reserves of gold, silver, copper and other minerals as well as oil. However, Mexico has its its own share of challenges which include drug-related violence and Trump’s threats to deport Mexicans from the US and disrupt NAFTA.

Thirteen Mexican companies have invested about a billion dollars in India. Around 40 Indian companies have invested in Mexico in pharmaceuticals, auto parts, IT and chemicals. Indian companies use Mexico as the platform for access to the markets of North and Central America with whom Mexico has signed FTAs.

Indo-Mexican trade of $5.82 billion in 2016 can touch $10 billion in the next five years. Given the importance of Mexico for India’s trade, it is imperative for India to sign a free trade agreement to remove tariff disadvantages faced by India’s exports vis-à-vis exports from the 45 countries which have signed FTAs with Mexico.

The writer was India’s ambassador to Argentina and Venezuela

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