By Aileen Agüero García
Recently, different arguments have been discussed in terms of why India should focus more in the Latin American region.Among them are pro poor policies in the latter that lead to expand India’s exports potential; strategic importance in energy and food security; increasing trade in commodities, among others. At the same time, the lack of a uniform approach from India towards Latin America is stated as one of the main challenges.
In particular, it becomes relevant to
analyse India’s relations with Peru, one of the region’s fastest-growing
economies in the last decades. Diplomatic relations started in the
seventies decade, while trade and economic exchange expanded during
the nineties, when Peru joined APEC and became more interested in the
Asian region. The main cooperation topics in bilateral agreements among
these countries include education, geology, natural resources,
investment promotion, health, taxation, and in the last few years,
negotiations have started for a Free Trade Agreement (FTA).
In terms of this agreement, the first round
of negotiations started in August 2017, while the second and third ones
are taking place during 2018 (April and December). It is important to
mention that India has been mainly exporting to Peru motor vehicles,
iron and steel products, cotton and manmade yarn, drugs formulations,
iron and steel, auto tyres and tubes, etc.; all these constitute key
inputs for the Peruvian industry, and there is also considerable
potential for Peru to import technological goods for promoting the
digital transformation of its firms. Peru’s exports to India, on the
other hand, consist of gold and copper to a great extent, and more
recently of cocoa, grapes, coffee and fishmeal.
Lima, the capital city, is currently a hub
for different operations, which could be useful for India to reach more
markets. Therefore, both countries could become strategic partners to
continue growing together.
In addition, one aspect that needs to be
discussed is related to the new opportunities that emerge as a
consequence of the exchange of goods and services between both countries
in the context of the Information Society. Nowadays, information is
considered an asset and it is almost freely available for people who
manage to connect to the Internet. Technologies and several digitization
processes have had a huge impact in different aspects of our daily
lives, and trade is not an exception.
According to the 2017 Information Economy
Report (United Nations), a limited number of businesses in developing
countries trade across borders; exports are usually driven by few firms;
and a significant proportion of firms (70%) do not last more than a
year as exporters. Explanations on these issues are related to limited
geographical diversification of exports of sellers that are still
offline. In this sense, the promotion of access to the Internet could
contribute to change these patterns of international trade.
E-commerce (commercial transactions
conducted electronically through the Internet) comes to play a
fundamental role, as it has the potential of expanding market
opportunities, providing new services, reducing transaction costs,
having faster processes, etc.; in other words, it could constitute a
tool to promote entrepreneurship, creativity and innovation.
However, in economic transactions it is
necessary to have information on both the quality of traded goods, as
well as on the reputation of the counterpart. In the case of e-commerce,
given its characteristics, problems of information asymmetries are more
evident than in traditional transactions. First, there may be no
knowledge about how the data that is provided online would be used; as a
consequence, this lack of information negatively influences customers’
perceptions of security and trust. This asymmetry could become a great
barrier to the development of ecommerce,
but if there is a secure virtual environment (websites with
clear information about the conditions of the transaction), the
potential benefits of this tool would be higher.
In addition, there are information gaps
related to products’ characteristics, since it is difficult to have
complete details about their real quality. This failure can lead to
opportunistic behaviour from one of the parties involved in
e-commerce transactions, such as the distortion of information and
violation of rules and regulations. In addition, online fraudulent
transactions may occur since the identity of online business parties can
not be fully verified.
On the one hand, since 2013, India has been
working on a national-level Cyber Security Policy, while Peru is still
revising a national plan. FTA discussions should include this topic and
take the opportunity to align both strategies, to enhance not only
traditional trade but also e-commerce.
Information on e-commerce indicators in Peru can provide an idea of its development.For instance, only 15% of Peruvian firms buy goods and services through
e-commerce; these firms are basically in the following sectors:
information and communications, electricity supply and human health
care. Regarding online sales, only 7% of firms reported using the
Internet to sell their products, and the main sector is accommodation
and food services; medium-sized firms are the ones using more electronic
channels (as compared to large firms), which shows ecommerce
could contribute for more inclusive trade.
In conclusion, we have seen that an FTA
among India and Peru could benefit both parties but also these potential
benefits may be higher if efforts are put in terms of e-commerce
promotion as well as the enhancement of security in the digital
world. Negotiations should also include these topics in order to achieve
Annual Economic Survey 2016 – National Statistics Office (Peru)