India - Mexico Trade and Economic Relations
I. Economic overview:
The Mexican economy continued to expand at a moderate annual rate of growth of 2.0 percent in 2017. It grew at the rate of 2.9 and 3.3% in 2016 and 2015 respectively. Growing internal consumption and increase of exports of Mexican goods and services became the main driving force of economic activity on the back of stronger job creation, real wage growth, and credit expansion. However, slowing down of investment activities in 2015 was a real concern for an economy, which has to address the rising inequality in the society. Mexico received USD $ 29.7 bn of foreign direct investment in 2017. The NAFTA re-negotiation, which began in 2016, did impact the attractiveness of Mexico as an attractive destination for investment, however, the flow continues.
2. According to the IMF, Mexico's economy was ranked 15th in the in 2016 in nominal GDP (only Brazil has a larger GDP among Latin American countries) and 11 th largest by purchasing power parity. It is currently one of only two Latin American members of the OECD (the other is Chile). Mexico is also one of the WTO members with the greatest number of Free Trade Agreements with a network of 13 FTAs with 46 countries.
3. The interconnectedness of the Mexican and US economies is the important feature of its economy. The economic integration is derived from close linkages across four important economic channels: trade, remittances, investment, and financial channels. The trade channel is especially well developed, with around 78 per cent of all Mexican exports destined for sale in the US domestic market. Similarly, Mexico has become the United States' second-largest export market and third-largest source of imports.
4. Mexico can attribute its transformation from a highly protected economy to its more open, regionalised and market-based economy of today to widespread trade liberalisation over the past several decades. This has encouraged MNCs to set up plants to take advantage of relatively low labour costs and proximity to the US market. Though Mexican economic activity is increasingly dominated by the private sector, it may also be characterized as a mixture of modern, export-oriented industry and agriculture based economy.
5. Much of Mexico's modern economy has been driven by competition and export opportunities stemming from Mexico's extensive network of Free Trade Agreements (FTAs), covering more than 90 per cent of the country's trade. They include FTAs with Chile, the United States and Canada (NAFTA), the European Union; Israel; Colombia; Bolivia; Guatemala, El Salvador and Honduras; Uruguay; the European Free Trade Area (Norway, Iceland, Switzerland and Liechtenstein), Peru, Japan and Panama. Recently it signed TPP and negotiating FTAs with Brazil and South Korea. Mexico is also a founding member of the Pacific Alliance, a trade liberalising pact between Chile, Colombia, Mexico and Peru. India became an observer to the Alliance in 2012.
II. India-Mexico Trade & Investment Relations:
6. Mexico’s links with India go back many centuries, to the time of the galleon trade between the Philippines and Nueva España (New Spain), when trade and commerce between Mexico and all the major countries of Asia, including India, flourished. This was the age in which Santa Catarina, the Catholic figure of Puebla, is reported to have come from Mughal India, bringing with her the so-called La China Poblana, which soon acquired the status of traditional women’s dress in Mexico. This was the age in which the rich cotton scarves of Pulicut and Calicut in southern India were exported to the markets of Mexico and became known here, over time, as the “Paliacate”.
7. We have a problem-free relationship based on goodwill for each other and tremendous prospects to enhance economic cooperation between India, the world’s 9th largest economy, and Mexico, the world’s 15th largest economy. In the 1960s, India’s efforts to achieve food security were greatly assisted by the high-yielding hybrid wheat seed, Sonora created by Norman Borlaug and his team in CIMMYT, Mexico.
8. India and Mexico agreed to work together to elevate their ties from a ‘Privileged Partnership’ to ´ Strategic Partnership´ during the Prime Minister’s visit to Mexico on 8 th June. There are regular meetings of bilateral interactive mechanisms, which include a Joint Commission and a High Level Group on Trade, Investment and Economic Cooperation as well as consultations between the two foreign ministries. There also exist between us several bilateral agreements, including for investment promotion and protection, double taxation avoidance, extradition, administrative assistance in customs matters, air services, and for cooperation in many other sectors.
9. In order to reinvigorate the trade and investment relationship between India and Mexico, a High Level Group between India and Mexico created in May 2007 under a Memorandum of Understanding to promote trade, investment and economic cooperation between the two countries and it held its first meeting in September 2007 during the visit of Mexican President Calderon to India. The first HLG created six working groups on: Trade Promotion, Investment Promotion (including infrastructure), Services, Customs Cooperation, Industrial dialogue with private sector participation (chemical-pharma, IT, textiles, and bio-fuels) and tourism. The 7 th Joint Commission Meeting between India and Mexico which was held in Mexico on 23 June explored the areas of cooperation further and discussed some of the bilateral trade and market access issues.
10. An outstanding feature of our current engagement is the sharp spurt in our bilateral trade and investment in recent years. India-Mexico bilateral trade has grown to US $ 8.37 bn in 2017 (CY), an unprecedented 33% increase against 2016. The trade balance is in favour of India (1.67 bn) at the moment. At the same time, about 75 % of Mexico exports comprise just one item, crude oil. India imports about US $ 2.6 billion worth of oil from Mexico and is already Mexico’s third-largest market globally. Since India is the world’s fourth-largest consumer of oil and one of the world’s fastest-growing economies, there is scope to buy much more oil from Mexico in the future to meet our energy requirements.
11. Indian companies see Mexico as a major investment destination with access to NAFTA and Latin America. Several Indian companies have already invested in Mexico in recent years. The three strongest performing areas for Indian investments in Mexico are information technology, pharmaceuticals and automotive sectors. Almost all major Indian IT and ICT companies (TCS, Infosys, Tech Mahindra, NIIT, Aptech, Hexaware, Wipro, Patni Computer Systems Birlasoft etc.) have operations in Mexico. Several Indian pharmaceuticals firms (Lupin, Dr. Reddy’s Laboratories, Zydus, Claris Life Sciences, Hetero Drugs, Sun Pharma, and Solara) have investments and operations in Mexico. In food processing sector, Parle has recently started manufacturing in the State of Mexico. This is their first plant in western hemisphere. Sakthi group is investing in the auto parts sector in Durango.
12. Indian companies have also invested manufacturing auto parts, tyres, packaging, and electricals. TORNEL, which makes tyres for cars and trucks in Mexico, is owned by JK Tyre, an Indian company. Bajaj Auto has a tie-up in Mexico for assembling and marketing two-wheelers (motorcycles) and three-wheelers. The Samvardhana Motherson Group (SMP) of India has investments in Puebla, San Luis Potosí and other northern states, manufacturing auto components for Original Equipment Manufacturers like Audi and VW. The group has over 15 plants in total in Mexico and employs more than 23,000 Mexicans. There are sizeable Indian investments in the north of the country, such as Flex Americas in Tamaulipas, Varroc Lighting (making modular LED lighting units for the auto clusters) KEC etc. in Monterrey.
13. Total FDI inflow from Mexico to India is about 118million USD since 2000 and it ranks 46 th as leading investor country in India (considering only the direct investments). In 2016-17 the investment was to the tune of 18 million USD. Leading Mexican companies like Cinépolis, Tremec, Nemak, Softec, Metalsa, Ruhrpumpen, KidZania and Bimbo and some others have likewise invested in India in recent times. NEMAK, which is part of the ALFA Group of Mexico has invested US $ 11 million in a manufacturing facility in Chennai. SOFTTEK, an IT company from Monterrey recently become the first Latin American company to invest in the service sector in India, when it invested US $ 26 million in acquiring an Indian company in Bangalore. Great Foods & Beverages of Mexico has invested about US $10 million in India and has a great future for its fruit chill bars and noodles.
14. Overall, Indian investments in Mexico are far greater than the other way around. India’s investments in Mexico are more than US $ 2 billion. On the other hand, Mexico has only an investment of about US$ 1 bn (both direct and indirect).
III. Bilateral Trade Performance in 2017
15. The year 2017 has been unprecedented as for the first time, India became part of the top ten trade partners of Mexico. Mexico also emerged as the most important trade partner of India in entire Americas after US. The trade increased by 33% over 2016 and reached the level of 8.37 bn USD with Indian exports worth 5.02 bn and imports 3.35 bn. India’s export to Mexico increased by 7% in 2016. The trade balance remained in favour of India consecutively for third year.
Bilateral Trade Mexico-India in the last six years (Figures in USD Thousands Million)
