December 2010

Name: Sudhir Shetty

EMBA – Sion Batch
Roll No: 2

International Business Project: India & Brazil

India and Brazil which are emerging economies form part of BRIC Nations (Brazil,
Russia, India and China). Contributions of both the nations in International trade are
being appreciated and recognized by the International trading communities.

Shri Kamal Nath, former Union Minister of Commerce & Industry, said “While India can
provide an excellent staging post for South Asia and South East Asia for Intercontinental
trade and Investment links, Brazil can act as the hub for Latin America as a whole”.

The following possible areas for joint ventures / investment flows / technical cooperation
were also flagged by Shri Kamal Nath:

India - Pharma (the fourth largest producer of medicines in the world), Bio-tech, Wind
energy (India has the fourth largest installed capacity in wind energy), Information
Technology, Tourism, Entertainment and Animation Industries, Manufacture of
Jewellery using precious and semi-precious stones and gold.

Brazil - Tourism, Agriculture, Food Processing, Food Packaging, Renewable Energy

including Hydel Power and Ethanol (62% of Brazil’s energy requirement is met from
renewable sources, of which 10% is from ethanol- India has the largest area under
sugarcane, though its ethanol cost is very high), Bio-Energy, Nuclear Energy etc.

The Brazilian President Mr Luiz Inacio Lula da Silva said India and Brazil need to create
a world market by supporting each other, and need the private sector to cooperate in this
effort. India-Brazil bilateral trade relation has the potential to achieve the target of $10
billion by 2010 and can also go beyond the target," said Mr Lula da Silva at a meeting
organised jointly by industry chambers CII, Assocham and FICCI.

He said Brazil was running a programme with a focus on development of infrastructure,

and Indian entrepreneurs could directly invest in the infrastructure sector.

India and Brazil have not even identified 10 per cent of the bilateral trade opportunities
and there is a lot of potential in the exchange of technology and engineering capabilities.
Brazil can contribute to India's agricultural sector whereas India can provide
pharmaceutical technology to Brazil, he said.

Both the governments of India & Brazil have set a target of US$ 10 billion by 2010.

The Indian pharmaceutical companies have made a success story with their entry in
Brazil. Almost all the major pharma players of India have established their presence in
Brazil with supply of bulk drugs, finished formulations and establishment of
manufacturing units and joint ventures. Areas of mutual interests between the two
countries cover pharma, aviation, engineering products, agriculture based industries
including equipments and food processing industries, energy including ethanol, chemical
products, auto parts and vehicles and two wheelers, IT, banking and urban infrastructure.
India and Brazil have demonstrated their determination in reformulating the big questions
that affect foreign policy and trade at the international level. India and Brazil must
continue to be close partners in the UN, WTO and other international foray on
issues such as social development, health care, sustainable economic development
and poverty alleviation."

From the past few years, Brazil has emerged out as the biggest partner of India in the
Latin American region. Merely from US$ 488 million, bilateral trade between Brazil and
India have witnessed the quantum increase and has crossed the mark of 3 million in 2007.
On the context of the MERCOSUR, which is the regional trade agreement between
Argentina, Brazil, Paraguay and Uruguay, the commerce union minister has said that the
"India and MERCOSUR have agreed to give tariff concessions, ranging from 10% to
100% to the other side on 450 and 452 tariff lines respectively. In recent years more and
more investments have been directed from India to Brazil, especially in the areas of
information technology, biotechnology and pharmaceuticals. Many Indian companies like
Tata Consultancy Services, Ranbaxy and Dr. Reddy's Laboratories etc, are striding
towards making a mark in the Brazilian marketplace. TATA is also paving its footprints
for exploring new avenues in Brazil.

Country comparison
Brazil India
Population 191,241,714 1,198,003,000
Area 8,514,877 km² (3,287,597 sq mi) 3,287,240 km2 (1,269,210 sq mi)
Population Density 22/km² (57/sq mi) 364/km² (943/sq mi)
São Paulo - 11,037,593 Mumbai - 13,922,125 (21,347,412
Largest City
(19.889.559 Metro) Metro)
Federal presidential constitutional Federal parliamentary
Government
republic constitutional republic
US$1.612 trillion ($10,200 per US$1.264 trillion ($1,020 per
GDP (nominal)
capita) capita)
Military
$23.97 billion (FY 2009) $32.7 billion (FY 2009-10)
expenditures

Basic Macro Economic Indicators

 • GDP: India is poised to grow at 8.5% in 2010 whereas Brazil is expected to
grow at 7.5%. Despite India’s growth rate being more than 1 %, the GDP
per capita is a frugal 10% for India in comparison to Brazil.

• Inflation Rates: The CPI in India is at 9.8% which is expected to dip

southwards towards the 6-7% mark by March 2011. The CPI is in a much
better position in Brazil at 4.7%. The high inflation rates has made the RBI
to raise policy rates periodically thereby making credit availability dearer to
lot of Indians.

• Current Account: India’s current account deficit is at $12billion which is 3%

of our GDP. Our imports have increased at an annual rate of 20% in
comparison to 12% for exports. Also a stronger rupee has not helped matters
for exporters. Strong FOREX reserves at $283.5 billion dollars means that
India has the required balance to take care of medium term requirements for
meeting import payment obligations. Brazil also has a similar case in point
with a current account deficit which is 3.5% of its GDP.

• External Debt % GDP: Brazil’s external debt is 15.7% of GDP, whereas

India’s position is at 18.9% in 2010.

• International Reserves: India has a strong reserve balance to the tune of

$283.5 billion which is good enough to take care of forex payments for 20
months.

• Fiscal Deficit / GDP : Brazil’s fiscal deficit stood at 2.4% GDP, whereas
India’s fiscal deficit shot up to 8.9% of GDP which is a bothering scenario
for India.

• Unemployment rates: Brazil has an unemployment figure of 7.3% whereas

India’s rates are in double digits at 10.4% as per the last census in both
nations.

IMF’s senior resident representative in India, Sanjaya Panth, said the inflationary
situation in India is complex, driven by both supply and demand factors.

International Monetary Fund (IMF) has indicated that Emerging economies such as India
and Brazil are showing signs of overheating.

“Among some major emerging economies, capacity constraints are beginning to boost
prices: Brazil, for example, has experienced gradual increases in inflation pressure, while
India has seen a sharp rise in inflation,” the IMF said in its latest world economic outlook
report.
India’s wholesale price inflation stood at 8.5% in August, while food inflation has been in
double digits for more than a year.

Planning Commission deputy chairman Montek Singh Ahluwalia recently denied that the
economy is overheating—which happens when the country’s productive capacity is
unable to keep pace with growing demand, leading to high levels of inflation.

Reserve Bank of India (RBI) deputy governor Subir Gokarn said that inflation is well
above the comfort zone and is a cause of concern. RBI’s medium term inflation target is
4-4.5%.

IMF’s senior resident representative in India, Sanjaya Panth, said the inflationary
situation in India is complex, driven by both supply and demand factors. “While food
supply shocks have transmitted to core inflation quite rapidly, demand pressure has also
become an important factor to explain the situation,” he said.

In its outlook, IMF retained the growth projection for India’s gross domestic product
(GDP) at factor costs at 8.8% for the fiscal year to 31 March 2011. It raised the projection
for the economy based on market price to 9.7% from its July projection of 9.4% for
calendar 2010.

GDP at market prices measures output at the prices that consumers and firms pay for
goods and services, while GDP at factor costs is the same output valued at producers’
prices. The difference between the two consists of indirect taxes and subsidies.

Finance minister Pranab Mukherjee’s expectation that the country will grow at 8.75% in
the current fiscal year is based on GDP at factor costs.

For fiscal 2011-12, IMF expects growth to slow to 8.1% calculated on factor costs. Based
on market prices, growth is projected to grow at 8.4% in calendar 2011.

Asked why the Fund expects the economy to grow at a slower rate in next fiscal, Panth
said its growth projection of 8.8% for the current fiscal is over a rather lower base, as the
economy grew at only 7.4% in 2009-10 due to the economic slowdown.

“Following the bounce back from the crisis, growth is expected to resume broadly along
the potential growth rate next year, which could of course increase in the medium term,”
he added.

The Asian Development Bank (ADB) recently said India’s economy will grow faster in
2011-12 than in the current fiscal on robust consumer demand and private investment,
even as China and most other Asian economies slow down.

In its revised Asian development outlook, ADB said the Indian economy will grow at
8.5% in 2010-11 and 8.7% in 2011-12. Finance minister Mukherjee expects India’s
economy to return to the trend growth rate of 9% in 2011-12.
“Our growth projections are based on what is happening so far. To achieve a higher rate
of growth, India needs to unlock bottlenecks in the economy, including specially by
investing in infrastructure,” Panth said.

The IMF said industrial production and retail sales have been powering growth in India
and China. “A massive fiscal stimulus and credit expansion has boosted domestic
demand in China. In India, low reliance on exports, accommodative policies, and strong
capital inflows have supported domestic activity and growth,” the report said.

The Fund added that robust corporate profits and favorable external financing will
encourage investment. The contribution from net exports is projected to turn negative in
2011, as the strength in investment further boosts imports.

The world economy expanded at an annual rate of about 5.25% during the first half of
2010––about 0.5% higher than in the July world economic outlook update. IMF has now
increased its projection for world output to 4.8% as compared to 4.6% in July

Socio-Political scenario in Brazil

General Political Environment: Brazilian politics are characterized by a fractiousness
that mirrors the country’s diverse socio-economic make-up. Relations are generally
difficult between the executive and the legislature, as Well as between federal and state
governments. In addition, a tradition of switching parties has made party politics and
political strength in Congress fluid. In 2007 the Supreme Court barred members of
Congress from party-hopping; this will likely forge stronger party loyalty but only over
time.

Political Violence: The main source of violence in Brazil is criminal rather than political.
Personal security is poor as there is an extremely high rate of criminal activity in major
cities, where 25% of the population is believed to live in favelas or shantytowns.
Although Lula’s social policies have helped to reduce inequalities in Brazil, significant
work must be done to improve conditions. An imbalance in land distribution leads to
episodic violence in rural areas, specifically in the Amazon. Land invasions are common
and mostly affect the agriculture sector, although the scope of land so targeted is
broadening. Protests by groups of landless individuals known as the Landless Workers’
Movement (MST) highlight the issue.

Environmental & Legal Scenario

In order to evaluate the effectiveness of the new Brazilian environmental crimes

law, authorities analyzed 55 judicial actions involving forestry crimes in the federal
courts of Belém, the capital of Pará. Pará is the Brazilian state that currently accounts for
40% of Amazonian logging. Authorities identified the kinds of crimes committed, and the
kind of penalties assessed and collected. Authorities then identified the main obstacles to
effective enforcement against environmental violators and propose some solutions to
these problems. Authorities conclude that the two principle obstacles to effective
enforcement arise from 1) the ineffective communication among the agencies responsible
for applying the law and 2) inability to apply penalties resulting from environmental
crimes to environmental projects. In order to resolve these problems Authorities
proposed: 1) adaptation for Pará of models of communication that have already been used
successfully in another part of Brazil; and 2) use of environmental funds to enable
penalties for environmental projects to be used for environmental purposes. The World
Bank to invest in sustainable forestry and one state government (AcreState) has obtained
a loan from the Inter-American Development Bank for infrastructure and forestry
development. At the same time, the Brazilian legislature has written new laws to aid
environmental enforcement. The most important innovation was the Environmental
Crimes Law of 1998 and its implementation in 1999. The new law greatly broadens
liability for environmental violators. The new law improves the ability of administrative
agencies to apply administrative sanctions; establishes the responsibilities of corporations
for environmental violations and damage; turns more environmental violations, such as
illegal logging, into crimes with higher penalties (up to US$ 16 millions5); and provides
quicker judicial procedures for many environmental crimes. In order to find out if this
new law has been of aid in protecting the forests of Pará, the Brazilian state that currently
accounts for 40% of Amazonian logging, Authorities analyzed 55 judicial actions
involving forestry crimes in the federal courts of Belém, the capital of Pará. Authorities
identified the kinds of crimes committed, and the kind of penalties assessed and
collected. Authorities then identified the main obstacles to effective enforcement against
environmental violators and propose some solutions to these problems. In Brazil,
enforcement of forestry laws uses criminal law and procedure. Criminal liability for
environmental crimes is enforced exclusively by the Ministério Público which bases its
prosecutions on information and cooperation provided by the federal environmental
agency, IBAMA. IBAMA has been the main monitor of the logging activity in
Amazonia. Typically, a prosecution by the Ministério Público for a forestry crime quickly
calls for a negotiation aimed at settlement. This negotiation takes place under the
auspices of the court in the presence of the judge.

2 PENALTIES FOR ENVIRONMENTAL CRIMES DO NOT GO

TOWARD ENVIRONMENTAL PROJECTS
Authorities have observed that the terms of most of the negotiated settlements in Pará
have provided for social assistance - particularly donation of medicines and food - but
very little for the environment. Typically the only environmental element in the
settlements was the provision of seedlings of valuable tree species. This is true even
though the environmental crimes law explicitly calls for repair of environmental damage.
Authorities noted, from talking with prosecutors, that it is hard to know what damage is
caused by a specific crime. Therefore, the application of penalties to specific
environmental damage is difficult for logging crimes in the Amazon. This problem is
aggravated by the lack of information, resources and clear procedures. For example, there
is no clear and tested procedure for directing funds to environmental projects. As a result,
prosecutors aimed penalties at social assistance – a procedure that has been for long used
for judicial settlements of non-environmental violations. This is a problem not only in
Pará, but certainly in other parts of Brazil.
3 CONCLUSION
Two principle obstacles to the enforcement of the environmental crimes law arise from:
1) the lack of effective communication among the agencies responsible for applying the
law; and 2) inability to apply penalties resulting from environmental crimes to
environmental projects In order to resolve these problems Authorities proposed: 1)
adaptation for Pará of models of communication that have already been used successfully
in another part of Brazil; and 2) use of environmental funds by the Ministério Público and
courts to enable penalties for environmental projects to be used for environmental
purposes.

Indian Context
We have seen numerous scenarios where the Environmental issues and norms have
been flouted and even the legal system in India is slow to react. There needs to be
proactive measures to bring about sea changes in the Indian Legal system that not
only helps the execution of projects but also ensures that there are no violation of
rules towards the execution of such projects.

Prime Examples are POSCO in Orissa, Illegal minings in various states, Lavassa in
Maharashtra.

Also the recent 2G scam has also brought in light the inefficiencies of the
bureaucratic set up in India. It is pertinent that Infrastructure is given utmost
importance in making sure that their execution is timely which will ensure greater
benefits to the people of India and indirectly to its trading relations with the rest of
the World.

What are the existing trades that could be executed between the two Nations?

Exports from India

IT industry is flourishing with TCS in Brazil, Chemicals, Food, Beverages, Cosmetics,
Pharma, Mining, Paints & Oil & Gas exploration.

Phamaceuticals (Reddy’s Lab, Core Healthcare, Aurobindo Pharma)

Engineering (LML, Bajaj scooter, hero Honda)

Manufacturing: Export of equipments and machinery and consultancy services. Areas of

opportunity exists in sugar industry, Small Scale Industry, Chemicals and Paints, Oil
exploration & production, Agriculture and Textiles.

Barriers: Transportation is a major hindrance as there is time lag of close to 20 hours

between India & Brazil and making use of the sea routes becomes expensive and time
consuming process for exporting and importing bulky merchandises.
Exports from Brazil
Edible vegetable oil is huge opportunity that Brazil has in its ties with India. Again
Geographical proximity is the main challenge in transportation.
Vegetable oil & soybean oil are major imports from Brazil.

Brazil exports machinery & mechanical , electrical appliances & parts and these form
11% of India’s imports.
Pearls, semi precious stones, imitation jewellery forms 2% of India’s imports.

Conclusion of the Report:

The above paragraphs which has detailed the history of Indo-Brazilian economic ties has
presented the current scenarios and the possible opportunities that are presented to both
nations. Both being part of the BRIC nations are keen to do well in the coming years and
Trade will be a integral part in achieving those objectives.

The possible challenges to the trade relations will be:

• Threat of Global Economic slowdown
• Inflation and Monetary policies between the two nations.
The Opportunities are listed below
• Growing Middle class and Consumable surplus between the two nations
• Entrepreneur exchanges in Small and Medium Enterprise sectors

The World has seen China as the dominant force in World Economy, however India can
achieve a lot by improving upon its Infrastructure lacunae’s which will help it in
achieving what the World economies are expecting from it.