Reviewing India and Chile’s Expanding Economic Partnership

India and Chile are expected to begin negotiations on a free trade agreement in 2024 in order to strengthen their bilateral economic relations following the general elections. A preferential trade agreement, also referred to as a restricted trade deal, has been in effect for both countries for nearly two decades. In order to gain better access to the Latin American continent, India must strike a deeper trade relationship.

India Briefing takes a look at the present trade dynamics between the two countries and evaluates Chile’s growing demand for pharmaceutical products from Indian manufacturers. 

India, Chile bilateral trade and commercial engagement

Since 2005, India has entered into various agreements and Memoranda of Understanding (MoUs) with Chile in a number of areas of cooperation, including sports, science and technology, Antarctica tourism, defense, aviation services, agriculture, new and renewable energy, education, outer space, geology and mineral resources, and gainful employment for spouses and eligible dependents of diplomatic personnel.

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The India-Chile Preferential Trade Agreement (PTA) was originally signed on March 8, 2006 and came into effect in September 2007. On April 21, 2016, the Indian Government approved the broadening of the Partial Scope Agreement (PSA) with Chile. The expansion was put into action by both countries on May 16, 2017, updating the scope of the pact to 2829 tariff lines from roughly 474 previously. The third round of negotiations to further expand the PTA began October 7, 2021, which is still ongoing.

Besides their trade pact, the two countries signed an agreement in 2020 to end double taxation and reached an MoU for the purchase of pharmaceutical products in 2021.

There are 24 Indian companies with representative offices operating in Chile, with India having invested a total of US$ 27.1 million in Chile from 1974 to 2012, primarily in the mining and IT sectors, according to the Foreign Investment Committee of Chile. Recent years have seen a surge in Indian companies entering the Chilean market, either through acquisitions of Chilean companies or through joint ventures and collaborations. Notable among these companies are Jindal Steel Works, TCS, Oracle Fine Services, Polaris, Evaluserve, WIPRO, Godrej, Ashok Leyland, Tega Industries, Havells Sylvania, Tata Motors, Bajaj Auto, Maruti Suzuki, Mahindra & Mahindra, and NSL Renewable Power Private Limited.

Per a Fact Sheet from the Indian Embassy in Santiago, Chilean investment in India amounts to US$118 million. Chilean financial institutions are reported to have invested in the Indian financial sector.

India’s exports to Chile cover a diverse range of products, including vehicles, pharmaceutical products, electrical machinery and equipment, machinery and mechanical appliances, textile articles, organic chemicals, articles of leather, apparel and clothing (both knitted and not knitted), as well as plastics and articles thereof.

On the other hand, imports from Chile consist of commodities, such as copper and other ores, pulp of wood, waste and scrap of paper, fruits and nuts including peel of citrus and melons, milling products, malt, starches, and wheat. Additionally, India imports paper and paperboard, iron and steel, aluminum and articles thereof, inorganic chemicals, organic compounds of precious metals, isotopes, beverages, spirits, and vinegar, as well as base metals and articles thereof.

India-Chile EXIM figures: FY 2023 and FY 2024

According to India’s Department of Commerce, the trade between the two nations has been growing steadily. In FY 2023-24, India’s exports to Chile were valued at US$1,182.94 million, a 1.42 percent increase from the previous year, while imports from Chile grew by 5.45 percent to US$1,514.10 million.

Source: Department of Commerce, GoI

India exported over 740 commodities to Chile under the four-digit HSN Code in FY 2023-24. Significant growth was noted in trade of the following commodities within the two-digit HSN Code during the same period: coffee, tea, spices, articles of steel, yarn, fertilizers, etc.

In addition, pharmaceutical product exports from India to Chile grew 37.19 percent in FY’24.

In 2023, 58.3 percent of Chile’s total pharmaceutical imports came from seven countries, led by Germany (14 percent), USA (13.7 percent),and India (7.8 percent). The Latin American market presents an opportunity for Indian medicine manufacturing companies to research and meet local needs.

India’s commodities exports to Chile: FY 2023 and FY 2024

Source: Department of Commerce, GoI

India imports raw materials like iron, steel, and copper from Chile, essential for its domestic industries.

Import of commodities from Chile: FY 2023 and FY 2024

Trade and tax treaties

India-Chile PTA

The India-Chile preferential trade agreement, which offers an array of concessions to both sides on a number of tariff lines, came into effect in 2017. Under the agreement, Chile will offer duty rebates on 1,798 goods, including agriculture items, chemicals, pharmaceuticals, plastics, textiles, apparel, iron and steel items, and copper machinery, to Indian exporters. India will offer concessions on 1,031 products, including meat, fish, vegetable oil, processed food, pharmaceuticals, and pearls.

As per the revised agreement, India has offered tariff concessions related to meat and fish products (84 tariff lines), rock salt (1 tariff line), iodine (1 tariff line), copper ore and concentrates (1 tariff line), chemicals (13 tariff lines), leather products (7 tariff lines), newsprint and paper (6 tariff lines), wood and plywood articles (42 tariff lines), some industrial products (12 tariff lines), shorn wool & noils of wool (3 tariff lines), and some others (7 tariff lines).

Chile’s tariff offer covers some agriculture products (7 tariff lines), chemicals and pharmaceuticals (53 tariff lines), dyes and resins (7 tariff lines), plastic, rubber, and miscellaneous chemicals (14 tariff lines), leather products (12 tariff lines), textiles and clothing (106 tariff lines), footwear (10 tariff lines), some industrial products (82 tariff lines), and some other products (5 tariff lines).

Prior to 2017, Chile offered duty concessions to Indian exporters only on 296 items, while India gave the same rebate to Chile on 178 items.

India Chile DTAA

The Double Taxation Avoidance Agreement (DTAA) between India and Chile was signed on March 9, 2020, and came into effect on October 19, 2022, following ratification by both countries. In India, the provisions of this agreement apply to income derived in any fiscal year beginning on or after April 1, following the date the agreement entered into force, i.e., October 19, 2022. The Ministry of Finance notified the DTAA on May 3, 2023, through Notification No. 24/2023-Income Tax, dated May 3, 2023, under section 90(1) of the Income Tax Act, 1961. This notification pertains to the Agreement and Protocol between the Government of the Republic of India and the Government of the Republic of Chile for the elimination of double taxation and the prevention of fiscal evasion and avoidance concerning taxes on income.

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A DTAA is a treaty between two countries designed to prevent the same income from being taxed twice. The primary goal is to alleviate the burden on taxpayers who would otherwise have to pay taxes on the same income in both countries. According to Article 30(2)(a) of the agreement, its provisions in India apply to income earned during any fiscal year starting on or after April 1 of the year following the agreement’s entry into force. The agreement comprises 31 articles, covering topics from “Persons Covered” to “Termination of the Agreement.” Article 1 specifies that the terms of this agreement apply to residents of either Chile or India, the contracting states.

The tax rates under the DTAA between India and Chile are as follows:

Article 10 – Dividends: Dividends paid by a company resident in one Contracting State to a resident of the other Contracting State may be taxed in that other State. However, these dividends may also be taxed in the State where the company paying the dividends is resident. If the beneficial owner of the dividends is a resident of the other Contracting State, the tax charged shall not exceed 10 percent of the gross amount of the dividends.

Article 11 – Interest: Interest arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, this interest may also be taxed in the State in which it arises. If the beneficial owner of the interest is a resident of the other Contracting State, the tax charged shall not exceed 10 percent of the gross amount of the interest.

Article 12 – Royalties: Royalties arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. However, these royalties may also be taxed in the State in which they arise. If the beneficial owner of the royalties is a resident of the other Contracting State, the tax charged shall not exceed 10 percent of the gross amount of the royalties.

Article 12A – Fees for Technical Services: Fees for technical services arising in one Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. These fees may also be taxed in the State in which they arise. If the beneficial owner of the fees is a resident of the other Contracting State, the tax charged shall not exceed 10 percent of the gross amount of the fees.

Tapping Chile’s pharmaceutical market

In February 2024, the Pharmaceuticals Export Promotion Council of India (Pharmexcil) hosted the iPHEX-LATAM in Guatemala, Colombia, and Chile, featuring a delegation of 100 business representatives from 78 Indian pharma companies. The objective of this was to forge connections between top Indian and Latin American pharmaceutical firms.

Earlier in 2024, the Indian Embassy in Santiago released an in-depth Pharmaceutical Market Survey with the intention of boosting bilateral trade and leveraging the rising interest of Indian pharmaceutical companies in Chile. The survey was reportedly initiated in March 2024 to offer Indian exporters critical insights into the Chilean pharmaceutical industry, facilitating greater export opportunities.

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The findings of the survey provide extensive insights into the Chilean pharmaceutical market’s dynamics, including trends, regulations, key players, and new opportunities. According to the export data for FY 2023-24, India exported pharmaceutical products worth US$190.30 million, thereby registering a growth of 37.19 percent from the previous year.

Latin America, comprising 33 countries such as Mexico, Guatemala, and Costa Rica, is becoming a crucial export market for Indian pharmaceuticals, currently accounting for 6.78 percent of total pharma exports. The region holds substantial potential for India’s export ambitions; India had set a target of achieving US$28.141 billion in pharma exports for FY’24.

Preparing India’s pharmaceutical companies 

With India being a major producer of high-quality generic medicines and Chile emerging as a significant market in Latin America, India is keen to bridge the supply-demand gap, promoting beneficial partnerships. Pharmexcil Director General, Uday Bhaskar, said that such a survey and its findings represent a crucial step in enhancing trade relations between India and Chile in the pharmaceutical sector. The industry leader believes that, with the survey’s insights, Indian exporters are well-positioned to boost collaboration and exports, fostering mutual prosperity and economic growth.

Securing lithium imports

The two regions aim to expand their economic relationship beyond commodities and agriculture to include digital services and investment through a proposed India-Chile Comprehensive Economic Partnership Agreement (CEPA). Reports indicate that India is seeking to acquire lithium mines in Chile, as the country requires more critical minerals like lithium to facilitate the transition from conventional energy sources.

India’s Mines Ministry, having recently signed a development and exploration agreement with Argentina’s CAMYEN for lithium sourcing, is now targeting similar opportunities in Chile. A Ministry team is set to conduct due diligence on lithium blocks there, with discussions currently in progress. A non-disclosure agreement has been signed with Chilean state-run company ENAMI to facilitate information exchange. The focus is on acquiring brine-based lithium blocks. The “Lithium Triangle,” which consists of three Latin-American countries, namely Bolivia, Argentina, and Chile, contains some of the world’s greatest lithium reserves.

Conclusion

The India-Chile Preferential Trade Agreement has undergone significant expansion, laying down a robust framework for bolstered economic cooperation between the two nations. India’s export profile to Chile has diversified notably, experiencing considerable growth in pharmaceutical products. The anticipation of a comprehensive CEPA trade deal aims to deepen the commitment of both countries towards enhancing their bilateral economic ties further. Furthermore, India’s strategic focus on securing lithium imports from Chile emphasizes the broader scope and significance of this partnership. With a steady rise in bilateral trade and reciprocal tariff concessions, the India-Chile trade relationship is positioned for ongoing expansion and mutual prosperity.

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