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It’s time to start thinking of MERCOSUR-India FTA: Brazil’s Ambassador

Lago said that global commoditisation of ethanol can happen on similar lines as that of crude oil, if both India and Brazil are involved, and added that the former is capable of producing agricultural products that can meet the needs of India’s growing middle class. Lago spoke of close energy ties between India and his country, and highlighted the recently signed long-term oil supply contract between Indian Oil Corp. Ltd. and Petroleo Brasileiro SA (Petrobras).

Edited excerpts:

What are the major challenges in front of Brazil?

If you ask this to the candidates, they will all say it is poverty, education etc. But I believe, Brazil is already very advanced in various areas. And the great challenge is to do the necessary adjustments to make it work better. For instance, we have an amazing structure for healthcare but the service is not so good. So, it’s not from zero. You just have to know how to adjust education, probably by having enough school and teachers. We are not at the stage where we don’t have enough schools, roads, hospitals etc. We have but they are not working as well as they should.

I think the great challenge is to fix the challenge of the middle income. Brazil has a great threat in front of it, its demographic bonus is going to finish quite soon. Economists diverge on when it is going to happen. It could happen in less than 5 years. Most countries develop while they have the demographic bonus. This is what China did. This is one thing that is interesting about India. Your demographic bonus ends by 2056 and India aims to be a developed country by 2047. So, India will be a developed country, 10 years before it ends its demographic bonus. This is something that China did not have.

Indian Oil Corp. and Brazil’s Petroleo Brasileiro SA (Petrobras) recently signed a long-term oil contract. From an energy security standpoint, where do you see the relationship between India and Brazil?

The two countries have always considered the physical distance as something of an obstacle to closer ties. In fact, when you see key issues like food and energy which are so alive at this moment, you realise how important it is to have a partner with whom you have zero geopolitical issues. Brazil is very far away but the distance ensures that it is the best possible partner because there is no interference. Most people and even experts have not registered that Brazil is an important player in oil. Today, we are the seventh largest producer and seventh largest exporter of oil and we will be the fifth largest producer and exporter soon. However, India is one of the first countries to accept the idea that Brazil is a major player in oil. Since Brazil is a new player in this industry, it is important that we have as close a relationship as possible with India, which is a major consumer nation.

When you look at the relationship between the two nations, energy is everywhere. The largest Indian investor in Brazil is Sterlite which has invested in electrical transmission. The largest Brazilian factory in India belongs to WEG and it produces wind turbines in India. Ethanol is also a major element in our relationship. Since India has an ethanol blending target of 20% by 2025, Brazil and India are working very closely. Brazil has had more than 20% ethanol mix for more than 40 years. Brazil also has a lot of experience in manufacturing flex-fuel cars and India is now also moving in that direction. These are the most sustainable cars in the world and even more than electric vehicles. With flex fuel cars also don’t need India to revamp its public infrastructure which is the case with electronic vehicles.

What are the next steps happening on the energy front, especially with ethanol?

I believe the 20% target for ethanol blending by 2025 already creates a large market for ethanol in India. Further, India is already one of the largest producers of cars in the world. The next step is an in-depth exchange of knowledge and experiences on both sides. If both India and Brazil involve themselves in this ethanol project, then we might see the commoditisation of ethanol globally. Because India and Brazil are such important markets, it will convince other countries to be a part of this market.

There was a target for $15 billion in bilateral trade by 2022. Are India and Brazil on track to meet that target?

I think yes. Trade has gone up and I believe that the $15 billion target is doable. This is not only because of oil but also because Brazil is capable of producing agricultural products that can meet the needs of India’s growing middle class. A few years ago, we didn’t export any apples to India and now this country is the largest export market for Brazilian apples. As India’s middle class grows and demands more, Brazil will be a natural partner because we have the ability to increase production.

India has a preferential trade agreement with MERCOSUR (Mercado Común del Sur) or Southern Common Market. How is that functioning and the challenges in your view?

It is a very limited trade agreement and there is a very short list of products. MERCOSUR and India are both extremely important agricultural producers, so agriculture was always a delicate issue. At this moment, both MERCOSUR and India are open to have a much more ambitious agreement. I believe that it is time to start thinking of the free trade agreement between MERCOSUR and India. When Minister Jaishankar went to Brazil, most of his statements were related to expanding the list of products in the preferential agreement. However, I believe that politically, both sides are ready for something more ambitious. However, India is currently engaged in some very ambitious negotiations and there is a limit to the number of negotiators it has. The same is true of the Brazilian side.

Could you tell us which industries are driving growth in economic activity between the two countries?

Apart from oil, this growth has been driven by the sale of products for which India has opened up exceptionally. This would include soy oil where there is a crisis in supply. Similarly, the war in Ukraine has triggered problems with the supply of sunflower oil. India then started to look for alternatives and it lowered its duties on some specific products. This helped improve trade volumes but I think that countries like India and Brazil, which are huge economies with no geopolitical issues, should plan investments more strategically.

Some Brazilian firms like Taurus Armas and aviation giant Embraer are looking to break into the Indian defence market. How have those firms fared?

While India and Brazil have traditionally been underestimated, firms like Embraer have now become household names. Embraer is the third largest manufacturer of aircraft in the world. If India is the largest market for aircraft in the world, then Embraer will naturally look to India. For example, India’s Ministry of Civil Aviation wants to look at planes for regional connectivity so it can offer more flights. These programmes fit Embraer’s capabilities well and it already sells planes to a regional airline called Star Air. They are also in talks with other Indian airlines.

On defence, Brazilian producers understand that India would like to have as much manufactured locally as possible. This is because it is exactly our way of thinking too. I believe there are many opportunities for joint ventures in defence and we have an MoU to stimulate the defence investments that is on the verge of being signed.

Ravi Dutt Mishra contributed to this story

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