Over the last two decades Paraguay, a small landlocked economy in South America, has been assuming dynamism for Indian foreign policy. The diplomatic relations between the two countries were established back in 1961 however the bilateral trade between the two sides remained modest despite having risen from US $40 million in the first decade of the twenty-first century and went up to US $375 million in the 2010s and has witnessed an upward trajectory since then.
In addition to its macroeconomic stability, Paraguay has a legal framework aimed at attracting foreign investment. For example, Law 60/90 provides incentives towards increasing capital investments of foreign origin by exempting any investments which fall under this law from customs duties. The Maquila Law (Law Nº 1064 of 1997, further protected by the Decree Nº 9585 of 2000) allows foreign companies to settle in Paraguay as maquila industries, introducing raw materials with a series of fiscal and tax incentives to assemble and manufacture products using national labour in order to finally re-export them. This regime has already allowed Paraguay to attract foreign investment for the establishment of maquiladoras, both in the textile sector and in the development of auto components.
Strategic Areas of Cooperation
Chemicals, pharmaceuticals, tractors, two-wheelers, other vehicles, textiles, leather and wood are the traditional areas of cooperation between the two sides and several Indian companies like Hero Motors, Tata, and Mahindra have a sizable presence in the landlocked nation.
As far as Technical Cooperation is concerned an Indian IT Company — Flatworld Solutions has a collaboration with a local company which runs a call centre where around 1300 Paraguayans have been employed.
India’s imports from Paraguay are mainly soya oil (nearly 94 per cent of imports in 2020), and sunflower oil which is expected to increase in the wake of the shortage of edible oil in India following the ongoing Russia-Ukraine war.
In recent years the two sides are making efforts to expand and diversify the trade basket and several new sectors are being tapped including Railways, Bio-Technology, Health, ICT, Space, Renewable Energy as well as Tourism related infrastructure. Also, due to its proximity and low cost of the availability of Brazilian iron ore through the Paraguay-Paraná Waterway, and utilization of cheap and sustainable electric power generated by the Itaipú and Yacyretá makes the steel sector a prime attraction for collaboration with countries.
In 2004 India concluded a Preferential Trade Agreement with the Southern Common Market (MERCOSUR, a regional integration process — established by Argentina, Brazil, Paraguay, and Uruguay). And this became operational in 2009. India and MERCOSUR countries are in the midst of negotiating the expansion of the existing PTA as India is exploring how to add more products to the list that has been exchanged.
To deepen cooperation the two sides share similar views and stand on issues like the agreement to cooperate to fight against terrorism, concerns with WTO rules, and combating the threats of climate change and also global warming. Both sides have supported the restructuring of the United Nations. Paraguay has already signed the International Solar Alliance – this is an initiative led by India and France.
In 2022, External Affairs Minister Dr S Jaishankar was in Paraguay and jointly inaugurated the new Indian Embassy with his counterpart Julio Cesar Arriola, and it is expected that the new mission will further strengthen the bilateral relations between the two countries.
Trade and investments is the focus of the bilateral relations as the mission opened will help in the expansion of the economic engagement between the two countries.
In 2021 the two countries hosted the Third Foreign Office Consultations (FOC) at Asuncion and they all evaluated their bilateral connections in detail, and this included commerce and investment, high-level exchanges, health, agriculture and pharmaceuticals. During the consultations, the two countries agreed to address ways to further improve collaboration in cultural and consular matters and had exchanged views on the COVID-19 pandemic management. India had sent `Made in India’ Covaxin vaccines in a timely manner to boost its vaccination programme. And had through the Indian Ministry of External Affairs requested for different applications to be adopted to fight against the pandemic.
Diplomatic ties were established in 1961 and in 2006 Paraguay opened its mission in New Delhi and today the South American nation has Honorary Consulates in Chennai, Mumbai and Kolkata. The administration of Paraguay is very keen to become a strategic partner of India in the region and to also work together on various multilateral forums.
India-Paraguay Space Cooperation
This is one country in the region which has kept China away and for India, this is the best opportunity to become its strategic partner, especially in the Space Sector as it is keen to get India’s help to set up its space programme at a low cost.
Paraguay looks at the Pacific
This country is looking towards the Pacific as a strategic region as it is keen to explore new markets and to also expand its trade cooperation with emerging economies in the Asia-Pacific.
Bioceanic Corridor — ‘Panama of the 21st Century’
According to the information available in the public domain, this is a Central Bi-Oceanic Railway Corridor — 3,750km of tracks and it runs from the continent’s western side and goes all the way to the east. And this corridor is expected to connect two oceans — the Atlantic and the Pacific Oceans. And the countries involved in the project involve countries like Peru, Brazil, Bolivia and Paraguay.
India has expressed its keenness to be part of this project which is considered to be the biggest infrastructure project in South America and a commodity corridor since 2018. The South American country is keen that India joins the project as it will allow greater economic and commercial exchange with India.
According to Ambassador of Paraguay in India Fleming Raul Duarte, both sides are looking at new areas of cooperation like Hydropower, as it is the number one global exporter of clean energy.
Also, according to the Paraguayan envoy, the use of communication and information technologies, and capacity building in the field of cyber security and defence will help in opening up more opportunities for the youth of his country.