India signed an agreement with South America's main trading bloc on Sunday to establish a free trade area intended to reduce dependence on trade with rich countries.
The Preferential Trade Agreement between the Mercosur nations Brazil, Argentina, Paraguay and Uruguay and New Delhi was signed in the presence of Brazilian President Luiz Inacio Lula da Silva, who is on a four-day state visit to India, and Indian Prime Minister Atal Behari Vajpayee.
"This is a step towards free trade," an Indian foreign ministry official told reporters after the signing.
"We can deal with them (Mercosur) on a preferential basis."
Lula's centre-left government champions the cause of the G-20 group of poor nations and has called for free trade among developing countries as a counterweight to dependence on trade with rich nations.
"The trade pact will be a framework agreement setting out the parameters and road map for free trade between India and these countries," said an official of the Indian Commerce Ministry. "The details have to be worked out."
India and Brazil also signed agreements on co-operation in the peaceful uses of outer space and promotion of tourism and cultural exchange.
"India and Brazil together can build a strong political force that is capable of giving a contribution... and meet the interests of the poorest people of the planet," Lula told reporters after a ceremonial welcome at the presidential palace.
Brazil and India have formed a trilateral bloc along with South Africa to boost trade and pool their political muscle in talks with rich nations.
Bilateral economic relations between India and Brazil have been growing steadily in recent years. The two-way trade been the two countries reached a record $1.2 billion during 2002.
"But there is more potential... India is keen to participate in major rail projects in Brazil," the Indian official added.
India mainly exports to Brazil pharmaceuticals, engineering goods and textiles. It buys, among other items, crude oil, soy oil and auto parts.
Lula, who will be the chief guest at India's Republic Day parade on Monday, held talks with Vajpayee on Sunday. He is scheduled to address a business meeting on Tuesday.
He will visit Agra and attend a business seminar in Bombay on Wednesday before returning home.
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