India's Trade Outreach Needs to Pivot Towards Latin America

While Narendra Modi and the BJP government have been eager to project Indian power  across the globe, trade potential with Latin America remains unfulfilled.

 

India and Latin America’s economic relationship can grow in trade, foreign direct investment (FDI) and mutual cooperation. Imports from Latin America have been steadily increasing, from $25.73 billion in 2017-18 to $36.45 billion in 2018–19 (Viswanathan 2019b). However, this trade is concentrated in a few countries, and is spread across few products. Venezuela, Mexico and Brazil account for two-thirds of the region’s shipments to India. Experts estimate that the trade between India and Latin America has the potential to reach $100 billion by 2025 (Viswanathan 2019a).

A History of Indo-Latin American Ties

India’s ties with certain Latin American nations are longstanding. When Fidel Castro ousted the Batista regime in Cuba in 1959, India was one of the first countries to recognise the new government and to establish an embassy in Havana. Historically, Mexico was the first Latin American country to recognise India after its independence in 1947. Consequently, formal diplomatic relations were established between Mexico and India in 1950. Vijaya Lakshmi Pandit was India’s first ambassador to Mexico, and Jawaharlal Nehru visited Mexico in 1961, and in 1968, Indira Gandhi embarked on an eight-nation tour of the region, calling it a “voyage of discovery" (Aggarwal 2018).

However, relations between India and Latin America did not gather momentum throughout most of India’s post-independence history, owing mainly to the geographical distance between the two regions, and differing domestic and international priorities. Thousands of miles away, Latin America played a small role in New Delhi’s strategic and geopolitical considerations. There has also been a lack of the cultural, linguistic and diaspora connections between the two regions. 

India and Latin American nations were both colonies of European powers. After achieving independence, both adopted socialist policies—import-substitution-industrialisation—after the Second World War, which did little to enhance relations. India’s closed economy did not help either, although there were some engagements in international fora. Many Latin America and the Carribbean (LAC) countries joining the Non-Aligned Movement (NAM). India also supported LAC countries against United States (US) interventions in the United Nations (UN) and other multilateral gatherings, but this did not address the deficit in relationship. However acute economic crises forced India and other LAC countries to embrace liberal policies, which changed their respective economies.

Current Trade Relations with the LAC Region

Following liberalisation of the Indian economy, Latin American governments and their private sectors saw opportunities in India’s growing market, and in the emergence of its information technology (IT) sector. Indian industries also discovered that Latin America provided a natural outlet for many of their products, from traditional goods such as textiles and garments to newer products like cars, pharmaceuticals, chemicals, and cosmetics. In some cases, middle-income countries of Latin America offered better markets than those of North America and Western Europe.

Venezuela, Brazil, Mexico, Chile, Colombia, Argentina, Peru, Ecuador, the Dominican Republic, and Panama are currently India's top ten trading partners in the LAC, constituting approximately 94.67% of total trade in 2014-15. There has been an upward swing in the relations between India and Mexico after Narendra Modi’s visit to Mexico in June 2016, when both countries decided to upgrade bilateral relations to the level of “strategic partnership.” India is currently Mexico’s ninth most important global trading partner, with trade between the two countries standing at $10.16 billion in 2018. After the US, India is Mexico’s largest supplier of automobiles (Siddiqui 2019). Brazil has historically been the cornerstone of India’s relations with Latin America, with bilateral trade only recently dipping below $7 billion annually. However, it still boasts of the highest Indian investment and corporate presence in the region, with billions of dollars invested in Brazil’s hydrocarbon reserves and crude imports (Bhojwant 2018). 

India also exports a billion dollars worth of generic medicines to Latin America, which has helped these countries reduce the cost of healthcare. The entry of Indian generic pharmaceuticals in Latin America over the last two decades has also put pressure on local and multinational companies to reduce their prices and increase the proportion of generic medicines as compared to costly patented medicines (Viswanathan, 2019a). Latin American firms have invested about a billion dollars in India in areas such as soft drinks, multiplexes, theme parks, and auto parts. Latin American software firms have also established development and delivery centres in India, employing over a thousand Indian software engineers (Viswanathan 2019a). Latin America has also emerged as a key contributor to India’s energy security. India now imports 20% of its crude oil from Brazil, Columbia, Mexico and Venezuela (Desai 2015). In 2012, India overtook China as the largest Asian buyer of Venezuelan oil. India also constitutes one of the largest suppliers of IT services to Latin America, with over 35,000 Latin Americans now employed in Indian IT companies operating in the region (Desai 2015). New Delhi is also actively promoting official policies intended to further expand Indian IT services in Latin America.

Countering Chinese Expansion and Future Growth in the Region

Although India has steadily expanded its footprint in Latin American countries over the past several years, it is still dwarfed by China’s immense presence in the region. Many Latin Americans resent Chinese imports, which flood their markets at the cost of local businesses. Latin American governments are also worried by their growing dependence on Beijing’s largesse. By contrast, India’s modest trade and investments are welcomed with virtually no opposition. This gives New Delhi an unexpected, long-term competitive advantage over China (Desai, 2015). With a collective GDP of more than $6 trillion, and a combined population of more than 600 million, half of which is under the age of thirty, Latin America constitutes a dynamic, growing and resource-rich part of the world with huge economic prospects for India (Desai 2015). 

Latin America can also contribute towards food security. The region is five times the size of India and has only half the population. India is currently importing pulses and oilseeds from many African and Southeast Asian countries at high costs. Latin America is also very rich in minerals such as copper, lithium, iron ore, gold and silver, and could give India an opportunity to increase investments for their extraction as well as for their import at cheaper rates (Aggarwal, 2018). 

Bringing India and Latin America together will require effective institutional framework as well as businesses and people-to-people networks. Latin America is being increasingly considered as an important investment destination due to its growing industrial and manufacturing strength. India offers immense opportunities for collaboration, trade and investment for partner countries from Latin America. Latin American nations have long been seeking more diplomatic representation from India. Under the UPA government, then Minister of State for External Affairs Shashi Tharoor visited the Dominican Republic in 2010 and announced three new Indian diplomatic missions in the Dominican Republic, Ecuador, and Uruguay. However, this promise remains unfulfilled. The current government should open embassies in these countries as well as in Bolivia and Paraguay (Viswanathan 2019b).

New Delhi must also promote Latin American studies, invest in shipping industries, and conclude preferential trade agreements and free trade agreements at the earliest. Latin American languages must be encouraged in India to incentivise Indian professionals to take jobs in these countries, and to promote trading ties. The commerce ministry should revive its ”Focus LAC” programme, which has previously helped encourage and support Indian exporters to explore business opportunities in the region (Vishwanathan, 2019b). Despite recent improvements on many fronts, however, both India and the LAC countries face some formidable challenges. They still have some of the highest inequality indices in the world, as well as serious deficiencies in infrastructure, technology, innovation and competitiveness. India and the LAC region could approach these challenges as opportunities to forge new partnerships to promote growth and development through increased trade and investment.

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