India’s Trade with Latin America

Relevance: Mains: G.S paper II: Bilateral relations

Why in news?

Imports from Latin America have been steadily increasing, over the past years. However, this trade is concentrated in a few countries, and is spread across few products.
India and Latin America’s economic relationship can grow in trade, foreign direct investment (FDI) and mutual cooperation.

History of Indo-Latin American Ties

India’s ties with certain Latin American nations are longstanding and Mexico was the first Latin American country to recognise India after its independence in 1947.
When Fidel Castro ousted the Batista regime in Cuba in 1959, India was one of the first countries to recognise the new government, set-up an embassy in Havana and establish diplomatic relations.
However, relations between India and Latin America did not gather momentum throughout most of India’s post-independence history.
India and Latin American nations were both colonies of European powers. After achieving independence, both adopted socialist policies, which did little to enhance relations.
Many Latin America and the Carribbean (LAC) countries joined 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.

Why Indo-Latin American Ties did not grow

Relations between India and Latin America did not gather momentum 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 in the past.

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.
Indian industries also discovered that some, 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.
There has been an upward swing in the relations between India and Mexico after Prime Minister’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, after the US, India is Mexico’s largest supplier of automobiles.
Brazil has historically been the cornerstone of India’s relations with Latin America, but recently there is a dip in bilateral trade.
However, India has invested billions of dollars in Brazil’s hydrocarbon reserves and crude imports.

Significance of Indo-Latin American Ties

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.
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
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
- 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
- Over 35,000 Latin Americans are employed in Indian IT companies operating in the region
- New Delhi is also actively promoting official policies intended to further expand Indian IT services in Latin America.

Countering Chinese Expansion 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 governments resent Chinese imports, which flood their markets at the cost of local businesses. They are also worried by their growing dependence on Chinese investments.
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.

Why India Should expand ties with Latin American countries

Growth prospect: 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.
Food Security: 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 other countries at high costs.
Cheaper imports: 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.

Way Forward

Bringing India and Latin America together will require effective institutional framework as well as businesses and people-to-people networks.
India 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.

Focus: LAC

Considering the potential of the market in the Latin American region an integrated programme “Focus:LAC” was launched in November 1997 by the Commerce Ministry.
The Programme has been reviewed from time to time and was extended up to March 2019.

Objectives of Focus LAC

Sensitizing the organizations viz. Export Promotion Councils, Chambers of Commerce & Industry, EXIM Bank, ECGC, etc. involved in trade promotion efforts.
Granting various incentives to Indian exporters and launching of export promotion measures
Focussing on the Latin American region with added emphasis on major trading partners of the region.
Focussing on the following major product groups for enhancing India’s exports to the Latin American region:

- Textiles including ready-made garments carpets and handicrafts
- Engineering products and computer software
- Chemical products including drugs/pharmaceuticals

Conclusion

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.
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.