India’s Latin America Moment

It is in India’s national interest to fill the existing gap in trade with Latin American countries.

In December 2017, Sterlite Power Grid of India won one of the largest Brazilian power transmission line projects in auction. This deal is valued over 850 million dollars and stretching over a 1000-km through country’s northern states. A large Colombian delegation visited India last month at PlastIndia fair, and with the CII India-Latin America business conclave coming later this year, it is opportune time to take stock of the relationship between the two emerging demographics.

One can often spot a young Indian walking past wearing a t-shirt featuring Che Guevara, the revolutionary hero from Latin America. Yet, not many Indians know much about this continent, which is a far-away land to them. Many possibilities, however, have emerged in the last decade or two after a five-decade hiatus since India’s independence. Latin America is a continent with nearly 20 countries, and has a combined population of nearly 640 million people — half the population of India. There hasn’t been a great deal of people-to-people interaction, distance being the primary reason. We share a colonial history; Indians were once colonized by the British, while most Latin countries count Spaniards as their colonial masters. There is tremendous opportunity for South Americans to visit incredible India, and likewise Indians need to see the marvel of Amazonian rainforest, Galapagos Island and the Machu Picchu.

Towards the end of the last decade, India did well to fill up the widening gap left by the Chinese in some Latin American countries in terms of trade, due to their business conflicts. For instance, India came to the rescue of Argentina by tripling its imports in 2010 from the previous year, mainly of soybean oil, when the commodity’s earlier top importer China was hostile to it. Bolivia received its biggest FDI when India’s Jindal group invested USD 2.3 billion in an iron ore mine. Indian IT services companies are found across Trinidad and Tobago, Chile, and Uruguay among other countries. Many of them saw huge gains in trade with India over the past few years.

Indian trade with Latin America was a measly USD 500 million in 1991 when Indian economy just opened up. Trade between India and Latin America since then peaked in 2012-13 to nearly USD 41 billion, of which nearly USD 27.5 billion were imports, riding on the high commodity prices from resource-rich Latin American countries. Indian exports peaked in that year to nearly USD 14 billion, and it was USD 7.3 billion in 2016-17, nearly the same in 2015-16. Imports from Brazil were USD 4.1 billion, of the overall trade of USD 6.7 billion with it. With Mexico, it was much more evenly balanced with USD 3.5 billion in exports with overall trade value at USD 6.4 billion.  With other large countries, we face a higher trade deficit, for instance with Venezuela, Argentina and Chile, this needs to be revisited. The balance should be such that we continue to rely on them for our commodity imports, while we ensure that they consume more of Indian exports, which hasn’t been the case traditionally.

From an absolute number perspective, trade between the two geographies haven’t moved much in the last two years, and remained stagnant at around USD 25 billion, after peaking to nearly USD 41 billion in 2012-13 period. Trade in general has slowed down globally since the global financial crisis of 2008. It was mainly due to lower commodity and oil prices, and lower GDP growth rate in the developed and emerging countries alike. Latin America’s real trade also clocked lower single digit decline, consistent with the global phenomenon, it worsened due to currency depreciation, political turmoil and recession in leading countries such as Argentina, Brazil and Venezuela. There, however, is normalization phase beginning in the Latin American continent, with the buoyancy in the global economic growth and trade.

India should focus on Latin American market as a key trade destination for its diversification of IT services exports, heavy machinery, manufactured goods and automobiles. India should secure imports of crucial commodities and agricultural products from the Latin American markets, as it is heavily reliant on imports for products such as oil and pulses. Venezuela with largest oil reserves and Brazil’s fertile agricultural land with abundance of water, should make these countries a crucial import destination for meeting the growing appetite of India.

In 2018, there are important elections lined up in Latin America, with Mexico, Brazil, Panama, Costa Rica and Colombia going to polls. Mercosur, a Latin trade organization, which signed a trade pact with India in 2009 is going through its own mini-crisis in the form oftrade negotiations with European Union and the removal of Venezuela last year on grounds of democratic violations. Within the organization, not everyone is abiding by the rules, given their own domestic challenges. For instance, Uruguay raised import duties on key items to finance its large fiscal deficit, while Paraguay challenged the goods and services procurement process in Mercosur.

In 2018, India has seen positive moves towards better trade relations with  Latin American countries. Suresh Prabhu, India’s Commerce minister, visited Latin America, and a Chilean delegation visited India recently to strengthen preferential trade pacts. There is a higher trade deficit with countries such as Venezuela, with whom we primarily import oil. But in March 2018, Venezuelan foreign minister Jorge Arreaza on his India trip said that his country wanted to trade with India in rupees so that later Venezuela can make the payments in the currency to buy goods and medicine from India. India has such an arrangement with only two other countries (Bhutan and Iran) so far.

We supply cars and two-wheelers to Mexico and Colombia, totaling 25 percent of our overall global exports in these segment. Trade between India and Latin America is better than most would expect, but can be much higher, considering what India and Latin American markets can offer each other. India does more trade with countries such as Mexico, Brazil, Venezuela and Colombia than with its own immediate neighborhood; or for that matter more than some of the East European and African partners. Amidst the ongoing bullying of Latin American countries by the US President, European trade protectionism and rising Chinese trade deficit with them, India should try to find the sweet spot to fill the emerging void. The sky is the limit.

About the author

Hemant Chandak

Hemant Chandak is a management professional in the technology domain, with more than a decade of experience. He is also keen observer of international affairs, and how geo-economics and geo-politics shape the world around us. He enjoys travel, volunteering and photography among other things.