Latin America Advisor

A Daily Publication of The Dialogue

How Important Are Ties Between India & Latin America?

Uruguayan President Tabaré Vázquez is slated to visit India next year, and the country’s foreign minister, Rodolfo Nin Novoa, is expected to attend the India-Latin American conference in October. The moves are seen as efforts by Uruguay to boost trade ties with India, a country whose population is expected to exceed China’s in the decades ahead. Meanwhile, Indian Prime Minister Narendra Modi visited Russia earlier this month for the BRICS summit, along with Brazilian President Dilma Rousseff. How economically important are India and Latin America to each other? What areas and economic sectors present the biggest opportunities for India and countries in the Western Hemisphere? To what extent does India compete against Latin America in terms of global trade and investment?

Riordan Roett, director of the Latin American Studies program at the Johns Hopkins University’s School of Advanced International Studies: “Relations between India and Latin America have been developing slowly but steadily over the last decade. Over the last year, India’s trade with Venezuela and Brazil were more than its trade with France. Oil dominates trade with Venezuela, but the trade profile with Brazil is more varied. Brazil has emerged as the ninth-largest global destination for India’s exports. Mexico, Chile, Colombia and Argentina are increasing their trade with India as well. The principal exports from India to the region are diesel, vehicles and auto parts, pharmaceuticals, organic chemicals, equipment and machinery, garments, synthetic yarn and fibers, iron and steel products, chemical products and cotton. Major imports from Latin America include crude oil, minerals, soy oil, gold and precious stones, raw sugar and wood. The trade relationship with India follows the path of the region’s global trade ties—exporting commodities and raw materials and importing higher value-added goods. A more rapid expansion of trade ties will require greater connectivity. India, unlike China, has no direct shipping services to Latin America. Goods are shipped first to Singapore or Europe, which increases both freight rates and shipping time. The absence of direct airline connections makes tourism, cultural and even official contact difficult and expensive. Diplomatic interaction has increased in recent years. The major interlocutor for India in the region is Brazil. Both countries are active members of the IBSA Forum and the BRICS group. A formal dialogue has been established between India and CELAC, the latest multilateral organization that represents all of the countries of the region. The first president of the new BRICS development bank, located in Shanghai, is an Indian citizen. But a cursory look at the Indian press indicates that New Delhi’s principal focus remains regional—Pakistan, China and its neighbors. Latin America receives minimal coverage, but when the region is mentioned, it is in a cordial manner. Ties between India and Latin America will evolve slowly over the next decade or so, but New Delhi represents, overall, a positive addition to Latin America’s global outreach.”

Jahangir Aziz, managing director and chief Asia economist at J.P. Morgan in Singapore: “Last year, Indo-Latin America trade stood at $39 billion, of which exports from India were $12 billion and imports from Latin America amounted to $27 billion. The size pales in comparison to China-Latin America trade, which has shown that distance is no longer a barrier to global transactions as long as there is a double-coincidence of wants: China needed commodities to fuel its growth, while Latin America had them in large supply. This trade also showed what happens when one becomes overly dependent on a single source of demand. Latin America’s recent growth woes owe a lot to the softening of China’s commodity demand, which has begun to reduce the resource intensity of growth. India’s trade with Latin America is also overly commodity-based. Take away the oil imports from Venezuela and exports of refined petroleum to Brazil and the size of the transactions falls to just $23 billion. But the fact that India imports oil all the way from Venezuela, refines it and then re-exports some of it to Brazil, again corroborates that distance is not why India and Latin America do not trade much more. Perhaps there is a lack of a double-coincidence of wants. But I doubt that. For example, India needs cheap and reliable sources of commodities to fuel its $1 trillion infrastructure development dream, while Latin America sorely requires new sources of demand. My guess is that there is a serious lack of awareness of each other’s products, especially among SMEs, in these countries. Greater interaction, at least among these countries’ leaders, is a good start to raise this awareness. If Bollywood can film in Rio, there is no reason why Mumbaikars can’t eat Chilean sea bass.”

Francisco Velázquez de Cuellar, managing partner of Axon Partners Group: “India-Latin America relations are increasingly acquiring strategic orientation and moving ahead. India’s trade with Latin America has increased from $2.6 billion to $42 billion over the past decade and is expected to increase to $100 billion in the next four years. Axon Partners Group has seen many businesses interested in the synergies and complementary elements that India and Latin America have. Indian businesses are attracted by the stable and predictable Latin American market, with vibrant democracies and strong macroeconomic fundamentals, whereas India offers a large and growing market for Latin American businesses. Trade, energy and geopolitical relations are key areas for strategic cooperation between the two regions. India perceives Latin America as a long-term contributor to its energy and food security. Governments across both regions should make concerted efforts to open up markets, cut redundant regulations, boost education and promote cooperation in trade and investment between the two regions. IT would be an important sector for India and Latin America due to their strong workforces and India’s large English-speaking population. India is one of the largest suppliers of IT services to Latin America with more than 35,000 Latin Americans employed at these companies in the region. These two regions enable companies to provide support services around the clock due to the time difference. Technology transfer and marketing connections from Asian multinationals can assist Latin American firms in joining global value chains and can promote internationally competitive industrialization. Latin America’s competition with India is low. Export structures of most Latin American countries are very different from Indian export structures, with Mexico being the only country in Latin America whose comparative advantage has been moving in the same direction. Axon believes that small- and medium-sized enterprises in both India and Latin America should take advantage of the burgeoning market in the other region. Identifying niche market gaps in the regions that can be filled with expertise of native companies will be paramount to successful market entry.”

Hari Seshasayee, independent researcher of India-Latin America relations: “The announcement that Uruguay’s foreign minister, Rodolfo Nin Novoa, will attend the annual India-Latin America Conclave is a welcome one. Uruguay may be a small country, but it is a valuable partner: it is a founding member of Mercosur, with which India has signed a preferential trade agreement, and it remains a regional hub for Indian companies such as TCS, and more recently, for Tata Motors and Zamin Resources. The growing significance of India-Latin America relations is manifest in the recent growth in trade and investments, high-level political exchanges and cultural exchanges through cinema and the arts. Some on-the-ground measures implemented by the Indian government may help expand the relationship with Latin America, such as the appointment of a special secretary for the Americas and a call for external consultants in the Ministry of External Affairs. The energy, pharmaceuticals, mining, information technology, agricultural and motor vehicles sectors form the greatest components of the India-Latin America commercial relationship. There remains considerable potential for collaboration in renewable energy, infrastructure and joint manufacturing. There is more complementarity than competition between India and Latin America; together, they form an integral part of the global economy as engines of economic growth; they provide each other the opportunity to diversify and expand to relatively new markets, and lessen their dependence on traditional partners; and they complement each other in terms of trade and investment, with only a few areas of overlapping interests. We can expect more cooperation in the areas of energy and food security.”

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