Latin America is more important for India’s exports than some neighbours and traditional trade partners

Latin America is more important for India By Amb Rengaraj Viswanathan *


Women's Empowerment and Equal Opportunities Initiatives in Paraguay

Burgeoning ties, between a continental sized sovereign entity (India) and a transcontinental expanse (Latin America), within the Global South, are seldom the hobbyhorse of discussion, hence, an exercise in its build, could hardly be commonplace and facile.

India exported more to the distant (15,000 km) Guatemala (USD 305 million) than to the neighbouring (3,400 km) Cambodia (USD 196 million) in 2018-19.

India’s export of USD 181 million to the remote and small Uruguay (15,000 km away; population 3.4 million) is more than to Kazhakstan (USD 143 million) which is 1,600 km from Delhi and has more than five times the population with 18 million.

India exported more (USD 216 million) to Dominican Republic (DR) than to the near by Uzbekistan (USD 201 million) which has double the population of DR.

India’s exports to Central America (USD 968 million) are more than to the Central Asian Republics (USD 442 million) although the latter are close by and have more population (72 million) than Central America’s 42 million.

India’s exports to Mexico (USD 3.84 billion) are more than the exports to Myanmar (USD 1.2 billion), Russia (USD 2.4 billion), Canada (USD 2.9 billion), Egypt (USD 2.9 billion) or Nigeria ( USD 3 billion).

Mexico is the second largest destination for India’s vehicle exports with USD 1.61 billion. This is more than the exports to neighbouring Bangladesh (USD 1.1 billion), Nepal (USD 738 million) or Srilanka (USD 473 million).

India’s vehicle exports to Colombia (USD 360 million) are four times the exports to neighbouring Myanmar USD 72 million.

India’s motorcycle exports to Colombia (USD 216 million) are more than the exports to Sri Lanka (USD 215 million) or Nepal (USD 186 million). Colombia is the third largest export destination in the world for Indian motorcycles. In 2014-15 it was the top destination, now overtaken by Bangladesh (USD 261 million) and Nigeria (USD 240 million).

The above statistics should open the eyes of those who might think that Latin America is less important for India’s exports on the grounds that the region is too far and less familiar. 2018-19 is not the first year that Latin American countries have overtaken neighbours and traditional partners as more important for India’s exports. This trend had started since 2010 when Indian exporters started exploring the Latin American market more seriously. Even with longer shipping time and heavier freight cost, Indian goods have become competitive in Latin America. Some brands such as Bajaj, Hero, Mahindra and Tata have become popular in the region. Indian motorcycles have become the leaders with the highest market share in a few countries.

The growing importance of Latin America to Indian companies is best illustrated by the success story of UPL. This largest Indian agrochemical firm, has more business in Brazil (USD 1.2 billion) than in India. Brazil’s share is 25 percent of the global business of UPL. Latin America accounts for USD 1.6 billion (34%) of the total global revenue of USD 4.7 billion of UPL. The region’s share is more than that of Europe, USA or Asia.

Trade

According to the figures just released by the Ministry of Commerce & Industries, India’s exports to Latin America increased by 9.6 percent in 2018-19 (April to March) reaching USD 13.16 billion from USD 12 billion in 2017-18. The Imports from the region went up by 5.3 percent to USD 25.73 billion from USD 24.44 billion in 2017-18. Total trade with the region has gone up by 6.7 percent to USD 38.89 billion from USD 36.45 billion last year.

Mexico has overtaken Brazil as the top trading partner of India in Latin America for the first time in 2018-19.

Trade with the 19 countries of Latin America is given in the table below:
Women's Empowerment and Equal Opportunities Initiatives in Paraguay Exports

Mexico is the top destination in the region, having overtaken Brazil in the last two years.

Vehicles are the leading item of exports to Latin America which accounts for 18% of India’s global vehicle exports. India’s exports of 460 m of motor cycles to Latin America are 22% of India’s global exports (USD 2,127 million). Major destinations of vehicle exports in the region are: Mexico USD 1.62 billion, Colombia USD 360 million, Brazil USD 319 million, Chile USD 305 million and Guatemala USD 90 million.

The region has emerged as a significant destination for pharmaceutical exports. Major importers of Indian pharmaceuticals: Brazil USD 270 million, Chile USD 91 million, Peru USD 70 million, Colombia USD 62 million, Mexico USD 49 million and Guatemala USD 43 million.

The main export items of India to the region are given in the table below:

Women's Empowerment and Equal Opportunities Initiatives in Paraguay Imports

Latin America contributes to India’s strategic energy and food security by supplying 12% of India’s global imports of USD 117 billion of crude and 22% of India’s vegetable oil.

The competition of Latin American crude and edible oil have put pressure on the monopoly suppliers of these items from the Middle East and South East Asia (Indonesia and Malaysia supply palm oil) to offer to India lower prices and better terms.

The suppliers of crude were: Venezuela USD 7.25 billion, Mexico USD 4.27 billion, Brazil USD 1.6 billion, Colombia USD 571 million, Ecuador USD128 million and Argentina USD 47 million.

The region has abundant reserves and the potential to meet India’s needs of Lithium (for electric vehicles) and pulses in the long term.

India has started importing raw gold from Latin America in the last five years. Peru is the top supplier at USD 2.2 billion, followed by Bolivia USD 849 million, Brazil USD 541 million, Dominican Republic USD 537 million and Colombia USD 380 million. The direct imports from the region have helped India to cut costs by saving from the margins paid to gold sellers in Switzerland and UAE.

Venezuela continued as the main source of imports in the region with its crude oil supply. But this will go down drastically this year since India has been forced to stop imports of Venezuelan oil by US sanctions. However India can source more crude from other Latin American suppliers.

The Market

Latin America is a large market of 600 million people with a combined GDP of USD 6 trillion. The regions’ imports are around USD 1 trillion.

The economies of the region are doing relatively well. The GDP of the region is projected to grow by a modest 1.3 percent in 2019 and continue its growth trajectory in the medium and long term. The average inflation and external indebtedness are in manageable figures. Democracy has become stronger in the region with more political stability.

The only exceptions are Venezuela and Argentina.

Venezuela’s GDP is forecast to shrink by 10 percent. The country suffers from hyperinflation of several hundred thousand percent, devaluation of the currency by 99 percent, shortages of essential consumer items and an energy shortage. The economic misery is compounded by the political crisis, break down of institutions and social instability. US sanctions have made the economic situation worse.

Venezuela’s GDP is forecast to shrink by 10 percent. The country suffers from hyperinflation of several hundred thousand percent, devaluation of the currency by 99 percent, shortages of essential consumer items and an energy shortage. The economic misery is compounded by the political crisis, break down of institutions and social instability. US sanctions have made the economic situation worse.

Argentina’s GDP is expected to contract by 1.2 percent in 2019. Inflation is over 40 percent and the country has contracted a debt of USD 57 billion from the IMF. The country is preparing for elections in October. It is hoped that 2020 will see a recovery of the economy.

Brazil and Mexico, the two largest markets are set to grow in the coming years with new Presidential terms having started at the beginning of 2019.

Moving forward

India’s exports can be increased to USD 25 billion in the next five years if the exporters, the export promotion councils, the government and the embassies coordinate with a plan of action seriously and systematically. India should get inspiration from the Chinese who have set a target of USD 500 billion of trade with Latin America by 2025 taking it up from their 2018 figures of USD 148 billion exports and USD 157 billion imports.

The Commerce Ministry of India should revive its Focus LAC programme which had helped in the past in encouraging and supporting Indian exporters to explore the business opportunities in Latin America.

The Indian government should consider extending large Lines of Credit to support Indian exports. While China has given USD 150 billion of credit to the region, India has given less than USD 300 million.

India should open embassies in countries such as Ecuador, Bolivia, Paraguay and Dominican Republic.

This is a good time to accelerate the economic push into Latin America which has started attaching importance to India, the third largest export destination for the region’s exports after US and China. Disenchanted with the protectionist US and Europe and determined to reduce the over-dependence on China, the Latin Americans see India as a large and growing market as well as a benign economic partner for win-win in the long term.

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Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

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