Mutual value addition in Indo-Latin American economic relations

Latin America Corner BY R. Viswanathan*

Mutual value addition in Indo-Latin American economic relations

India and Latin America see the future not only through these numbers but as long-term win-win partners with mutual value addition and complementarities.

The economic relations of India with Latin America have evolved in three stages, as in many Bollywood film stories: started with mutual ignorance, ran into occasional flirtation and climaxed in romance.

In the fifties, sixties and seventies, it was a period of mutual ignorance and indifference. India was grappling with its own survival as an independent country in the process of consolidating itself as a democracy with diverse languages, religions, ethnic groups and cultures. On the other side, Latin America was mired in military dictatorships and economic instability. The two sides did not feel the need to reach out to each other.

The second stage of occasional flirtation was in the eighties and nineties when the two sides probed each other tentatively. In the eighties, the Latin American region was coming out of dictatorships and transitioning to democracies. But the young democracies were forced into Washington Consensus which lead to “the Lost Decade” when neoliberalistic policies pushed millions of people into poverty. Around this time, India was also undergoing its own transition with Rajiv Gandhi who brought in a new spirit as the youngest (age 40) Prime Minister. This was followed by the 1991 economic reforms and the opening of the market. At this transitional time, both India and Latin America flirted with each other through some transitory interactions and transactions.

Since 2000, the third phase of relations has started with mutual attraction and romance between the two sides. Latin America enjoyed unprecedented stability and prosperity in the first decade of this century termed as the “Growth Decade” - when millions of poor were uplifted to the middle class by the Leftist governments helped by the commodities boom. At the same time, India had also transformed into an emerging power with high economic growth and aspiration to become a global player. The New India and the New Latin America of the twenty-first century started courting each other seriously and systematically. They discovered mutual complementarities and synergies. They started building a long-term partnership. The economic relations have undergone a paradigm shift, as illustrated below:

India’s exports (2017-18; April to March, the financial year) of 160 million dollars to the distant and small Uruguay (15000 km away; population 3.4 million) is more than the exports of 133 million to Uzbekistan which is just 3000 km from Delhi and has a larger population of 31 million.

India’s exports of 292 million dollars to distant Guatemala is more than double the exports of $121 million to Cambodia, a close neighbour.

India exports more to Central America (956 million dollars) than to the Central Asian Republics ($365 m) although the latter is close by and has more population (70 million) while the Central American population is just 46 million.

India’s exports to Mexico ($3.78 billion) are more than the exports to neighbouring Iran ($2.65 bn) and Thailand ($3.65 bn), and the traditional partners such as Russia ($2.13 bn), Canada ($2.5 bn) or Egypt ($2.4 bn)

Latin America is the leading destination for India’s vehicle exports at 3.76 billion. Mexico is the largest market for India’s vehicle exports with 2.02 billion. Colombia is one of the top three global markets for Indian motorcycles and used to be the #1 market a few years back. Hero, an Indian motorcycle firm has invested 80 million dollars in a production unit in Calli, Colombia.

India has also become more important to Latin America’s exports. India is the third largest destination of Latin American exports with 22 billion dollars in 2017. Latin America exports more to India than to its traditional partners such as Germany, France, UK, Spain, Italy, Japan and South Korea.

India is the top market for Latin America’s export of vegetable oil, second largest for petroleum crude and the fourth largest for copper and gold.

India and Latin America have realised that there is mutual value addition, going beyond the foreign exchange earned in exports.

India exports a billion dollar worth generic medicines to Latin America. This has helped Latin American consumers and governments to reduce the cost of health care, which has become affordable to millions of poor. The entry of Indian generic pharmaceuticals in Latin America in the last two decades had put pressure on local and multinational firms to reduce their prices and increase the proportion of generics as against the costly patented medicines.

About thirty percent of India’s exports to Latin America are industrial raw materials such as APIs (Active Pharma Ingredients - pharma raw materials), organic chemicals, raw cotton, yarn, fibre and dyestuff. These have helped Latin American manufacturing sector to reduce their cost of production and stay competitive. Most Latin American pharmaceutical manufacturers import APIs from India.

India values the fact that Latin America contributes to its energy and food security.

India sources around 15 percent of its global crude oil imports from Latin America. This helps India to reduce overdependence on the volatile middle east and diversify import sources. Oil is a top global export of Latin America which has large reserves as well as the capacity to increase its exports. The US, the principal market of Latin America has started reducing its oil imports after the game-changing shale revolution. On the other hand, India needs more and more oil to fuel its high economic growth. India’s domestic crude production has plateaued and imports have inevitably been increasing. There is thus a clear complementarity between India’s demand and Latin America’s supply.

India has been importing two billion dollars worth soy oil and sunflower oil from South America. This helps India to reduce the overdependence on Indonesia and Malaysia, the monopoly suppliers who account for about 12 million tons out of India’s total imports of 15 million. The health-conscious Indians appreciate the South American soy and sunflower oil as better than the South East Asian palm oil which has more fat.

In recent times, South America has started supplying pulses to India which imports about five million tons a year from countries such as Myanmar, Canada and Australia.

India is set on the course of increasing imports of vegetable oil and pulses in the long term due to the growing gap between domestic production and demand. Every year, India is losing hundreds of thousands of hectares of agricultural land to urbanisation and industrialisation. India faces serious water shortage and the water table in the main agricultural provinces including Punjab are going down due to indiscriminate and unsustainable pumping of groundwater for irrigation of water-intensive crops such as rice and sugarcane. At the same time, the Indian population increases every year by 15 million, equal to the population of Chile. The growing middle class wants to eat better food, going beyond the staple of basic cereals. On the other hand, South America has vast tracts of arable land and can bring in millions of hectares under cultivation. The region has abundant water reserves as well as technology and best practices. It has the potential to increase production to feed another 500 million more people. This surplus agricultural capacity is useful to India’s food security in the long term.

Indian firms have invested over ten billion dollars in Latin America in sectors such as energy, pharmaceuticals, chemicals, auto parts and IT. The Indian IT, BPO and KPO firms employ around 30,000 young Latin Americans, who appreciate the opportunity to learn and upgrade their skills. Some of these have become entrepreneurs after gaining experience with the Indian tech firms.

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 such as Globant from Argentina, Stefanini from Brazil and Softek from Mexico have established development and delivery centres in India employing over a thousand Indian software engineers.

Latin America has even added value to Indian spiritual business. Several thousand Latin Americans practice and teach yoga, meditation and disseminate the teachings Indian Gurus. The Argentine Band Yoga Rave sings in pure Sanskrit in their shows performed sometimes in nightclubs. During their performance in the nightclubs, meat, alcohol, smoking and drugs are not allowed. Janderson Oliveira de Fernandes of Sao Paulo came to India for spiritual enlightenment. But he went beyond learning and became an authentic Guru himself anointed as “Sri Prem Baba”. He has ashrams in twelve countries around the world where he preaches Indian spiritualism with a Brazilian touch.

In 2017-18, the Indo-Latin American trade was 34 billion dollars. India had exported 12 billion and imported 22 billion. The trade has the potential to reach 100 billion dollars by 2025. India and Latin America see the future not only through these numbers but as long-term win-win partners with mutual value addition and complementarities.

The new paradigm of Indo- Latin America economic relations has added a real Bollywood touch too. Gustavo Santaolalla of Argentina has composed music for Aamir Khan’s film Dhobi Ghat. Barbara Mori, a Mexican, acted as the heroine in the Indian Film Kites. There are quite a few Indian films with acting by Latin Americans who blend naturally with their café con leche (coffee with milk) complexion.

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