Latin America and India: Natural partners for a brighter future

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by Abhineet Singh

on 11 Apr 2016

Latin America boasts of a population of around 626 million and has a combined GDP of $5.5 trillion; India’s population is around 1.2 billion and GDP $2.1 trillion. Latin America’s natural resources, agricultural produce and strong social infrastructure and India’s large market and expertise in the service sector offer huge trading potential due to complementarity of resources. Latin America and India also share the same global outlook when it comes to Doha Development Agenda, climate change, reform of the IMF and the World Bank. Notably, as per Goldman Sachs, India and Brazil are going to be the world’s third and fourth largest economies by 2050 [1].

Energy

The International Energy Agency estimates that India’s oil import dependency will increase from 70% in 2014 to 90% in 2040 [2]. Strategically, India needs to reduce its dependency on the volatile West Asia. Crude oil is India’s largest import from Latin America, totalling 20% of her total oil imports [3]. Venezuela has the highest share followed by Mexico, Brazil, Columbia and Ecuador [4]. ONGC, IOL, Reliance, Suzlon energy are already operating in Latin America. With the discovery of shale gas, Venezuela will be looking to diversify its oil market and India emerges as a natural choice. Argentina has offered to partner with India for shale gas exploration.

India’s Paris pledge mentions that it wants to source 40% of its electricity from renewables by 2030, making renewable energy another possible area of cooperation. Uruguay has made an exemplary shift towards wind energy producing 95% of its electricity from wind and renewables account for 55% of the country’s total energy mix [5]. Global Solar Alliance, a diplomatic masterstroke by India, has also attracted the attention of many Latin American nations. India, together with France, plans to mobilize $1 trillion for this initiative by 2030 [6]. Brazil, Chile and Mexico show great potential for solar energy and India can initiate collaboration [7].

Natural resources

The Latin American nations are well endowed with natural resources which includes oil, minerals, vast agricultural land and large fresh water resources. Estimates show that Latin America could supply a third of meat, a third of fruit and vegetables and half of oilseeds traded worldwide and it holds 42% of the world’s agriculture expansion potential [8]. Latin America houses 31% of world’s fresh water resources and is praised for its good water management [9].

India, with its rapidly growing economy and burgeoning population, needs access to oil, minerals, agricultural produce and fresh water. Besides oil, India’s import of copper, sugar, vegetable oil, soy imports are also increasing. Copper is mainly imported from Chile and vegetable oil from Argentina [10]. With domestic agriculture bogged down by low productivity, India could work with Latin America on a second Green Revolution which uses biotechnology, water conservation and preservation and is environmentally sustainable.

India has already released guidelines for buying land in Latin America mainly for agriculture and mining [11]. India can learn from Brazil’s experience in agribusiness best-practices such as No-Till cultivation, silo-bag storage and Agricultural Process Outsourcing. India can learn better water management for agriculture, industrial and household use [12]. Climate change threatens people’s access to water in both regions as both have a large poor population that is most vulnerable to climate change.

Industry and Trade

India is aggressively looking to increase trade relations with the region. New Delhi signed a Preferential Trade Agreement (PTA) with Chile in 2006, with Mercosur in 2009. India invited the CELAC Troika of foreign ministers to their first dialogue in Delhi in 2012. India signed a Framework Agreement for cooperation with SICA (the Central American integration group) in February 2004 and became an observer in the Pacific Alliance in 2014. IBSA and BRICS also provide platforms for cooperation. The New Development Bank (formerly BRICS Development Bank) can be further used to strengthen relationship between India and Latin America.

Bilateral trade between India and Latin America increased from 2.6 billion dollars in 2001 to 46 billion dollars in 2015 [13]. Latin America, according to a report by UN Economic Commission for Latin America and Caribbean, attracted $179 billion of FDI in 2013, the highest for any region in the world, showing its vast potential. Indian IT companies ushered the IT revolution in Latin America with TCS in 2001. The 12 hour time difference between India and Latin America has allowed IT firms to provide 24 hour services to their clients. India’s 3.3% share in world services exports was almost equal to that of the Latin American nations.

India pharmaceutical companies export around one billion dollars of pharmaceutical products to Latin America and are upbeat about this market as they move up the value chain. Textiles are another important Indian export.

India should diversify its trade from being a net importer of primary products and start investing in Latin America. Indian FDI could be invested in information technology, pharmaceuticals, agriculture processing, construction, manufacturing, mining and automobiles. India has invited the Latin American nations to participate in Make in India, Digital India, Skill India, 100 Smart Cities project and Clean Ganga Mission [14].

Latin America is apprehensive about Chinese investment (because of dumping of cheap goods which hurt local manufacturing, and the presence of large number of Chinese migrants leaving fewer jobs for locals). Due to aggressive farmland purchases by the Chinese, Brazil, Argentina and other nations are contemplating restrictions on farmland purchases by foreign governments [15]. Indian business, however, is welcome because we hire local staff. Aegis, an Indian IT company, has 5,000 staff in Argentina while TCS has 7,500 local staff on its rolls. Indian IT, BPO and KPO companies are employing 25,000 young Latin Americans [16].

Defence and space

Latin America provides a lucrative market for Indian defence exports. Hindustan Aeronautics Limited (HAL) is looking to further export ‘Dhruv’ helicopters to the region after Ecuador purchased 4 helicopters in 2008, when HAL beat competitors like Israel, Russia and Europe [17]. India is increasing military training in Latin America and looking to export Brahmos missile to the region [18]. India has ordered three Embraer 145 aircrafts from Brazil which are to be used for intelligence, reconnaissance and surveillance operations [19]. At the International Fleet Review 2016 at Visakhapatnam, for the first time, Brazil, Columbia, Peru and Chile participated [20]. While Indian and Brazilian air force requirements are quite different, India could learn from the Brazilian acquisition process for fighter planes wherein they managed to include technology transfer in the Gripen deal while Indian Rafale deal is still uncertain [21].

Space is emerging as an important tool in Indian diplomacy, thanks to the Indian Space Research Organization (ISRO). Brazil signed a deal with ISRO for space cooperation in 2004 and recently, it was decided that India will help a Brazilian earth station for receiving and processing data from Indian Remote Sensing (IRS) satellites [22]. Brazil has asked India to train its scientists for their space programme [23]. India also assisted Argentina with its satellite launch.

Physical and Social infrastructure

Both Latin America and India face similar developmental challenges like food security, water management, climate change, reducing poverty, and increasing equality [24]. The United Nations Economic Commission for Latin America and the Caribbean (ECLAC) in its report, “India and Latin America and the Caribbean”, compares India and various Latin American nations across parameters like health and primary education, higher education and training [25]. Most Latin American nations score higher than India on the first two parameters; India could learn from their experiences.

India and Brazil have the world’s third and fourth largest urban population and can learn from each other on aspects of urban planning like using technology for urban management, participative governance, and effective disaster management. City Statute enacted in Brazil in 2001 is a unique legal instrument which helps municipalities democratise urban management through public hearings and participatory budgeting [26]. On infrastructure, both India and Brazil are interested in developing water transport. India’s National Waterways Grid and Sagarmala Project and Brazil’s Strategic Waterway Masterplan could provide a much needed boost to their economies [27]. India could learn from Brazil’s experience in reducing deforestation [28]. Total factor productivity has been a major source of economic growth for India, whereas Latin American performance in this area has been disappointing. This means that economic growth in India is being driven increasingly by improvements in quality rather than in quantity of capital and labor inputs, presenting another area of potential collaboration.

With questions being raised over the ability of capitalism to diffuse growth, both India and Latin America need to look away from the West, and towards indigenous and innovative models for sustainable, equitable development. Latin America can learn from India’s experience of a favorable intellectual property regime, affordable railways, affirmative policies for the disadvantaged, and using technology to improve productivity by cutting losses (Aadhar card for Direct Cash Transfer), and best election practices including use of electronic voting machines.

India’s corporate social responsibility law can look into Peru’s unique corporate taxation policy under which companies have the option of paying part of their tax bill in the form of regional infrastructure works in the poorest regions [29]. India’s much touted JAM trinity approach can learn from Brazil’s Bolsa Familia program which has been very successful in reducing poverty and improving governance. Corruption is endemic in both India and Latin America and they have to take the bull by the horns if they want to achieve some progress.

Global Governance and common challenges

Both India and Latin America cooperate in regional and multilateral groupings like the WTO, IMF, World Bank, and the United Nations, and seek reform of the global financial system. Recent reforms have increased the quota share of developing countries and placed India and Brazil among the top ten members of IMF [30]. India and Latin America share similar concerns regarding Doha Development Agenda. Brazil and India are the only developing countries that have participated consistently in all major ministerial phases of the Doha round between 2001 and 2008 [31]. With the recent developments, it is imperative that they increase cooperation so as to secure the interests of their poor while ensuring the goal of free trade within the framework of Group of Twenty (G-20) alliance [32].

Curbing terrorism is another potential area of cooperation. Global terrorism migrated from Western Europe in 1970s to Latin America in 1980-90s and now its epicentre is Middle East and South Asia [33]. While left wing terrorism has reduced its spread across Latin America, religious fundamentalism is on the rise. The situation is complicated by drug cartel operations and the potential for cooperation between jihadist organisations and drug cartels [34]. BRICS nations are already working towards forging a consensus on terrorism [35].

Challenges

The first challenge is geography. Improving connectivity is vital for fostering better relations. Presently, there are no direct flights between the two regions and shipping takes at least 45 days, making it a costly affair. Language and culture pose another challenge. Currently, there are no Latin American study programmes at Indian universities and there is little cultural exchange. Bollywood has started attracting some Latin American stars and Yoga is very popular in Latin America.

Another challenge is diverging interests in some areas. Agricultural producers like Argentina and Brazil want liberalised trade in agriculture whereas India is resistant to dismantling agricultural tariffs, at least till the developed world brings their agricultural subsidies program in line with the WTO. Mexico, Chile and Peru have signed the Trans Pacific Partnership (TPP) which establishes an intellectual property regime favorable to the developed countries, potentially hampering Indian pharmaceutical market in the region. India, Mexico and Argentina have different views regarding UNSC reform.

India’s trade with Latin America is concentrated with a few countries and in a few sectors. The imports are mainly from Venezuela, Brazil, Mexico and Columbia whereas exports mainly go to Brazil, Mexico, Columbia and Peru. More than 70% of Indian FDI in the region has been directed towards tax havens like British Virgin Islands and Cayman Islands, posing another challenge. Most Latin American nations still have little access to Indian markets and rue that most of the trade is in primary products. Also, most engagement is via bilateral ties and regional groupings are yet to be exploited to their maximum potential.

India needs to reinvigorate its foreign policy to look and act towards Latin America to secure its interests in view of China’s rapid global engagement. India’s soft power must be utilised to gain advantage over its competitors. Latin America and India are the natural choice for playing a leadership role among developing and least developed countries. With Prime Minister Modi’s focus on enhanced diplomacy, India should start giving more weight to Latin America.

The author is an Electronics and Telecommunication graduate with interest in geopolitics

References

1) https://www.chicagobooth.edu/~/media/E60BDCEB6C5245E59B7ADA7C6B1B6F2B.pdf

2) http://www.worldenergyoutlook.org/media/weowebsite/2015/IndiaEnergyOutlook_WEO2015.pdf (Page 118)

3) http://www.mea.gov.in/in-focus-article.htm?25492/Latin+America+holds+huge+promise+for+Indian+trade+amp+investment

4) http://commerce.nic.in/

5) http://www.theguardian.com/environment/2015/dec/03/uruguay-makes-dramatic-shift-to-nearly-95-clean-energy

6) http://fortune.com/2015/11/30/narendra-modi-climate-justice/, http://www.ft.com/intl/cms/s/0/6b781150-978c-11e5-9228-87e603d47bdc.html

7) http://www.renewableenergyworld.com/articles/2013/05/latin-america-report-the-future-of-solar-in-latin-america.html

8) http://www.worldbank.org/en/news/feature/2013/10/16/food-production-trade-latin-america-caribbean-future, http://en.mercopress.com/2012/06/04/latin-america-holds-42-of-the-world-s-agriculture-expansion-potential

9) http://www.worldbank.org/en/news/feature/2013/03/22/world-water-day-latin-america-achievements-challenges

10) http://www.icwa.in/pdfs/SPHSarang.pdf