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4.2] India Latin America Relations

1. Introduction to Latin America

India Latin America Relations

Latin America denotes the region south of the United States i.e., Mexico, the Caribbean Islands and South America. The name is given since the dominant languages spoken in the region are derived from Latin. Around 60% of the population speaks Spanish, and 30% speaks Portuguese. While India Latin America Relations have a huge potential given complementary nature of their economies, a lot still remains to be achieved.

The region occupies almost 13% of the earth’s land surface. The region has a rich and diverse geography and climate. This has given rise to independent units with varying social and cultural characteristics. The region is home to the world’s largest river Amazon, and the largest equatorial forest, often called as the lungs of Earth.

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1.1 Brief History of Latin America

From the 15th to 18th century, almost entire region was a Spanish and Portuguese colony. While Brazil was mostly a Portuguese colony, the remaining Latin America was colonized by Spain, with some presence of Britain and France in the Caribbean islands. The region gained independence from Spain and Portugal in the early 19th century (by 1825), while the Caribbean islands achieved freedom from British much later in 1960s-70s. The region had no distinct, unified culture before European advent, and Spanish and Portuguese colonization of the region laid the basis for societies now characteristic of Latin America.

1.2 Latin American Economy

During colonization, the main attraction of the region was metals and minerals (silver, gold and diamond) and agriculture (the sugar industry, assisted by bringing slaves from Africa). The same commodities still dominate the exports from the region, assisted by crude oil. While Brazil is the world’s largest producer of Sugarcane, Mexico tops the list in silver production, and Chile contributes to one-third of global copper production, again, the highest in world. The region also has rich sources of gold, diamonds, emeralds, iron, crude oil etc. and the metal Lithium, an important metal in electric batteries.

There are two major trade blocs in the region i.e., Pacific Alliance and Mercosur. The members of the Pacific alliance include Chile, Colombia, Mexico and Peru, which all border the Pacific Ocean. The Mercosur members are Brazil, Argentina, Paraguay and Uruguay. There are also many minor trade agreements involving regional countries. Some of the countries from the region also have an FTA with the United States and Canada.

1.3 Political Environment of Latin America

On the political front, the region has been successful in establishing credible electoral processes. However, it has not been replicated in other crucial aspects such as the rule of law, the workings of representative institutions, and the emergence of peaceful and cohesive societies. However, despite strong economic growth, wealth inequality remains a serious issue in Latin America. Consequently, Latin America and the Caribbean have been cited by numerous sources to be the most dangerous regions in the world in terms of violence and insecurity of life. Over the past two decades, two of the region’s countries—Venezuela and Nicaragua—have transitioned from being representative democracies to dictatorships, while democracy is still struggling in other countries.

2. Evolution of India Latin America Relations

“India did not enter me through my mind but through my senses.”

– Octavio Paz, the Mexican Nobel Laureate and former Ambassador to India

When India became a nation-state in 1947, independent Latin America had been around for over a century. The political and diplomatic avenues for India Latin America relatoins were established soon after 1947, given the absence of disputes and a shared colonial legacy. Although the early political exchanges identified some common ground, it had little political impact.

Although Cuba was one of the earliest members of NAM, the region was deeply influenced by the Cold War. During the 1950s – 80s, in the name of war against communism, thousands of leftists were hunted, detained, tortured and killed in Latin America by the military dictatorships supported by the US. The 80s and 90s were the period when dictatorships ended and democracy was established in most of the region. Thus, during this period, when Latin America was going through a crisis, and India was still searching for its position in a new world order, the India Latin America relations remained lackluster.

Post Cold-War, the focus of the Indian government has been Look East policy (1991), SAARC, and West Asia for energy security. However, the private sector took the lead in establishing relationships with Latin America. Bajaj Automobiles has a large customer base in Latin America (LA), the Indian pharmaceutical industry is almost over entire Latin America, and the IT industry has also gained roots in the last two decades. Thus, while for other regions, trade followed the flag, it’s opposite when it comes to Latin America.

As former Indian Ambassador to the countries in the region, Deepak Bhojwani comments, “Latin America remains distant geographically and conceptually… both regions have complementary economies…. there is huge potential if the regions come together… and a political will is required to actualize this untapped potential.”

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3. India Latin America Trade

A growing trade is an indicative of growing India Latin America Relations. During FY 2022-23, India recorded a trade of $48 billion, the highest-ever business with the region. The following table shows India’s trade with LA over last decade.

YearExportsImportsTotal Trade
2010-1110.0414.0124.05
2011-1211.3318.4229.75
2012-1312.4831.3843.86
2013-1412.7731.3144.08
2014-1513.729.343
2015-161019.729.7
2016-1710.419.630
2017-1812.124.436.45
2018-1913.1625.738.89
2019-2013.1820.6733.85
2020-2112.7414.9227.66
2021-2218.8925.6244.5
2022-2322.4125.5948
 * Figures in USD billion
India Latin America Trade 2010-2023
Img. The trendline represents India’s total trade with Latin America. The y-axis represents figures in USD billions

3.1 Exports

India’s total export from LA in FY 23 was $22.41 billion. The major items of export included:

  1. Petroleum products – $4.7 billion
  2. Vehicles – $4.33 billion
  3. Chemicals – $3.4 billion
  4. Machinery – $2.73 billion
  5.  Pharmaceuticals – $1.45 billion

Latin America is a substantially large market for Indian products. With 19 countries, a population of around 600 million and a $6 trillion GDP, there are large unexplored opportunities in LA for Indian businesses. While the exports have more than doubled from $10 bn in 2010, to $22 bn in 2022, they can very much become $50 billion by 2030.

3.2 Imports

India’s total import from LA in FY 23 was $25.59 billion, and the major import items included:

  1. Crude oil – $7.6 billion
  2. Gold – $6.6 billion 
  3. Vegetable oil – $5.7 billion
  4. Copper – $1.87 billion
  5. Machinery – $245 million

Regarding crude oil, imports, Mexico ($ 2.8bn) and Brazil ($ 1.9bn) were important countries of import. Venezuela used to be a major source of crude oil imports for India during 2001-2015. This explains the higher imports from LA up to 2015. However, the US sanctions, coupled with the unstable political environment of Venezuela have contributed to its miniscule contribution to India’s crude oil imports. (Which explains the sudden drop in imports from 2015 to 2016).

Gold is a major item of import for India, with Bolivia contributing the lion’s share of $ 2.5 bn, followed by Peru ($ 1.8 bn).

Recently, Latin America has emerged as a main source of imports of vegetable oil (mostly soy oil). While Argentina was the #1 global supplier of soy oil with 3.3 billion dollars, Brazil contributed around $2.4 bn of vegetable oil.

Chile was the main supplier of copper and other mineral concentrates from the region with an export of $ 1.03 bn, followed by Peru $ 391 m, Panama $ 204 m and Brazil $ 141 m.

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4. Impediments to Greater Cooperation

4.1 Linguistic and Cultural Unfamiliarity

Spanish and Portuguese are the main languages of the Latin America region. While English remains the language for Indians to communicate with rest of the world. The familiarity of language brings with it cultural and idea exchanges and paves the way for greater cooperation. Unfamiliarity in this domain has obstructed the India Latin America relations from achieving their true potential.

China has over 60 Latin American study centres besides hundreds of Spanish and Portuguese language institutes. In India, there is a need for more Latin American study centres and language institutes.

4.2 Absence of Diaspora

While India has the highest diaspora across the world, the figures do not do well when it comes to Latin America. There are almost no settled Indian-origin industrialists or businessmen with the heft to act as nuclei in Latin America for their erstwhile compatriots or pull the investment from there into India, a model that has created vibrant linkages with other countries. Their modest economic conditions do not generate the levels of remittances nor tourism to warrant the attention bestowed on communities of Indian origin elsewhere. As Amb. Deepak Bhojwani suggests, “This may be the only region where professionals outnumber the settlers from India.”

4.3 Geographical Distance

Among all continents, South America is the farthest from India. The direct air and shipping links are considered uneconomical, because of low volume. Although both sides see each other as exotic tourism destinations, the industry has not achieved critical travel mass which will ensure direct connectivity. However, as S Jaishankar suggests, “We live in a globalized era and we must now make sure that distance is no longer an impediment. Modern logistics offer us collaborative possibilities so do modern communications.”

Further, this factor also doesn’t deter China, whose trade with the region is around eight times that of India, nor does it deter Indians travelling to the US, whose east and west coasts are as far from India as Sao Paulo and Mexico respectively.

4.4 Diverse Geography and Lack of Regional Cohesion

Indian companies shipping to Brazil cannot automatically access all other countries and markets in the region, given problems of infrastructure and connectivity. Thus, India has to ship separately to the eastern and western coasts of South America.

Further, it should also be understood that when India deals with the EU or ASEAN, particularly for trade, it deals with the whole region as a whole, since they are customs unions. This is not the case in Latin America. Mercosur and Pacific Alliance, prominent trade blocs, do not cover all the countries of South America, even together. Venezuela is a full member of Mercosur, but its membership has been suspended since 1st Dec 2016. Thus, India transacts business bilaterally with more than 20 countries and occasionally engages at the regional level.

4.5 Political Environment

Historically, Policymakers in New Delhi have not given sufficient attention to Latin America. There are no strategic interests for India in the region. Latin America rarely inserts itself in the arena of geopolitics, no country in the region has nuclear weapons, and the region has not seen an intra-country war since the late 1800s. Partnership with the region does not have a great power charm associated with it and it has historically been consigned to the corners of India’s foreign policy priorities.

Further, the internal politics of the region also looms large on bilateral relationships. Most of the countries in the region have a political system, which can be termed a ‘procedural democracy’. Any abrupt change in leadership changes policy priorities and prevents long-term relations from developing. The large resources of the region, coupled with an unstable political system also invite great powers to interfere in the region, affecting their external relations. Venezuela, which holds the largest crude oil reservoirs in the world is a classic example of this.

The picture is certainly changing. The current government has shown a political will to engage with the region. In the last 9 years alone Latin America and the Caribbean region have witnessed 34 high-level visits, which include six visits each from the President and the Vice President, and four from the Prime Minister.

4.6 Variable Economic Growth

While the Indian economy continues growing around 6-7 percent annually, with an optimistic future outlook, the same is not the case with Latin America.

latin america and carribean gdp growth rate last 10 years

As shown in the table, various factors have ensured that Latin America does not grow steadily on the economic front. This results in fluctuations in trade volumes as well as composition. This also prevents long-term trade relations from being built.

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5. Present and Possible Areas of Cooperation

5.1 Agriculture

Agriculture cooperation has seen a significant uptick in recent years. India and LAC are today the two largest consumption economies and therefore, food security is critical to both populations. Indian sustainable farming techniques complement LAC’s availability of huge arable land and will ensure productive, efficient and sustainable agriculture using digitization and water conservation technologies. Notable Indian investments in the region include millet farming in Guyana, edible oil production in several countries, agrochemical manufacturing sites in Argentina, Brazil, Columbia and Mexico and the setting up of agro-R&D centres.

While vegetable oil currently dominates Indian imports from the region, LAC can also become a supplier of pulses for India, which accounts for 50% of global pulse imports. Fruits and vegetables are also exported to India by Chile and Peru and since these come during the off-season in India there is no issue from the domestic producers. There is scope to increase these supplies, given the growing consumption and preference for exotic vegetables and fruits by Indian consumers. LAC has huge arable land, a sufficient supply of water and an appropriate climate, and it all can be leveraged to increase its agricultural exports.

5.2 Investment

Indian investment in the region is around $ 18 billion (2018). Latin America has a huge scope of investment in sectors such as oilfields, shale fields, solar and wind energy, agribusiness, mining, commercial forestry, pharmaceuticals, chemicals, auto parts, plastics, pumps etc. Major Indian business conglomerate, Aditya Birla Group, has Aluminium and Carbon black plants in Brazil and Colombia and is interested in diversifying into other areas including other metals, cement and commercial forestry. Companies such as Reliance, OVL, Essar, Apollo Tyres, Ashok Leyland, and TVS, have also shown interest in investment in the region.

Regarding Latin American investment in India, a Peruvian firm ‘Aje’ has set up a plant in India to bottle and market its Big Cola drinks. Cinepolis from Mexico has become the fourth largest operator of multiplexes in India. A dozen other Latin American companies in sectors such as steel, auto parts and electrical motors have manufacturing and assembly units in India. The total Latin American investment in India is about 2 billion dollars (2018) and this could be increased in the coming years. Mexico, Argentina, Chile and Brazil have some globally competitive companies, technologies and capital surplus, which need to be tapped by India.

5.3 Energy

In the last fifteen years, Latin America has become a regular new source for India’s imports of crude oil. Given the overdependence on the Middle East for Indian crude oil imports, India will continue to diversify its global imports of crude oil. India’s crude import is forecast to increase to 9.1 mbpd (million barrels per day) by 2040 from 4.5 m in 2023, and its import dependency is expected to reach 90% by 2040 from about 80% in FY 23.

The region as a whole has current oil reserves of 336 billion barrels, one-fifth of the total global reserves, with Venezuela alone having reserves of 298 billion barrels (the highest in the world). Besides conventional oil, the region also has 58 billion barrels of shale oil reserves, which it has just begun to exploit.

Both India and Latin America are attaching priority to renewable energy such as solar and wind energy. Indian company Suzlon has done wind energy projects in Brazil and Uruguay and is on the lookout for opportunities in other countries. Chile has massive multibillion-dollar solar energy projects in the Atacama Desert, which is a new opportunity for Indian investors and suppliers of equipment. Brazilian companies that have contributed to the success story of the use of fuel ethanol could enter the Indian market which is trying to implement ethanol-blending of petrol. Brazil and other countries of the region could also supply ethanol to India when the Indian programme takes off in full seriousness. The International Solar Alliance also has a membership of many LAC countries and can pave the way for larger cooperation in the energy segment.

5.4 Metal & Minerals

In FY 23, Gold and Minerals constituted the biggest imports of India from Latin America. Gold and Copper accounting for a major share of India’s mineral imports. India is the largest importer of gold in the world, while LAC is a major producer and exporter. India also buys precious stones from Colombia and Brazil among other countries. The supply chains are still in the developing phase which sometimes involve middle players. Direct access to each other’s economies will increase profit for both.

Lithium, a major component of electric batteries, is also gaining prominence as India seeks to shift to EV by 2023, fueled by ‘Make in India’. Bolivia has the world’s largest reserves of Lithium, and it can help India’s electric revolution.

5.5 Pharmaceuticals

India exports almost one and a half billion dollars’ worth of pharmaceuticals to Latin America. The less-expensive Indian generics have helped Latin American consumers and governments to reduce the cost of healthcare. Ayurveda is also becoming popular in some countries of the region. There would be a further uptick in medical cooperation if the registration process of Indian pharma products in the recipient countries could be facilitated and speeded up.

5.6 Information Technology Sector

Indian IT companies operate in most of the LA countries of the region employing over 25000 young Latin Americans. Over two dozen Indian companies have set up development and service centres, including business process outsourcing, all over Latin America. The ‘nearshoring’ model relies on Indian software and expertise, Latin American human resources, and the advantage of working in American time zones. However, this is still a modest contribution from a nation that is the leader in the IT sector, and more potential could be unlocked with increased confidence in each other’s economies.

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6. Perspectives of Scholars

6.1 S Jaishankar

We live in a globalized era and we must now make sure that distance is now no longer an impediment. – S Jaishankar

“Latin America forms part of India’s larger goal of becoming a leading global power… India must develop a footprint in the region with relationships that really count.”

In his recent speech at the CII India-LAC Business Conclave, Indian external minister S Jaishankar identified four pillars that can serve as a source of intensified engagement between India and the Latin America Caribbean (LAC) region.

A) Supply Chain Diversification:

The pandemic has demonstrated an urgent need for more resilient and reliable supply chains. The international economy today needs multiple and redundant sourcing, and diversified production and that is something where there are new opportunities for India – LAC

B) Resource Partnerships:

While India is the fifth largest economy today, it aspires to become third largest in the next 5 years. As India expands, there is rising demand for oil, gas, strategic minerals, food commodities etc. Thus, there is a big opportunity for Latin America and the Caribbean to contribute to India’s growth story. Indian products and services, in turn, will help to meet the expectations, aspirations and price points of the rising middle class in Latin America.

C) Sharing Developmental Experiences:

As countries of the Global South, the geographies will benefit if there is a dialogue about digital capabilities, health solutions, agricultural practices and infrastructure capabilities. Increasing training and exchanges will encourage more market exposure, and India will have to find better ways to achieve it. India has to customize the existing programs to meet the requirements of the Latin American and Caribbean region, make it more user-friendly, and find newer ways to keep it relevant.

D) Addressing Global Challenges:

There are also larger, global, planetary issues, that we need to look at because we are very important stakeholders in that as well. Collaborating on issues such as climate change, the concerns of the Global South, and reforming the global financial and multilateral structures is crucial.

6.2 Deepak Bhojwani

Former Indian Ambassador to countries in Latin America.

“The hiatus between the content and the potential of the relationship, when comparing Latin America’s relations with China, or even South Korea, calls into question the commitment on both sides.”

“The articulation of a strategy should start with a hard look at the status of the current relationship. This should be disaggregated to sub-regional level, and where necessary, identify country-specific issues.”

“Political will is the prime mover of India Latin America relations”

“India’s relationship with Latin America brings no baggage of the past.”

“The advent of an Indo-Latin American community, in lands which have witnessed centuries of miscegenation, is not inconceivable but presupposes extensive official and institutional diligence. When this happens, India and Latin America will be firmly on the road to a partnership that will require no external momentum.”

6.3 Amb (Retd) R. Viswanathan

“Latin America is closer to India than you think.”

“India can count on Latin America as a reliable long-term contributor to its energy security and also for agro products such as vegetable oil and pulses. Latin Americans are excited about India as a large and growing market for their exports. More and more new complementarities and synergies are being discovered and explored by the business on both sides. India and Latin America are on course for a sustainable long-term business partnership.”

“Latin America sees India as a hedge against the region’s overdependence on either China or the West… Indians and Latin Americans share emotional and cultural similarities, and also face similar developmental challenges.”

  • Collection of more than 3200 Previous Year Questions (1995-2023)
  • All questions divided into 10 Subjects
  • Subject further sub-divided into more than 75 topics
  • All answers according to official answer key
  • BEST PYQ CLASSIFICATION EVER !

References

Remarks by EAM, Dr. S. Jaishankar at CII India-LAC Business Conclave

India and Latin America: The Way Forward

Latin American Politics and International Relations

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