India achieved an annual export figure of more than US $ 400 billion in the year 2021-22. Recently, India signed Free Trade Agreements (FTAs) with Australia and the United Arab Emirates and ongoing trade negotiations with the UK, the European Union and Canada will only boost Indian exporters.
After a gap of many years, New Delhi’s policy of signing more trade agreements has changed – while earlier it was abandoned on the grounds that such agreements were not very beneficial for India – now it is a welcome sign to start again. These FTAs are being signed with those countries which are very important for India’s go-politically and Geo-economics.
However, Latin America is one area about which there is not much enthusiasm in the corridors of power in Delhi. While India has been enjoying preferential trade agreements (PTAs) with Chile and MERCOSUR – the South American groupings such as Argentina, Brazil, Paraguay and Uruguay – India’s trade scope with these countries is limited and so are India’s bilateral relations with these countries. The share of trade is very low, with trading relationships based on low import duties rather than duty-free access.
Unlike FTAs or Comprehensive Economic Partnership Agreements (CEPA), PTAs do not cover investment, people-to-people exchanges or services. So far New Delhi has not negotiated FTAs with Latin America, nor has India shown any interest in doing so. Unfortunately, the region does not feature much in New Delhi’s Geo-economic equation: Latin America has always been the least visited region by Indian politicians, and Asia (or any sub-Region Including Central Asia), Africa And compared to Europe, very little attention is paid to this area in Delhi’s South Block (which houses the Prime Minister’s Office and the Ministry of External Affairs).
Despite such indifference, Indian companies have taken the initiative to increase India’s business relations with Latin America and this has not deterred them. Moreover, R Vishwanathan, a leading Latin America expert and ambassador to India, writes in the Financial Express, “India’s exports to some of the more remote Latin American countries, its neighbors or traditional trading partners whose populations are either equal or There is more than that, there is more with them.”
In fact, India’s exports to Brazil at US$ 6.48 billion or higher than those of Japan (US$ 6.1 billion) or Thailand (US 5.7 billion) – both of which are FTA partners over India; Exports to Mexico at US$4.4 billion exceed exports to Canada (US$3.7 billion) or Russia (US$3.2 billion). India exports mostly cars, motorcycles, pharmaceutical products, organic and non-organic chemicals and clothing to Latin American countries.
Apart from this, India also imports important resources from Latin America, which includes 15 to 20 per cent of India’s most imported commodity (crude petroleum oil), minerals such as copper, silver and gold, and vegetable oils.
India’s private sector is flourishing in Latin America through trade as well as investment. Indian investments in this sector amount to US$12 billion to US$16 billion and a majority of it is engaged in sectors such as pharmaceuticals, automobiles, information technology (IT), energy and power transmission, and manufacturing. Indian companies are motivated to do business with Latin America for two major reasons:
- Latin America falls into the ‘Goldilocks zone’ for international trade – it is the highly regulated markets of the United States (US) and Europe, where the level of competition and quality standards of products are extremely high, and Africa, where people’s purchasing power The power is less and the market is also less organized, it comes in between.
- The region’s per capita GDP (PPP) of US$16,611 is much lower than the EU’s US$46,067 but more than double that of India (US$6,997) and four times that of sub-Saharan African countries (US$4,401); And if the Latin American market is compared to the markets of South East Asia, then the per capita GDP (PPP) here is US$ 15,082.
- Internationally, Latin America is one of the emerging markets with a stable and rapidly growing middle class. As a result, the region is India’s most preferred export destination for value-added, consumer products as well as cars, motorcycles, pharmaceuticals and chemical products. Indian companies in this region hold a large share of the Latin American market and depend on the region for a major portion of their international earnings. For example, United Phosphorous Limited (UPL) is an Indian agrochemical company that gets more revenue from India in Brazil, while Colombia and Central America are dominated by Bajaj’s company.
India vs. China in Latin America
India’s reach in Latin America is so deep in some sectors such as automobiles, pharmaceuticals and IT that it often outpaces China in these sectors – which is Surprising because China is the largest trading partner and investor in many Latin American countries. Data and findings published in the Woodrow Wilson Center’s report titled “Latin America’s Trust with the Other Asian Giant, India” show that Indian companies provide more investment, exports and even jobs than China in select regions of Latin America.
This is especially true in the pharmaceutical sector – India has exported more pharmaceutical products to Latin America than China during the 21st century, though with the sole exception of 2021 when China will export corona vaccines to the region. The export figure from India was more. Not only this Indian pharmaceutical investment is also seen here: 27 Indian companies operate 72 subsidiaries in Latin America with 13 manufacturing plants. Many Latin American countries depend on India for cancer and HIV drugs and much-needed vaccines.
In the automobile sector, India exports more cars, while China exports motorcycles and auto parts more than India. Although Indian companies invest more in the automobile and auto parts sector and provide more jobs in the sector than their Chinese counterparts – a single Indian company, the Motherson Group, has 27 companies in Latin America combined with all Chinese automobile and auto parts companies combined. With auto parts manufacturing plants, the region provides employment to 25,000 people.
After all, Indian IT companies, which were among the first to enter the Latin American region, today employ over 38,000 people in the region. While these companies initially sought to benefit from the ‘nearshoring’ model – serving their clients in the US and Canada – these are the companies that Latin American clients rely on today. Indian IT companies have also made inroads in smaller countries like Guatemala, where India’s HCL Technologies employs 2,230 people. These companies make a significant contribution to the service sector and are a means of ending Latin America’s dependence on commodity exports.
Yet in other areas, India’s presence in Latin America is less than that of China. India’s annual trade of US$ 30 to 50 billion, with Latin America, is minuscule compared to China’s whopping US$ 400 billion figure. Estimated Chinese investments in this sector of about US$159 billion and Chinese debt figures of US$136 billion can only be compared to the US and Europe.
Despite this, India-Latin America relations hold many hopes in themselves. India has good image power in the region and unlike China, India is a democratic country that has struggled with the problems of poverty alleviation, infrastructure development, constant political strife and frequent elections like Latin American countries.
However, there is one major difference that separates New Delhi and Beijing’s approach to Latin America: China has formulated and pursued its Latin America policy through official white papers and special envoys for two decades, while India has a Latin America policy. There is no official policy towards America and it is an area which is not given any importance in Indian foreign policy.
Given India’s interest in the FTA and its outward-looking economic policies, it is high time for New Delhi to formulate a Latin America policy, which will focus on India’s automobile, pharmaceutical, IT, energy and agriculture sectors. Proven to be better for the companies, and more so the commodity exporters of Latin America and the manufacturing companies and service sector of the region can also benefit.