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India's equation with Latin America is based squarely on economic diplomacy, which brings balance and stability to the bilateral relationship.
The Covid pandemic has hastened the reshaping of global order, with the United States relinquishing its global position in an increasingly multipolar world where China continues its ascendance. In this context, the Latin American region, once firmly under the US' sphere of influence, has been courted by numerous extra-hemispherical actors, including India.
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India's presence in Latin America is expected to grow in the coming decades and is part of the larger Asia-Latin America relationship that has picked up steam in the 21st century. The Carnegie Endowment for International Peace, a Washington DC-based think tank, remarked in its The World Order in 2050 report that “the weight of global economic activity is already shifting substantially from the G7 countries toward emerging economies in Asia and Latin America. Over the next 40 years, this trend is expected to accelerate.”
At the moment, India-Latin America ties are driven primarily by economic diplomacy. Since business comes first, left-wing/right-wing politics and ideologies take a backseat, and rarely ever interfere with the business side of things. This means India can work with far-right regimes in the region as much as it can with the far-left, something that global powers like the US and China have to think twice about because of their own ideological or political alliances.
Trade provided the first stimulus: from US$2 billion in 2003, India-Latin America trade reached a peak of US$49 billion in 2014.16 Today, India is among Latin America's top five global export destinations, and the largest export destination for vegetable oils, third-largest for copper ore, petroleum and gold, and fourth-largest for sugar and wood. For India, Latin America is the largest export destination of automobiles, and the second-largest for synthetic yarn and motorcycle exports, and the region is also a major export source for pharmaceuticals, organic chemicals, auto-parts, aluminum and cotton yarn.
1. Commodity-based trade: A large percentage of Latin America's exports to India can be classified as commodity-based, including copper ore, gold, soybean oil and sugar. India is the is the largest export market for soybean oil from Argentina, Brazil and Paraguay; in 2019, 70% of India's copper ore was imported from the region; Latin America started exporting gold directly to India only in 2012, and today accounts for 15% of India's total gold imports by quantity.
2. Value-added trade: Much of India's exports to the region are value-added or manufactured goods, such as automobiles, machinery, organic chemicals and pharmaceuticals. Latin America accounts for nearly 30% of India's global car exports, and one-fifth of India's total motorcycle exports. Throughout the 21st century, India has exported more finished pharmaceutical products to Latin America than China. Latin America too exports value-added goods to India. Mexico, the region's largest manufacturing country, exports more than US$500 million worth of telephone sets to India. A handful of countries from the region, such as Chile, Colombia, Peru, Brazil and Mexico, have begun targeting the Indian market for agricultural products, fresh fruits and vegetables and processed foods.
3. Strategic trade: So far, the most strategic product traded between India and Latin America is crude petroleum oil. This is a crucial import for India's energy security, since about 85% of petroleum oil demand is met through imports. The Latin America region accounts for between 14%-20% of India's oil imports by quantity since 2012. Most of this oil import is market-driven and done by private oil companies like Reliance Industries; India is among the top oil export destinations for Venezuela, Brazil and Mexico, while Colombia and Ecuador are more sporadic suppliers.
More than 150 Indian companies currently have a presence in the Latin American region, and they employ more than 80,000 people.
The rapid boost in trade ties gave rise to another opportunity that India and Latin America have already taken advantage of cross-border investment. Most Indian companies have entered Latin America through a process of inorganic growth, i.e. mergers and acquisitions. Most Indian investment is in value-added industries, rather than in raw materials or extractive industries, and Indian companies subsequently employ a large number of people in the region. More than 150 Indian companies currently have a presence in the Latin American region, and they employ more than 80,000 people. The scale of Indian investment is estimated to be more than US$ 12 billion, while Latin American investment in India is about US$ 2 billion. About three dozen Latin American companies also have a physical presence; these companies are leaders in their own right and have diverse motives for entering the Indian market.
The lack of Free Trade Agreements (FTA) between India and Latin America puts each other at a disadvantage in comparison to China, South Korea and the US, all of which have FTAs with Latin American countries; the lack of direct shipping routes mean that shipments between India and Latin America can take 35-75 days, depending on the route and the country; another detriment is the present lack of political will.
Nevertheless, India-Latin America ties are still at an incipient stage, and there remains much untapped potential.
The lack of Free Trade Agreements (FTA) between India and Latin America puts each other at a disadvantage in comparison to China, South Korea and the US, all of which have FTAs with Latin American countries.
India's equation with Latin America is based squarely on one principle: economic diplomacy. This brings balance and stability to the bilateral relationship, as ideology becomes secondary. Despite India's enormous size, it can be viewed as an equal, based on shared socio-economic realities. As the world's largest democracy, India is used as a reference for upholding democratic values that most countries in the region share; as a developing country, India is also part of the Global South. These traits must be leveraged over the next few decades if the 21st century really is to be headlined by Asia, with Latin America as a fitting partner.
**This is an updated version of an article published by Observatorio América Latina Asia Pacífico in September 2020.Hari Seshasayee is a Global Fellow of the Woodrow Wilson Center's Latin America program, and is the trade advisor for ProColombia India & the Middle East.