India in Latin America A Missing Story?

Focus

Deepanshu Mohan and Tridivesh Singh Maini explore the weaknesses of India’s current relationship with Latin America and identify opportunities that could prove mutually beneficial. They argue that improvements can only be achieved if India moves beyond multilateral instruments and develops relations with individual countries in Central and South America.

Last month, Christine V. Gomes wrote a piece in the Americas Quarterly policy journal entitled “Is 2015 the year for India in Latin America?” Yet, in recent years, India has paid limited attention to the Latin America countries (LAC). One of the major failures in India’s foreign policy towards the region has been its dependence upon multilateral instruments like the BRICS, and the lack of emphasis on bilateral co-operative engagements. This is evident from the lack of bilateral trips made by Indian leaders: the last high profile visit was Indira Gandhi’s tour of 1968. Since then, both India and Latin America as a region have changed significantly.

The last ten months have been fruitful for India’s foreign ministry and policy due to the multiple bilateral and multilateral exchanges. Of course, the proactive approach of the Prime Minister’s Office and Narendra Modi himself has been significant in increasing Indian presence within South Asia, BRICS, APEC (as an observing member) and enhancing relationships with individual countries like the US, Russia, UK and Australia. There is immense scope for PM Modi to accelerate the level of engagement with Latin America and look at the region beyond the lens of multilateralism.

Unlocking Potential Opportunities

India is a country relatively poor in natural resources and abundant in labour, whereas the LACs are generally the opposite. If we look at the terms of trade between India and countries in Latin America, there has been a noted increase with trade flows exceeding $40 billion as of 2013-2014 in comparison to $30 billion in 2010-11. However, in terms of tapping potential growth opportunities amongst them, clearly a lot more needs to be done. Even with Brazil, which India has closer ties with as a result of the BRICS association; trade figures stand at a meagre $10 billion.

Food security is a powerful factor that could drive India to deepen its engagement with Latin America, which has vast swathes of fertile land. Brazil, for example, is an agriculture superpower with rolling acres of arable land, but also equipped with cutting edge food storage technologies. Argentina, too, is a leader in agricultural research. The two sides are poised to set up more joint ventures and research collaborations in this area in the days to come. 

Latin America has also emerged as an important source of hydrocarbons for India in the last few years, with the region contributing around 10 percent of India’s energy imports. India is set to step up collaboration with Brazil in the area of eco-friendly ethanol. Venezuela, Colombia, Mexico and Cuba are important suppliers of oil to India. 

Looking back at trade balances, the sheer size of India’s demography makes large-scale imports of natural resources, particularly of agricultural goods, almost inevitable, as has been the case for China. This is especially the case given the low levels of per capita consumption of those goods, some of which classify as the LAC’s main exports (soybean oil from Argentina; refined copper, copper ore, sulphate chemical, woodpulp from Chile etc. to name a few). In addition to this, consumer preferences and the existence of mid-size economies serve as critical incentives for trade to flourish between India and LAC.

Surprisingly, this doesn’t seem to be the case even though China has been able to tap into this quite effectively in the last decade or so. What India currently lacks is a manufacturing sector that can match China’s supply capacity, efficiency and diversification. It is true that India’s exports cover 70 percent of the manufacturing items imported by LAC, yet the coverage remains well below China’s 92 percent.

Lessons from China

There are a number of lessons which can be learned from China, which has rapidly expanded its presence in the region by building on better trade practices with countries like Argentina, Mexico, Chile and Brazil. This has been helped by the Chinese leadership being more pro-active in engaging with the region. In 2013, President Xi visited Central American countries and in 2014, Xi visited Venezuela, Argentina and Peru. He also held bilateral meetings with Brazilian President Dilma Rousseff in addition to attending the BRICS Summit.

Building Cross-Country Partnerships

Beyond trade, there is also a critical need for India and the LACs to look into potential partnerships across areas like education, improving cross-cultural exchanges through business and understanding each other’s institutional environment and operations. There is a need both for India and Latin American countries to tag team on areas for knowledge transfer with respect to building institutions that are based on a democratic, independent working model guided by a strong rule of law. In doing this, Latin American countries such as Colombia, Brazil and Peru are likely to mark India over China due to the over-arching influence of Beijing’s own vested interests while building cross-country partnerships (case in point: the use of chequebook diplomacy in African countries).

For instance, Colombia’s Central Bank, Banco de Republica and Brazil’s Banco Central do Brasil like India’s Reserve Bank of India have been exceptionally good in the region in managing an effective monetary policy (targeting inflation) and the exchange rate (particularly pesos to USD for Colombia) over the last 4-5 years. This explains these economies’ good export record over the years despite being gravely affected by a number of crises within Latin America (particularly during the late 1980s) and the spill-over effect from the recession in the US and Europe. For the LAC’s skewed export-led growth model, effective exchange rate management and inflation targeting holds the key to ensuring persistent long term growth.

Completing the Missing Story

In the first half-century after Indian independence in 1947, in addition to a considerable geographic distance – a major obstacle for trade and tourism at the time – India and Latin American nations belonged to different clubs and rarely engaged each other. India was a member of the British Commonwealth and a founding member of the Non-Aligned Movement (NAM), neither of which had a significant Latin American presence. Indians thought of Latin American nations as unstable and plagued by coups, earthquakes and inflation. Latin Americans were shocked by India’s rampant poverty and internal conflicts.

One of the major failures in India’s foreign policy towards Latin America, even in recent times, is the over dependence on multilateral settings like the BRICS and IBSA without initiating enough bilateral co-operative engagements, clearly evident from bilateral visits by Indian leaders to the region. Also, several analysts make the mistake of identifying Latin America as one homogeneous unit rather than a group of some diverse and differently endowed countries.

Thus, there is a serious need for India to expand trade and commerce across the Latin American region, while exploring the possibility of ‘multi-layered’ diplomacy and also developing relations in other ways. Just as the Chinese have set up Confucius

Institutes, India should consider building cultural centres that can help in building better cross cultural communication across the countries (catering to the linguistic divides) and also initiating better exchange networks between the diasporas of culturally isolated communities. Also, the possibility of using trilateralism as a tool to improve upon its existing presence in the region can be considered. This would allow, for example, the US and India to identify possible areas of cooperation in Latin America.

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Diplomatist Magazine was launched in October of 1996 as the signature magazine of L.B. Associates (Pvt) Ltd, a contract publishing house based in Noida, a satellite town of New Delhi, India, the National Capital.

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