LatAm bets on India for trade as local resources dry up

Written by Huma Siddiqui | New Delhi | Updated: Aug 21 2009, 04:58am hrs
The global slowdown has triggered a fundamental change in the mindset of Latin American business towards India. Since the crisis has tightened the availability of local financial resources and credit, this has made them look for less expensive import sources such as India.

South America has the potential to contribute to Indias food and energy security as a regular and reliable source for Indian imports of edible oil and crude oil. Edible oil imports are projected to increase from 4.7 million tonne in 2007 to 8.3 million tonne in 2015 and more in the coming decades, said Ambassador of India to Argentina, Uruguay and Paraguay R Vishwanathan.

According to Vishwanathan, Indias exports to LatAm are set to increase in the coming years because of the positive change in the market of the region. The market has undergone a paradigm shift coming out of its boom and bust cycles and volatility and is now set on a sustainable course of stability and growth.

The region is emerging as a global agricultural powerhouse with its large fertile land area, abundant availability of water, advanced technologies and best practices and large-scale commercial farming. According to the envoy, South American farming is globally competitive and is not supported by any subsidies unlike in Europe and the US. It has the potential to increase the area of cultivation and agricultural production.

In a paper titled, Global CrisisRegional Opportunity: Business with Latin America, the envoy has observed, South America has the potential to contribute to Indias food and energy security in the long term. The region is emerging as a global agricultural powerhouse with its large fertile land area, abundant availability of water, advanced technologies and best practices and large scale commercial farming.

The regions farming is globally competitive and is not supported by any subsidies unlike in Europe and the US and has the potential to increase the area of cultivation and agricultural production.

Indias capacity to increase production is constrained by diminishing availability of agricultural land, water shortage and monsoon uncertainties. Acquisition of farmland abroad is a logical option, in the same way as our petroleum companies are securing foreign oil fields. In fact, South America is offering an attractive option to Indian companies to acquire farmland to grow oilseeds, grains, pulses and sugarcane.

The region is also useful for our renewable energy strategy. Indian companies can acquire land to grow jatropha for biodiesel and sugarcane for fuel ethanol. Also, Indian companies can buy commercial forests in the region to source timber and wood pulp, which are also items of shortage in India, he said.

Although, large new petroleum reserves have been discovered, still the region is under explored, offering more investment opportunities for the Indian companies.

With the Preferential Trade Agreement with Mercosur becoming operative from June this year and the PTA with Chile already in force, the trade is likely to get a boost in the coming years. So far, Indian companies have invested $9 billion in the region in pharmaceuticals, agrochemicals, IT, steel, mining and other areas.

Indias exports to Latin America, include: chemicals including bulk drugs, dyestuff, pharmaceuticals, diesel oil, automobiles, auto parts, two and three wheelers, equipments and machinery, medical and scientific instruments, hand tools, machine tools, optic fibers, tyres for buses, trucks and two-wheelers, electrical items, leather products, plastic products, sports items, spices, coconut powder, sesame seeds, ayurvedic and herbal products, handicrafts and incense sticks.

Reliance exports large quantities of diesel to Brazil. In fact, their imports of crude oil from Latin America and exports of diesel to Brazil account for $3 billion of Indias trade with the region.

The countrys exports to the region have increased from $1.2 billion in 2000 to $7.5 billion in 2008. The target should be $15 billion by 2012, if the Indian companies work on this market seriously and systematically. Also, the countrys imports have increased to $8.5 billion in 2008 from less than a billion in 2000.

India accounts for less than a percent of LatAm trade which was $1.7 trillion in 2008. Latin America exported $888 billion worth of goods and imported $846 billion in 2008.

Frustrated by the protectionist tendencies of Europe and the US, the region is now looking for new markets. They are amazed by the 6% growth of India this year despite the global crisis, and are surprised by the 9% annual growth of India in the next thirty years, predicted in the June 2009 Asian Development Bank report, said Vishwanathan.