Latin America and India add value to each other in business and beyond…

India is going to increase its imports of crude oil, vegetable oil, gold, copper and other minerals from Latin America to cope with the increasing demand from the growth of industries and consumption.

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Exports to Brazil (USD6.48 bn) are higher than to the traditional trade partners such as Japan (USD6.18 bn) and Thailand (USD5.7 bn).

By Ambassador (Retd) R Viswanathan

Some Latin American countries have become more important for India’s exports than neighboring countries or traditional trading partners. According to the latest 2021-22 (India’s fiscal year April to March) statistics from the Commerce Ministry of India, India’s exports of 552 million dollars to the distant Guatemala (population 11 million) are more than twice that of the exports of 198 m to the neighboring Cambodia with a population of 16 million.

Exports of USD 318 m to the remote Honduras (population 10 m) are more than the exports of 235 m to nearby Kazakhstan with a population of 19 m.

Exports to Brazil (USD6.48 bn) are higher than to the traditional trade partners such as Japan (USD6.18 bn) and Thailand (USD5.7 bn).

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Exports to Mexico (USD4.43 bn) are more than the exports to Canada (USD3.7 bn) and Russia ( USD 3.2 bn).

Latin America accounts for one third of India’s global exports of cars and motorcycles. India’s car exports to Latin America are 1793 million dollars. This is 30% of India’s global car exports of 5.92 bn dollars. Mexico is the second largest global market for Indian cars with 941 m. Exports of motor cycles to the region are 909 million dollars. This is 30.5 % of India’s global exports of 2.99 bn. India is the second largest supplier of motorcycles to Latin America. Colombia is the second largest global destination for India’s motorcycle exports with 309 million dollars. In the year 2014-15, Colombia was the # 1 destination.

This is not just a one-year wonder. This is a trend since the last several years.

Latin America’s contribution to India’s energy and food security

Latin America’s supply of crude oil (which accounts for half of the total imports of India from the region) contributes to India’s strategic energy security. It has helped India’s policy to diversify sources of imports and reduce over dependence on the Middle East.

Latin America’s supply of vegetable oil, pulses and fresh fruits contributes to India’s food security. Argentina is the largest supplier of soy oil. Last year the imports from Argentina were 3.3 billion dollars and 1 billion from Brazil. India’s agricultural land is decreasing every year due to diversion of the land for residential, commercial, industrial and urbanization purposes. But the population keeps increasing with about 15 million annually. Indian agriculture which uses irrigation through pumping of groundwater faces problems since the water levels keep going down. The Indian farmers are not able to invest much in innovation since most of them are small farmers. On the other hand, South America has large surplus areas of fertile land with adequate water resources. The South American farmers who own hundreds and thousands of hectares and do large scale commercial farming are able to have higher production with investment in inputs. For example, the average yield of soy in India is 1 ton per hectare while it is 3 tons in Argentina.

India has started sourcing raw gold from Latin America. Last year they were 6 billion dollars out of global imports of over 50 billion dollars.

Copper is another major import from Latin America, mainly from Chile. India is going to need more Copper, Lithium and other minerals from Latin America for its ambitious “Make- in- India” and electrification of vehicles programmes.

In recent years, Indian contractors have started entry into projects in Latin America. Sterlite has about 2 billion dollars of power transmission projects in the PPP model in Brazil. Kalpataru Power Transmission Ltd from Mumbai has won an EPC contract in Chile valued at 431 million dollars. This is the largest EPC project contract of an Indian company in the region. Kalpataru also has projects in Brazil where they have a joint venture with a Brazilian firm. Indian companies have done solar and mini-hydel projects in the region.

Indian value addition to Latin America

Last year India was the 7th largest destination for Latin America’s global exports. The exports were 25 billion dollars. In 2014-15 India was the 3rd largest after the US and China. Latin America exported more to India than to their traditional trade partners such as Germany, France, Spain, Italy or UK. India was the #1 destination of Latin American exports of vegetable oil, #3 for gold, #4 for crude oil and #8 for copper.

India’s imports from Latin America in 2021-22:

  • Crude oil: USD 9.18 billion
  • Gold : USD 6.91 bn
  • Vegetable oil: USD 4.34 bn
  • Copper: USD 995 million dollars
  • Machinery: USD 545 m
  • Wood: USD 480 m
  • Chemicals: USD 419 m
  • Iron and steel: USD321 m
  • Fruits & vegetables: USD285 m

India is going to increase its imports of crude oil, vegetable oil, gold, copper and other minerals from Latin America to cope with the increasing demand from the growth of industries and consumption. As a large growing market, India is going to become even more important in the future for Latin America’s exports in the future. As many millions of Indians come out of poverty and join the middle class, the Indian market is going to be bigger in the long term.

India supplies 1.5 billion dollars of generic medicines to the region. This has helped the Latin American governments and people to cut down the cost of healthcare. The entry of affordable Indian generic medicines has forced the Multinational and local pharma companies in Latin America to increase the supply of generics and reduce the prices.

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India does not supply finished products alone. It also supplies raw materials and industrial inputs such as chemicals (over 3 billion dollars) and APIs (pharmaceutical raw materials), raw cotton, yarn, fabrics and fibres which help the Latin American manufacturing sector to remain competitive with less expensive Indian inputs .

Indian investment

Indian companies have invested around 12 billion dollars in Latin America providing jobs to thousands of Latin Americans. They are in manufacturing in sectors such as pharmaceuticals, agrochemicals, automobiles, motor cycles, auto parts, tyres, aluminum, carbon black and ophthalmological products. These Indian units earn foreign exchange for the host countries through exports. India has also invested in oil exploration and production in Venezuela, Brazil and Colombia. It is interesting to note that ONGC of India has a 50:50 joint venture with a Chinese company in oil production in the Manasarovar oil fields. The two sides have invested a billion dollars each.

Around 30 Indian IT companies have software development and service centres in the region employing about 40,000 young Latin Americans. This is more than business. It is India’s contribution to human resource development. The young Latin Americans get opportunities for skill development and global exposure thanks to the Indian IT firms. The Indian companies reach out to universities in the region offering skill development and training.

The largest Indian agrochemical company UPL does more business in Latin America (around 1.7 billion dollars) than in India (less than a billion).

Indian autoparts company Mothersons has 19 plants in Mexico, 7 in Brazil and 1 in Argentina. They employ 22000 local staff and supply auto parts to OEMs.

Indian companies have even invested in resort hotels in Costa Rica and Cuba.

Latin American investment in India

Mexican firms have made impressive entries into India. Cinepolis is emerging as the second largest owner and operator of multiplexes in India. Kidzania has set up edutainment theme parks in Mumbai and Noida in collaboration with the famous Indian actor Shah Rukh Khan. Grupo Bimbo has become a leading bread maker in India with acquisitions of Indian firms.

Brazilian companies have invested in production of electric motors, ATM machines and auto parts. Brazilian gun makers Taurus Armas and Companhia Brasileira de Cartuchos (CBC) Brazil, have signed a memorandum of understanding (MoU) with Indian companies to make arms and ammunition in India.

Peruvian company Aje has invested in India to make the Big Cola brand of soft drinks.

Latin American software firms such as Globant, Softek and Stefanini have software development centres in India employing hundreds of Indian techies. Falabella, the Chilean retail chain and Techint the Argentine steel firm have offshore technology centres in India.

The most important Indian biotech company Biocon has a joint venture with Cuba for manufacture of vaccines in India with Cuban technology.

Future prospects

Indian and Latin American firms have started exploring each other’s market seriously only in the last two decades. Encouraged by the success stories, more companies from both sides have started exploring and discovering synergies and complementarities between the two sides.

The trade could reach USD 100 billion in the next five years.

In their pursuit of strategic diversification of markets and reduction of overdependence on China, the Latin Americans look at India not only as a large and growing market but also as a benign market in which they feel comfortable and secure.

The Indians find it easy to bond with the Latin Americans who have emotional and cultural similarities. The two sides, which have common development challenges, are learning from each other’s success stories and best practices as well as failures. Inspired by the pioneering story of Brazil’s fuel ethanol programme, India has started ethanol blending of petrol.

Hindustan Aeronautics Limited (HAL), the Indian aircraft maker has much to learn from Embraer’s success story.

What India needs to do more?

India should open embassies in Bolivia, Ecuador, Costa Rica, Honduras, El Salvador and Nicaragua.

There is a need for India to sign FTA or PTA with Mexico, Colombia and Peru where Indian exporters are at a tariff disadvantage vis-à-vis the competitors who have FTAs with these countries. India needs to widen and deepen the PTA with Mercosur.

The Commerce Ministry of India should revive the Focus-LAC programme proactively.

India-Latin America Business Conclave should be organized every year with adequate resources and more participation from both sides.

India should become a member of the InterAmerican Development Bank so that Indian firms can participate in the tenders of the Bank.

India needs to scale up its Credit lines to Latin America. At present the cumulative amount is less than a billion dollars.

Exim Bank of India should open an office in Latin America. Indian Banks should open branches in Sao Paulo and Mexico City.

China has over 60 Latin America study centres but India has just one. Around 80 Chinese universities have Spanish language departments while less than six Indian universities offer Spanish courses.

The Chinese hold annual meetings of Academic Forum and Think Tanks Forum besides several other forum meetings with Latin America. India has not established such channels for exchanges.

China- Latin America Forum and China-Latin America Business Summit are held every year on a large scale with systematic planning and activities. India-CELAC Forum and India-LAC Business summit are dormant.

Latin America needs to much more

While Indian business has been exploring and entering the Latin American market more vigorously and seriously, the Latin American business has not shown equal enthusiasm and initiatives.

The Latin American embassies in India should focus on economic diplomacy and have more business savvy diplomats to reach out to the private sector business.

Business visa is the major obstacle for Indian businessmen who want to visit Latin America. Some Latin American embassies have complicated and unnecessary bureaucratic procedures. For example, some embassies insist on police clearance certificates even for senior executives of reputed Indian companies with business turnover in the hundreds of millions of dollars. In contrast, India has introduced easy E-visas to Latin Americans, along with most other nationalities of the world.

Honduras and Nicaragua should open embassies in India.

There is a need for more Latin American participation in Indian trade fairs and business events. More Latin American business delegations should visit India.

The Latin American governments should push for FTA/ PTA with India to get tariff advantages for their export items.

Latin American organisations such as ECLAC, CAF and BID should hold business events and seminars in India and prepare market studies on the opportunities in India for Latin American business.

Latin American MBA schools should pay attention to India and include study of the Indian market. They should have exchange programmes with their Indian counterparts.

Latin American companies should take advantage of the boom in consumption and the demand for a variety of products by the large and growing middle class of India.

Note: The author considers 19 countries (18 Spanish-speaking and Brazil with Portuguese) as part of Latin America.

Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.

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First published on: 19-04-2023 at 17:03 IST