South America has thirteen sovereign and two non-sovereign areas: French Guiana (an overseas region of France) and Falkland Islands Territory (British Overseas Territory). Over the course of the past decade, it has also become one of the growth poles of the world economy and thus a natural partner for India. With a population of 580 million, a GDP of $4.9 trillion (four times larger than that of India) and six per cent of the world's merchandise trade it holds an important place for expansion of India’s trade.

Brief History of Relations

India and S. America both have similar colonial legacy under the occupation of the European colonial powers. Colonial powers exploited both the regions by sourcing their raw materials from colonies and dumping their industrial surplus in these areas. This gave rise to ‘development of underdevelopment’. Though, the Latin American colonies became independent from 1820s onwards, yet their economic situation was undeveloped and resembled the 1947 situation of India.

In the 20th century both India and Latin America tried to shake off the colonial domination and adopted the ‘Import Substitution Industrialization’ strategy.

Latin American countries followed ISI strategy religiously and tried to cut themselves from the outside world, but due to small markets because of less population, paucity of capital and trained manpower, this strategy could not succeed.

The failure of ISI strategy led to rise of dictatorial regimes in Latin America during 1960s and 1970s. These dictatorial regimes wore supported by the western alliance, led by the US during the cold war and followed the dictates of the MNCs operating in Latin America. MNCs exploited the natural resources of the region and increased the disparities in society. This led to resentment in the general population in Latin America and socialist parties emerged throughout the continent emphasizing on more humane and equalitarian mode of development. The region’s role today is a classic example of a producer and exporter of mineral and agricultural products.

Countries in Latin America and the Caribbean weathered the recent world economic crisis with unprecedented resilience and emerged from it more quickly and robustly than the developed economies. In the future, the region will be called on to assume an ever larger role in the global economy

Increasing Importance ofS. America in Recent Years

Business relations with S.America have been plagued by history of instability, unpredictability and cycles of booms and busts. The last two decades have seen S. America overcome most of these problems.  The role of intra-regional trade in the structural adjustment required by the Latin American debt crisis was important.

Now this region has become a breeding ground for trade and investments across the globe owing to several factors; opening up of economy, reduction of tariff/non-tariff barriers, modernization of infrastructure, privatization and liberalization of financial markets and the establishment of democracy in most parts of the region.

Another important reason for importance of S. America is that it is a gateway to Europe. Several regional trade arrangements such as MERCOSUR, ANDEAN PACT, CARICOM, Pacific Nations etc. have been formed to encourage trade. All these aspects contribute in attracting several economies for enhancing trade and investment relations with Latin America.

India-South America Relations

Economic Aspects:

Indian and S. American economies are greatly complementary with similar demand patterns from their low and middle class income populations.

In 1997 India launched the FOCUS LAC program in partnership with the private sector to encourage business to expand to Latin America and the Caribbean. Since then, trade with the Asian country has increased exponentially. South America, is becoming a significant source of natural resources for India — oil, copper, soya, and iron ore. The trade is highly concentrated, with imports from Chile, Brazil, Argentina and Paraguay and exports to Brazil, Peru, Colombia and Nicaragua.

Preferential Trade Agreements (PTAs) with Chile and with Mercosur have boosted inter-regional trade.

Political Aspects

India and some Latin American countries championed the cause of the New International Economic Order (NIEO) in the late 1970s and early 1980s.

The challenge of making South-South cooperation work is the new policy agenda driven by sound economic opportunities.

Another common concern for India and Latin America is democratization of various world fora including the UN and its allied bodies and major financial institutions including the World Bank and IMF. The most concerted effort in this regard was the G-4 initiative by Germany, Japan, India and Brazil for the expansion of the UN Security Council which was supported by most of Latin American countries. In recent past various heads of governments, from the Latin American region to India including Hugo Chavez from Venezuela, Lulu D’silva from Brazil, Michelle Bachelette from Chile affirm the growing convergence of the world views of both the partners to this relationship.

Role ofIndia-Brazil Relations

At the center of Indo-LAC relations is the Brazil-India link: BRICs, and despite differing interests on some key issues like agriculture, Brazil and India have together taken on the role of leading the New South. Initiatives like the IBSA (India, Brazil, and South Africa) Dialogue Forum and the G20+ bloc of developing nations has taken birth from this relationship,

Brazil’s complementarities with India show that they have common global aspirations and a common agenda on many multilateral issues.

Bilateral trade of $7 billion in 2012 portrays increasing trade ties with India. Brazil is becoming an energy powerhouse, while India imports 70 percent of its oil needs. Indian companies have already invested some $1.5 billion in Brazil, and Brazilian companies $600 million in India.

A Brazil India axis will continue to redefine the international global architecture.

Indo-Latin American Trade Has Not Been Able To Realize Its Potential

The region's trade with India was negligible until the beginning of the past decade. India had high tariff rates which inhibited trade with Latin America.

Geographical distances have also impeded trade between India and Latin America. There is no direct shipping service from India to Latin America. Goods have to be shipped to Europe or Singapore which increases freight costs and shipping times.

Transport costs between India and Latin America act as a significant trade barrier between the regions. Heavy commodities are difficult to trade between such long distances. Due to the long voyage period, perishable gods also cannot be traded.

Factors favoring increase in Indian trade with S. America

Latin America, governments and the private sector saw opportunities in India’s large, growing market and were inspired by the emergence of India as an IT power. On other hand Latin America growing economies provides a good market for textiles, garments, cars, pharmaceuticals, chemicals, and cosmetics. Middle-income countries of Latin America offer better markets than those of North America and Western Europe.

A combination of government initiatives and private ventures opened new vistas in India-LAC trade and investment, leading to an expansion in interregional trade. A steady expansion of state visits in both directions (Luiz Lula, the former Brazilian President, visited India three times in eight years) gave the right signals to the private sector, which followed through in a variety of areas.

India's IT and IT-enabled services industry have played a major role in India's outward expansion and Latin America has benefited. TCS has established a presence in eight of the larger Latin American countries; Wipro and Evalueserve, among others, are also there. This implies significant technology transfer in a cutting-edge economic sector.

China Factor inS. America

Compared to India China has made a headstart in developing economic as well diplomatic relations with S. America. Some of the key initiatives that China has taken to increase trade with the region are:

China is a major lender to Latin America through Bank of China and investments by the China Investment Corporation giving benefit to get co-operation in diverse areas from agriculture to space technology. It has also teamed up with IDB with a $350 million loan to develop LAC’s small businesses.

China has signed free trade agreements with Chile, Peru and Costa Rica, for example Chile and China have signed agreements to increase cooperation in mining, banking and telecommunications.

To overcome existing barriers of trade with Latin America China has taken an indirect route and adopted strategic moves to increase their trade in the region. It has invested in Rail link to Pacific coast to shorten movement

All these factors have contributed to making a leading trading nation of S. America.

Steps for India to Make Up the Lost Ground

China represents almost 10% percent of Latin America’s foreign trade and India only 0.8 percent. The barriers for India being large distance, trade tariffs and perceptions in industry and trade circles.

The potential of Indo-LAC trade and investment is considerable. India offers Latin America a diverse set of alternatives; India’s growing middle class, diversification of export markets and of diplomatic ties. India as well S. America need to explore newer export partners due to stagnation as well decline of European and American markets

Unlike China most Indian trade and investment with Latin America is done by private Indian companies which are not a threat to Latin American industries. Over half of them consist of raw materials and intermediate goods such as bulk drugs, yarn, fabrics, and parts for machinery and equipment, which can help Latin American industries, cut production costs and become globally competitive. Indian IT and business process outsourcing companies are propelling Latin America into the information age and training human resources for the knowledge economy.

Recent Developments

• In 2016-17, India exported more to Mexico ($3.5 billion) than to neighbours such as Thailand ($3.1 billion), Myanmar ($1.7 billion) and Iran ($2.4 billion) or traditional trade partners Russia ($1.9 billion) and Canada ($2 billion).
• India’s trade with the Dominican Republic ($900 million) was more than the trade with Portugal, Greece and some other European countries.
• India beat China in export of pharmaceuticals to Latin America. India’s exports were $651 million in comparison to China’s $404 million in 2016. In fact, in the last five years, India has been exporting more pharma to Latin America than China.

Pacific Alliance

• The Pacific Alliance is a Latin American trade bloc, formed by Chile, Colombia, Mexico and Peru, which all border the Pacific Ocean.
• These countries have come together to form an area of integration with the purpose of ensure a complete freedom in the movement of goods, services, capital, and people.

India’s role in Pacific Alliance

• India enjoys an observer status at the annual summit of Pacific Alliance
• A key area for collaboration for PA and India could be understanding the impacts of El-Nino and its common approach against this weather pattern. Countries dependent upon agriculture and fishing, particularly those bordering the Pacific Ocean, are the most affected by El-Nino. All PA states have coasts along the Pacific.
• PA is turning out to be an integrated market and it opens up opportunities for India in SMEs sector, trade facilitation, science & technology innovation and export of Indian pharmaceutical products.
• The Indian elephant has already engaged the tigers of Asia. It is now the turn of the pumas of the Pacific .

Future Steps

Realizing the potential of Indo-LAC partnerships requires overcoming mental, not geographic, hurdles. On the Latin side, many companies are unaware that, to take full advantage of the growing Indian market, they need to tailor production to specificities, as many Latin businesses already do with China.

Food security will emerge as a critical issue in years to come, and India-LAC partnerships in this area could be highly profitable. Latin American and Indian industry also needs to get into value chains that have become such a critical part of international trade.

Some steps in this direction are:

1)    Developing joint strategies for trade and investment promotion;

2)    Working together on infrastructure, competitiveness and innovation; and

3)            Launching a series of policy dialogues on inter-regional cooperation.