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 regions by sourcing their raw materials from colonies and dumping their industrial surplus in these areas. This gave rise to the ‘development of underdevelopment’. Though the Latin American colonies became independent from the 1820s onwards, 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 colonial domination and adopted the ‘Import Substitution Industrialization’ strategy.

Latin American countries followed the 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 the ISI strategy led to the rise of dictatorial regimes in Latin America during the 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 the 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 of S. America in Recent Years

Business relations with S.America have been plagued by a 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 the 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 the 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 to 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 businesses to expand to Latin America and the Caribbean. Since then, trade with Asian countries 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 the 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 Latin American countries. In the recent past various heads of government, from the Latin American region to India including Hugo Chavez from Venezuela, Lulu D’silva from Brazil, and Michelle Bachelette from Chile affirm the growing convergence of the world views of both the partners to this relationship.

Role of India-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 have 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 $11.53 billion in 2021 portrays increasing trade ties with India. The balance of trade is in favor of India. India is now 5th largest trading partner of Brazil. Total Indian investment in Brazil is estimated at more than $6 billion. Brazilian investments in India are around $1 billion.
• A Brazil-India axis will continue to redefine 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 an 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 the other hand, Latin America growing economies provide 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 in S. America

• Compared to India, China has made a headstart in developing economies 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 the Bank of China and investments by the China Investment Corporation giving benefits to getting cooperation 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 to trade with Latin America China has taken an indirect route and adopted strategic moves to increase its trade in the region. It has invested in a Rail link to the 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 are large distances, 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

• 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 the 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 ensuring complete freedom in the movement of goods, services, capital, and people.

India’s role in Pacific Alliance

• India enjoys  observer status at the annual summit of the 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 the SME 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.

India's interests in Latin America

Economic interests

• Latin America is very rich in minerals such as copper, lithium, iron ore, gold, silver, and hydrocarbons also.
• This gives India an opportunity to increase investments in their extraction as well as for their imports at cheaper rates.
• Venezuela, the country with the world's largest oil reserves is in Latin America. India imports crude oil from Venezuela and export refined petroleum to the country.
• Indian investment in Brazil is significantly large. it is more than $6 billion. Brazil is India's largest trade partner in the region. Brazil identified India as a priority state. 
• In 2004, India signed a Preferential Trade Agreement with MERCOSUR - a group consisting of Argentina, Brazil, Paraguay, and Uruguay. Venezuela was a partner of MERCOSUR but is lying suspended since 2016.
• In 2020, the Jindal Defence of India and the Taurus Arms of Brazil signed a joint venture for the manufacture of small arms.
• The Sonora variety of Mexican wheat was fundamental in the Green Revolution in India.
• Indian companies such as ONGC and private sector companies like Reliance, Essar, Videocon, etc. have invested in producing oil and gas fields in Latin American countries.
• India's main imports from Latin America include hydrocarbons

• India's exports to Latin American countries include automobiles, equipment, and machinery, organic chemicals, pharmaceuticals, iron & steel, chemical products, synthetic fiber, refined petroleum, diesel, etc.

Strategic interests

• The region is important for India in achieving its global ambitions.
• India's bid for a permanent seat in the United National Security Council (UNSC) is supported by Brazil, Mexico, Chile, and Paraguay.
• Countries such as Brazil, Argentina, and Mexico support India's candidature for the Nuclear Suppliers Group (NSG).
• Both India and Latin America believe in a multipolar world.
• On the Russia-Ukraine conflict, Latin America also has taken a similar position with regard to India's stance on Ukraine. Just as India abstained from the vote in April to expel Russia from the UN Human Rights Council (UNHRC), so did Latin American countries such as Brazil and Mexico. Like India, Latin America has also not signed onto the western sanctions programme against Russia. While the west views the war as a threat to a rule-based global order, India and most of Latin America view it as a regional war limited to Europe, but with a significant global impact.
• The Latin American region was the main recipient of the India-UN Development Partnership Fund in 2021 and the region is also a critical supplier of minerals and hydrocarbons to India.
• Latin American countries have rich resources for lithium. According to an estimate Latin America holds 60% of all identified lithium reserves in the world. Lithium reserves are mainly located in Bolivia, Argentina, and Chile - known as the Lithium Triangle region. Lithium is crucial for India's transition to electric vehicles and so, to meet India's climate-related commitments.

• Twelve Latin American countries are partnering in the International Solar Alliance.

Energy Security

• India imports crude oil from Latin American countries such as Venezuela, Mexico, Guyana, Brazil, and Colombia.
• Many Larin American countries have joined International Solar Alliance also.

India's Development Assistance

• India announced (recently) $14 million grant for community development projects in Caricom (Caribbean Community - a political and economic union).
• India has also offered a $150 million line of credit for projects related to solar, climate change, and renewable energy.