Today, the world is witnessing a crisis-like situation that has enhanced the quest for alternatives, be it in the form of energy, market, cheap labor, raw materials, or for that matter allies. As an example, the Ukraine-Russia war or the food and fuel crises have resulted in significant changes at the geopolitical level. Brazilians elected a left-wing government to power, and the United Kingdom elected its first Prime Minister of Indian descent. Alternatives are being sought, and India is also taking steps in this direction. The commitments made at the Paris Agreement of 2015 and COP 26 led India to start its search for better alternatives for a stable and sustainable future, keeping the national interest and citizens at the center.
The Indian economy faces its own set of challenges as an emerging market. Several factors have contributed to the urgency to adopt alternative sources of energy, including the pandemic and its aftermath, as well as a resource shortage (the delay in importing coal briquettes from Australia in peak summer months). During the pandemic, the shortage of APIs, resulting from the prevailing conditions in China, prompted India to seek substitutes both domestically as well as internationally.
The increasing importance of Latin America can be attributed to several factors, including India’s target to reach $10 trillion in GDP, the need for larger markets for its pharmaceutical industry, cheap labour, textiles and other sectors, and the transition to more environment friendly energy sources.
Since the time of indentured labour, Latin America, which includes the countries of South America, Mexico, Central America, and the Caribbean islands (LAC), has had a longstanding relationship with India. As a result of colonization by the European powers, both India and this region adopted socialist policies after independence. Even though the relationship was intended to strengthen further, it failed to gain the necessary head start since LAC countries tilted towards the United States and India followed path of non-alignment and moved eventually towards the Soviet Union after signing the Peace and Friendship Treaty in 1971.
The Cold War caused a great deal of political instability in many countries of the LAC. With the end of the cold war, however, the situation changed. There was a democratic transition in this region, and India too opened her economy for better trade and economic relations.
Significance of the LAC Region
- Resource Rich Region: Apart from Iron, Copper, Gold, Silver, and other metals, Latin America is rich in resources such as Lithium. By strengthening the ties, Indian companies will be able to invest more in the region, which in turn will reduce import costs in the long run. A greater understanding of the potential of this region would further assist the Indian government’s various initiatives, such as FAME II. Based on statistics provided by the Ministry of Commerce, India, India’s exports to Latin America reached a record high of $18.89 billion in 2021-22. Exports have increased by 48 percent from 12.74 billion dollars in 2020-21.
- Energy Security: It is estimated that about 15-20% of India’s petroleum supply comes from this region. Approximately 20% of the world’s crude oil reserves are in this region. The strengthening of the ties will assist India in seeking alternatives and may also provide the impetus needed to achieve the goals indicated by the Prime Minister of India at COP26. Presently, over 80% of India’s palm oil is imported from Indonesia and Malaysia. Stronger ties with this region can provide India with better alternatives.
- Important Markets: Three of the countries in this region-Brazil, Mexico, and Argentina-are members of the G20 and India is showing deep interest in leveraging the immense market potential. Over the last two decades, trade between India and this region has grown exponentially. India ranks among the top five destinations for Latin American exports. Furthermore, the region has established itself as an effective market for the Indian pharmaceutical and automobile industries. The Samvardhana Motherson Group, an Indian automobile parts company, has 27 manufacturing plants in Latin America that employ 25,000 people, which is more than all the employment generated by Chinese automobile companies in the region combined.
- Food Security: With a population almost half that of India and an area five times larger, Latin America has the potential to help India practice sustainable agriculture and reduce the cost of importing pulses and oil seeds from Africa and Southeast Asia.
- Pharma Exports: Since the beginning of the 21st century, India has exported more pharmaceutical drugs to Latin America than China. Furthermore, 27 Indian pharmaceutical companies have invested in the region and operate 13 manufacturing facilities. Besides increasing local production (especially of generic drugs that treat cancer and HIV/AIDS), the presence of low-cost, high-quality drugs from India also contributes to a reduction in the cost of public healthcare.
- Strategic: For India, the region is paramount to achieving its global ambitions, including becoming a member of the UNSC, the NSG, and participating in various other international negotiations, including those relating to climate change, terrorism, and trade.
Through platforms such as BRICS and IBSA, India and Brazil are cooperating to provide an alternative platform for developing countries and to reduce their dependence on western-controlled institutions.
- Emergence of Chinese Domination in the Region: Several analysts within India’s strategic community believe that China is rapidly establishing itself as Latin America’s economic and strategic partner, and that India must begin to expand its own footprint in the region. As a matter of fact, it is no longer a secret that China is also trying to take advantage of its debt trap diplomacy in order to bind these countries to a perpetual debt trap. Having a significant presence in this region could also pose a serious threat to the freedom of the Indo-Pacific region. As a result, it becomes even more crucial for India to pay attention to this region.
- India’s Soft Power Diplomacy: India has gained traction in Latin America due to its rising power status, its economic growth, as well as its cultural and civilizational practices such as yoga. For instance, during the pandemic, India’s vaccine Maitreyi prevented countries like Uruguay from falling prey to China’s trap. Aside from this, India’s position at various global platforms and its opposition to band-wagoning have left a profound and positive impact on the global stage.
A couple of reasons have added to the stagnant relations between the 2 parties because of which the potential, as estimated, has not been realised yet.
Geographical distance: The main obstacle has been the considerable distance between the two parties, as well as the differing priorities on both the domestic and international fronts. Consider, for instance, the differences in ideologies between India and Latin American countries. Most of the countries in the LAC are now governed by left-leaning governments. The former president of Brazil, Luiz Inacio Lula da Silva, an icon of the Latin American left, defeated current president Jair Bolsonaro. This made Brazil the sixth country to reject the right government in favor of the left. Although India has set a positive example by aligning its foreign policy with its own needs and requirements. However, in order to strengthen the ties with this part of the world, India will need to strike the right chord in dealing with ideological differences and leaving them behind.
Lack of cultural connection: The two regions have also suffered from a lack of cultural, linguistic, and diaspora contacts over the years, which has contributed to a lack of strong ties between them.
There is a need for an effective institutional framework to facilitate the exchange of people, ideas, and a network of businesses between India and Latin America. Additionally, India needs to promote Latin American studies, invest in the shipping industry, and conclude preferential trade agreements and free trade agreements at the earliest convenience. Moreover, Latin American languages should be promoted in India to induce Indian professionals to work in these countries, thereby, facilitating the development of trade relations between the two countries. As a final recommendation, the commerce ministry should revive its ‘Focus: LAC’ programme, which has previously supported and encouraged Indian exporters to explore business opportunities in Latin American countries.
Although both India and the LAC countries have made considerable progress on numerous fronts, they still face some formidable challenges. These challenges may provide an opportunity for both parties to forge new partnerships to promote growth and development through increased trade and investment.