India Must Prioritize its Relationship with Latin America and the Caribbean

In order for India’s relationship with the region to reach its full potential, there needs to be a renewed diplomatic thrust to the region with the aim of enhancing bilateral ties with individual countries as well as with the region as a whole. To date, India’s diplomatic and political efforts in this regard have been somewhat deficient but the potential of India-LAC ties is too great to be overlooked and it is suggested that India place a fresh emphasis on its relationship with the region – Sanjay Badri-Maharaj*

India’s relationship with the Latin America and Caribbean (LAC) region is perhaps one of the least understood, and even less studied, spheres of India’s foreign policy. With a corresponding lack of emphasis coming from the LAC region, it is inevitable that the India-LAC relationship has never received the priority it deserves. Both India and the region have developed strong trade relations but remain somewhat hamstrung by a transactional relationship that is not aided by a lack of effective Indian diplomatic presence in several key countries of the region. While China’s economic influence and investment in the LAC region is undoubtedly much greater than India’s, India cannot and should not seek to emulate China but rather build upon a positive approach that can significantly boost India’s profile in the LAC region, with benefits accruing to both sides.

Trade Success

One of the major success stories of the last decade has been the significant increase in trade ties between India and the LAC region. Former Ambassador, Rengaraj Vishwanathan, notes that India’s trade with Venezuela ( $12 .24 billion ) and Brazil ( $11.36 billion) in 2014-15 was more than its trade with Sri Lanka ($7.4 billion), Bangladesh ( $ 7 billion), Thailand ($9.3 billion) and Vietnam ($9.2 billion) as well as with traditional partners France ( $9.4 billion) and the Netherlands ( $8.7 billion) while trade with Mexico ($ 6.25 billion) was greater than with Nepal ($ 5.2 billion), Egypt ($ 4.7 billion) Canada ($5.9 billion), Italy ( $5 billion), Spain ( $ 5.1 billion) and Israel ($5.6 billion).

India’s exports to Brazil ( $5.96 billion)  were greater than those to Japan ($5.4 billion), Republic of Korea ($4.6 billion), Malaysia ($5.8 billion ), Indonesia ( $ 4 billion), Thailand ( $ 3.4 billion),  Nepal ( $ 4.5 billion), France( $4.9 billion), Italy($5 billion), Spain ( $3.1 billion), Turkey ( $ 5.3 billion), Egypt ( $3 billion), and South Africa ( $ 5.3 billion) and India’s exports to Mexico ($ 2.8 billion ) exceeded those to Russia ( $ 2 billion), Australia ( $2.78 billion) and Canada ( $ 2.2 billion). Furthermore, Latin America’s exports to India in 2014 stood at US$29 billion while its exports to Japan and Spain were $21 billion each, Germany-$17 billion, Italy and UK-$11 billion each and France-$8 billion.

Quietly and without fanfare, India has moved to set in place a series of preferential trade agreements with sub-regional blocs and individual countries with the specific aim of increasing trade between India and the LAC region. The Indian Ministry of Commerce in 1997 initiated the FOCUS LAC program which aimed at:

• Sensitizing the organizations viz. Export Promotion Councils, Chambers of Commerce & Industry, EXIM Bank, ECGC, etc. involved in trade promotion efforts

• Granting various incentives to Indian exporters and launching of export promotion measures

• Focusing on the Latin American region with added emphasis on major trading partners of the region.

• Focusing on the following major product groups for enhancing India’s exports to the Latin American region:
• Textiles including ready-made garments carpets and handicrafts
• Engineering products and computer software
• Chemical products including drugs/pharmaceuticals

The FOCUS LAC program has had multiple extensions, the most recent of which came on 11th April 2014 and extended the program to March 2019. As part of this project, India signed two Preferential Trade Agreements (PTAs) with the MERCOSUR sub-regional bloc and Chile and is in the process of negotiating Free Trade Agreements (FTAs) with Mexico and Peru.  It is hoped that both India and the LAC region overcome delays and make converting PTAs into FTAs a priority.  Joint Commissions/Committees have been set up with Argentina, Brazil, Mexico, Cuba, Suriname, Guyana, Venezuela and Trinidad & Tobago while The Federation of Indian Chamber Of Commerce and Industry (FICCI) and The Associated Chambers of Commerce and Industry of India (ASSOCHAM) have been tasked with the responsibility of increasing interaction with their counterparts in the region. In addition, the Confederation of Indian Industry (CII) has regular interaction with their counterparts in the LAC region, with which they have signed Memoranda of Understanding (MOUs).

PM Narendra Modi with Brazilian President Dilma Rousseff and other presidents from BRICS Member States | Image: Business Standards

The impact of FOCUS LAC is evident from the trade figures between India and the region with total Indian bilateral merchandise trade with the LAC region increased from US$ 1.7 billion in 2001-02 to US$ 38.80 billion in 2014-15. During this period Indian exports to the region grew from a US$ 751.95 million to US$ 11.47 billion which approximates to a growth of 1425.88% over this period. Indian imports grew from about US$ 943.98 million to US$ 27.32 billion over this period, a growth of about 2794.53 %. Indian investment in the region totals some USD 15 billion with Indian companies employing some 35,000 Latin Americans

The FOCUS LAC project has been accompanied by the availability of funds under the Market Development Assistance (MDA) scheme which was aligned to the FOCUS LAC in 2006.Revisions in 2013 raised the ceiling of eligibility of those wishing to avail themselves of such funds. While these economic ties are something of a success story, the focus on trade could lead to the relationship becoming purely transactional. This, it is suggested, would not augur well for long-term relations as minor irritants over tariffs and taxation could have a disproportionate effect in such an unbalanced relationship

One persistently nagging issue, for example, is the absence of direct shipping services between India and the LAC which leads to very high freight costs. This is an issue, however, that is beyond the scope of private enterprise and investors to address. Decisions on establishing such transport links must come with the sanction of the respective governments. Unless the economic impetus is accompanied by an equivalent political focus, ties will become bogged down in minutiae.

Diplomatic Weakness

In stark contrast to a vibrant trade relationship, it is an indictment of India’s diplomatic attitude to the LAC region that more Latin American countries have embassies in India than India does in Latin America, with fourteen resident Indian missions in the region compared to twenty LAC resident missions in India. Admittedly, some of the Embassies are accredited to multiple countries but this does not detract from the fact that India has not reciprocated the efforts of some Latin American countries in establishing full embassies.

Avoid the Chinese Model of Engagement with the Region

The LAC region is now China’s second-largest investment destination – some USD 250 billion having been invested as of 2016. As the United States has withdrawn from the region, China’s intensified outreach perfectly timed, as a combination of economic contraction and electoral compulsions have made regional governments desperate for the economic lifeline that the Chinese loans and grants might provide. China’s emphasis on infrastructure and other high-visibility building projects is very attractive to LAC countries and the influx of China’s companies into this sphere has been substantial. However, Chinese financial largesse has not come without its price as China insists on using its own contractors and labourers, bringing few employment benefits to the recipient nation.

Some analysts have expressed alarm at the growing level of Chinese trade, loans, and investment in Latin America, often on favourable terms with less conditionality than traditional Western powers | Image: Boston University

In addition, the quality of Chinese construction has left something to be desired for as serious structural flaws have resulted in the closure of Trinidad and Tobago’s visually impressive Chinese-built National Academy for the Performing Arts (NAPA) for more than a year with substantial costs to be incurred in its repair. Trinidad also experienced the ignominy of having to demolish an apartment complex built by China Jiangsu International Corporation as it was deemed unsafe for habitation. Even in the Bahamas, the “Chinese Dream” became something of a nightmare as the vaunted Baha Mar resort, reputedly costing $3.5 billion, has failed to open, with China Construction America (CCA) missing deadlines and facing numerous allegations of shoddy workmanship and poor construction quality.

An added complication is that with China’s Exim Bank has financed the deal, it has become virtually impossible to fire the Chinese contractors for sub-standard work. Moreover, given the relative negotiating strength of the parties, it is evident that the LAC nations lack the means to leverage better contractual terms with the Chinese, the inevitable result being that construction contracts are skewed in favour of the Chinese contractors.

In contrast, the 25 Indian IT companies operating in the LAC region alone employ some 20,000 locals. On the flip side, twenty Latin American companies have invested nearly USD 1 billion in India in steel, multiplexes, bus assembly, auto parts and electrical motors. India, therefore, is not seen as an exploitative foreign presence in the region as is a creator of employment. By eschewing the Chinese model of engagement, therefore, India has given itself an opportunity to establish a mutually beneficial model of engagement with the LAC region with Indian and Latin American investors playing their respective parts in boosting efforts in this regard.

Moving Forward

India has the opportunity to carve out a niche for itself in respect of its engagement with the LAC region.  However, its approach thus far has been largely transactional with minor irritants over tariffs and trade being allowed to dictate, to a great extent, the pace of the relationship. In order for India’s relationship with the region to reach its full potential, there needs to be a renewed diplomatic thrust to the region with the aim of enhancing bilateral ties with individual countries as well as with the region as a whole. To date, India’s diplomatic and political efforts in this regard have been somewhat deficient but the potential of India-LAC ties is too great to be overlooked and it is suggested that India place a fresh emphasis on its relationship with the region.

*Dr Sanjay Badri-Maharaj was a Visiting Fellow at IDSA. He is an independent defence analyst and attorney-at-law based in Trinidad and Tobago. He holds a PhD on India’s nuclear weapons programme and an MA from the Department of War Studies, Kings College London. He has served as a consultant to the Trinidad and Tobago Ministry of National Security

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of The Kootneeti Team.

Also, read Sanjay Badri-Maharaj’s take on Political Crisis in Venezuela | Decoding Political Unrest in Latin America