India Eyes Latin America

Indian investment is helping Latin America to diversify its sources of economic growth, making the region relatively less dependent on commodity exports. But what about low-wage Indian manufacturing? Doesn’t it pose a competitive challenge to Latin America, where manufacturing wages are higher? To a certain degree, yes. Broadly speaking, however, “Indian exports to the region are not a threat to Latin American industries,” as Heine and Viswanathan stress. “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.”

In a 2010 study (“India: Latin America’s Next Big Thing?”), Inter-American Development Bank economist Mauricio Mesquita Moreira concluded that, while “the fundamentals exist for a strong trade relationship between the two regions,” economic cooperation is being hampered by tariffs and other trade barriers. The hope is that incremental progress on trade expansion will discourage protectionist policies. “More trade is likely to strengthen the virtuous circle in which trade boosts incentives for cooperation while cooperation creates even more opportunities to trade,” explains Moreira.

The recent growth of trade and investment ties between India and Latin America has encouraged warmer diplomatic relations. By 2009, note Heine and Viswanathan, LAC countries had 18 diplomatic missions in New Delhi, and India had 14 missions in the LAC region, up from twelve and seven, respectively, in 2002. The single most important bilateral relationship is that between India and Brazil, Latin America’s largest economy and most populous country. In 2003, the two nations joined with South Africa to sign the Brasília Declaration, which launched the India–Brazil–South Africa Dialogue Forum, or IBSA. The goal of this trilateral mechanism is to promote greater three-way cooperation on issues such as trade, investment, education, poverty reduction, and the environment. “Brazil has what India lacks: a large and fertile land mass with abundant water that can significantly increase the production of food -- something India will always need, be it soybean oil, legumes or sugar,” write Heine and Viswanathan.

As Indo-Brazilian economic links continue expanding, we can expect the two governments to pursue closer collaboration on non-economic matters, including military affairs. This will unnerve the Communist rulers in Beijing, who fashion themselves the undisputed leaders of the developing world and fear the rise of India. Washington won’t always agree with New Delhi’s foreign-policy decisions, but it should welcome a robust Indian presence in Latin America. After all, on the biggest economic and strategic issues of the day, India and the United States are natural allies.

Read this article in Spanish here.