Why It’s Important for India to Trade With Latin America

Many believe that trading with Latin America is expensive and therefore should not be a priority. But statistics tell a different story.

For those who think that Latin America is too far and the cost of freight too high, and therefore that the region should be less important for India’s trade, here is an eye opener from the 2016-17 (April-March) statistics of the commerce ministry of India.

• 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 exports to Colombia ($787 million) were more than the exports to some West European countries such as Austria, Ireland and Scandinavian countries.
• Guatemala imported more from India ($243 million) than some Central Asian and East European countries.
• India’s trade with the Dominican Republic ($900 million) was more than the trade with Portugal, Greece and some other European countries.

For those who think that it is very difficult for India to compete with Chinese exports, here is another piece of information:

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. What is even more interesting is the fact that India imports a bulk of its raw materials from China, converts them into finished formulations and exports them.

Trade in 2016-17

India’s trade with Latin America in 2016-17 was $30 billion, of which export was $10.4 billion and imports $19.6 billion. The trade has gone up slightly from $29.7 billion in 2015-16 but is down from $43 billion in 2014-15. The main reasons for the decrease in trade are the fall in commodity prices imported by India from Latin America and the recession of the region in 2015 and 2016. India’s import of crude oil from the region fell to $9.5 billion in 2016-17 from $20 billion in 2014-15, thanks to the decrease in oil prices from over $100 dollars to less $50. The volume of crude imports had, in fact, increased.

	2016-17	2015-16	2014-15
India’s exports	10.4	10	13.7
India’s imports	19.6	19.7	29.3
Total	30	29.7	43

India’s trade in 2016-17:

Country	Exports	Imports	Total Trade
Brazil	2,408	4,115	6,523
Argentina	512	2,500	3,012
Uruguay	189	13	202
Paraguay	125	155	280
Venezuela	62	5,512	5,574
Mexico	3,473	2,944	6,417
Colombia	787	594	1,381
Peru	699	1,077	1,776
Chile	676	1,226	1,902
Ecuador	199	356	555
Bolivia	80	174	254
Guatemala	243	22	265
Costa Rica	160	59	219
Honduras	136	22	158
Nicaragua	87	3	90
El Salvador	60	6	66
Panama	222	202	424
Dominican    Republic	225	675	900
Cuba	42	1	43
Total	10,485	19,656	30,041

(All figures in the table are in million $)

In 2016-17, Brazil was the largest trading partner at $6.5 billion, followed by Mexico ($6.4 billion), Venezuela ($5.6 billion), Argentina ($3 billion), Chile ($1.9 billion), Peru ($1.8 billion), Colombia ($1.4 billion) and the Dominican Republic ($900 million).

India’s exports

Mexico was the largest destination of India’s export, valued at $3.5 billion, followed by Brazil ($2.4 billion), Colombia ($787 million), Peru ($699 million), Chile ($676 million) and Argentina ($512 million). Export to Mexico has increased by 21% from last year, while it declined in the case of the other large markets such as Brazil, Argentina, Colombia, Peru and Chile.

Value of major exports of India, in million $:

Vehicles	3,408
Equipment and machinery	861
Organic chemicals	810
Pharmaceuticals	651
Iron and steel	623
Chemical products	566
Synthetic fibres	550
Apparels	442
Plastic items	350
Aluminium articles	207
Diesel	105

Latin America was the leading destination of India’s vehicle exports with a share of 23% of India’s global exports. Mexico continued to be the main buyer of Indian cars with $1.6 billion accounting for 25% of India’s global exports. Vehicle exports to Mexico have been steadily increasing in the last three years and the increase from last year was an impressive 39%. Colombia, which was the number one buyer of Indian motorcycles came down to the third rank in 2016-17 with imports of $185 million, after Bangladesh and Sri Lanka. In 2016-17 Latin America imported motorcycles worth $354 million from India in 2016-17, which was 25% of India’s exports to the world.

Imports

Major sources of imports were: Venezuela ($5.5 billion), Brazil ($4.1 billion), Mexico ($2.9 billion), Argentina ($2.5 billion), Chile ($1.2 billion), Peru ($1 billion), Dominican Republic ($675 million) and Colombia ($594 million).

The main imports were crude oil ($9.5 billion), vegetable oil ($2.9 billion), gold and precious stones ($1.7 billion), copper ($1.7 billion), raw sugar ($1 billion) and wood ($309 million). The revenue through sugar imports is generated by mainly by refining and re-exporting to other countries.

The imports are set to increase given the growing demand for these items in India, driven by the increasing population and consumption as well as the high economic growth rate.

Outlook for 2017-18

This trade should go up next year, with the recovery of the economies of the region in 2017. The GDP of Latin America had shrunk by 1.1% in 2015 and 0.5% in 2016. The GDP is expected to grow by 1.1% in 2017, helped by the recovery of global commodity prices. Except Venezuela, all the countries of the region have shown positive GDP growth. Even Brazil, which continues to suffer from political crisis, has turned around with positive growth this year.

Latin America will continue to contribute to India’s energy security with the supply of crude oil. The region has large reserves and the capacity to increase production and exports to meet the increasing crude imports from India. South America has started supplying pulses, which India has been importing more and more with the growing gap between consumption and domestic production.

The collapse of the Trans Pacific Partnership following the withdrawal of the US is good for India. The TPP had extra clauses for patent protection, going beyond the WTO standards, and this would have affected India’s generic medicine exports to Latin America.

The expanded Preferential Trade Agreement signed by Chile and India in 2016 has come into force from May 2017. Peru and India have agreed to start negotiations for a free/preferential trade agreement and this should also help in boosting the trade with the region.

Indian exporters should focus on the markets in the Pacific Alliance (Mexico, Colombia, Peru and Chile) whose economies are growing more and whose trade policies are more stable, transparent and predictable, with the least protectionism.

Latin Americans have started paying more attention to India, especially after arrogant and insulting remarks from Donald Trump against Mexicans and his protectionist trade policies. They also want to reduce the over-dependence on China, which has used its dominance to hurt the region’s industries and given rise to other risks. They attach importance to India, which has overtaken China in terms of GDP growth rate, and see India as a non-threatening trade partner in the long term.

India’s exports could be doubled to $20 billion in the next five years if exporters target Latin America more seriously and systematically.

Ambassador (retired) R. Viswanathan is a Latin America expert.