India and Latin America

1.What are the reasons for New Delhi’s growing interest in the Latin American region?
I suppose somebody in South Block would be better suited than me to answer this question, but let me venture the following: At least one rating agency has forecast that this may well be “the Latin American decade”. As the New India partakes in what The Economic Times so enthusiastically describes as “the Global Indian Takeover”, she can hardly afford to ignore what is happening in booming Latin America. In 2011, according to UN figures, FDI in LAC reached a record US$ 153 billion, a 31 percent increase over 2010. This is 10 percent of all FDI worldwide. Latin America is open for business and India has become aware of the opportunities that beckon.
For the first half century of Indian independence, India and Latin America interacted very little. Distance was a problem, as was language. They were also members of very different “clubs”—India in the Commonwealth and the NAM, Latin American countries in the Organization of American States (OAS) and other such entities. With the exception of countries like Cuba, in its diplomatic links LAC was also mostly focused on North America and Western Europe. Inward-oriented development strategies, based on “export pessimism” and import-substitution-industrialization (ISI) did not help, as they meant no efforts to reach out to non-traditional markets. Amazing as it may seem today, trade between India and LA was a mere US 500 million as recently as 1990.
With the opening of the Indian economy and that of the Latin American ones in the nineties, this changed. There was a realization, on both sides, that enormous opportunities beckoned. Within the Indian Government, a program was launched to support initiatives and business ventures in Latin America. As India became more export-minded, it went initially for the traditional markets in Europe and the United States, but it soon found out that there were other markets out there, including those of Latin America. South America’s vast natural resources were another magnet. And today, with the eurozone on the verge of implosion and the United States still struggling to come out of the 2008-2009 recession, South America’s dynamic and rapidly growing economies are especially attractive. We are seeing a real upsurge in South-South trade and investment flows, and India and Latin America can be at the center of it.

2.What,according to you, are the challenges for India in Latin America?
I would distinguish two different spheres. One, the more general one, related to India’s Latin American challenges in so far as they fall within the broader set of tasks facing Indian foreign policy today. The second, to the specificities of the region, what is happening there and what needs to be done to enhance and make more effective India’s presence. On the first: although there has been a sea-change in relation to what the situation was in the seventies and eighties, and there has been a upsurge of official visits to the region from Indian officials, there is still quite a gap in comparison to the number and level of Chinese visits to Latin America, and in relation to the number of visits from Latin American countries to India. The Chinese President and the Prime Minister have undertaken many state visits to Latin America in the recent past. The Indian Foreign Minister hardly ever visits the region. This is not sustainable in the long run. High level visits are a concrete expression of interest. They move the agenda forward. I realize Cabinet ministers in India find themselves under many pressures and find it difficult to get away, but that should not be the case of the Foreign Minister. India also needs to increase its number of FSOs. According to the Indian MEA website they stand at 600 today. This is a smaller number than those of New Zealand. As India moves from its condition as a regional power to one with global aspirations, it needs to update its foreign policy machinery, or risk being left behind.
In terms of the specific challenges in LAC today: The region is undergoing a boom and there are enormous opportunities for Indian companies and businesses, on many fronts. In terms of Indian foreign policy and diplomacy, I would say one of the most interesting developments is the rise of a new type of regionalism, expressed in entities such as the Common Market of the South (MERCOSUR), the Union of South American Nations, (UNASUR) and the Community of Latin American and Caribbean States (CELAC). MERCOSUR played a key role in the follow-up to the recent crisis in Paraguay, suspending the latter’s membership after the “soft coup” that took place there on 21 June. India should monitor developments in these regional organizations and look for ways to work with them. Joining the Inter-American Development Bank as an observer (as China did) would be a positive step, as would working with the UN’s Economic Commission for Latin America and the Caribbean (ECLAC), which recently released its first report on Indo-LAC relations.
In the course of the next decade, the United States and Europe will be more and more inward-looking and self-absorbed. The eurozone crisis is an economic one, but demographically driven. Europe’s population is falling, and there is enormous resistance to immigration. This can only lead to further economic decline, as the working-age population becomes smaller. In the United States, the rise of the Tea Party and the institutional paralysis the country finds itself in is largely the result of an unwillingness to accept US decline in world affairs. From 50 percent of the world product in 1945, the United States today is at 22 percent, whereas Asia’s is at 21 percent. The writing is on the wall. In this context, marked by the rise of BRICS and other emerging powers, the potential for a highly fruitful partnership between India and Latin America is considerable. Yet, many policy-makers have not realized this, and continue to look at the world through 20th century lenses.

3. A diplomat from LAC recently said : “The US and the Europe used resources from Latin American countries for their development, but did not help them in the development.” He wanted India to be different in her approach to Latin American countries.” How Latin American Countries look at India?
First, there is the view of Mother India, as an ancient civilization, cradle of religions, and cultural powerhouse. I would say there is enormous admiration and respect for what Mother India stands for and for what it has contributed to the human spirit. Some of our leading writers, like Nobel Prize winners Pablo Neruda and Octavio Paz, were deeply affected by their interaction with Indian culture. It impacted their work and view of the world in many ways.
Second, there is the view of Old India, by which I refer to a certain portrait of life in India in the fifties and sixties, as depicted in books like Dominique Lapierre’s City of Joy, marked by rampant poverty, snake-charmers and such stock figures as the man with the longest moustache in the world. Unfortunately, this image was (and to some degree still is) quite widespread in the region, and does not help.
Third, there is the view of the New India, that of Bangalore and IT, of Bollywood, of India as a space and nuclear power, of “indovation” and the Tata Nano, of jugaad and “the fortune at the bottom of the pyramid”, the nation that is changing the way the world works through BPO and KPO, and made it flat. This image is making headway, more in some countries than in others, but it is displacing the previous one. The more cosmopolitan and sophisticated public in the region is by now aware of the New India. Yet, this is by no means true for everybody. The way I see it, the key challenge for Indian diplomats in LAC today is to change India’s image from the Old to the New one. India’s IT prowess can play a key role in upgrading LAC’s technological and scientific capabilities.

4. India’s increasing presence also adds to skepticism about whether the high profile of the Asian giants is healthy for Latin America. Is the industrialisation of India(and China) helping or hindering its own economic development?
The presence of China and India in Latin America. has been beneficial. It has increased world demand for commodities and has raised the level of commodity prices. This has made it possible for the countries in the region to pay off their debts, to build up their hard currency reserves and to otherwise stabilize their economies. The average debt-to-GDP ratio in the region is now 28 percent, a very manageable number, and about a third of what it is in most developed nations. Foreign currency reserves in the region have increased from US$ 180 billion in 2001 to US$ 800 billion today. Countries like Argentina, Brazil, Chile and Peru have benefitted especially from this, but so have the smaller, poorer countries in South America. In 2009, at the peak of the so-called Great Recession, the country with the highest growth in the Americas was Bolivia, with 3.4 percent of GDP, at a time when some European nations were having double-digit negative growth. In 2010, Paraguay grew 14.5 percent, a rate only comparable to that of countries like Singapore and some of the Gulf Emirates.
There is one school of thought that argues that Asia’s demand for commodities is contributing to the de-industrialization of Latin America. This seemingly unlimited thirst for oil, copper, iron ore, soya would displace other economic activities, including manufacturing, and would condemn the region to a future of being “hewers of wood and carriers of water”. This is a legitimate concern. The commodities boom, like all booms, will eventually come to an end. Even the richest mineral deposits run out at some point. What happens then?
The more prudent Latin American nations are building up sovereign wealth funds, to face the challenges of a “rainy day”. This is fine, but it does not address the issue of economic transformation and the need to add more value to the commodities that are being exported. The same goes for the largely unmet challenge of linking up to the industrial production chains upon which so much modern manufacturing is based. South East Asian nations have been very successful at this. That should be the way to go for LAC.

5. Do you agree with the view that realization of the potential of Indo-LAC partnerships requires overcoming mental, not geographic, hurdles?
Globalization may not have meant “the end of history”, in Francis Fukuyama famous phrase, but it has meant “the end of geography” as we have known it. If you have the right product at the right price, you can sell it anywhere. There is no country in the world that is farther from India than Chile. Yet, in 2007, it exported more to India than either Bangladesh or Pakistan did, neighboring countries with nine times the population of Chile. Amazing as it may seem, those exports even include fresh fruit, like apples, grapes and pears. Container technology has drastically reduced the costs of transport, and the real challenge is to find your niche in the market. Chile, often described as one of the countries in the Global South that has successfully dealt with globalization, has done so by realizing that there is big world out there and that the possibilities it offers are enormous. After targeting East Asia, it moved on to South Asia, and particularly to India. As a result, its exports to India increased tenfold from 2003 to 2007, to US$ 2.2 billion.
In India, the traditional view of Latin America has been that of countries ruled by military dictators, with rampant inflation and unreliable business practices. Well, that is the Old Latin America. Much as there is a New India, there is a New Latin America. Democracy is now the rule, inflation is under control and business is booming. For Indian industry, Latin American markets, in countries with per capita incomes between 5000 and 15,000 dollars, are in some ways better suited than the U.S. and European ones, with per capita incomes at 40,000 plus, and different consumer preferences and requirements.

6.Why India may be the better partner than China for Latin America? Do you subscribe to the view that increasing frictions with China are a big reason for the region's increasing interest in dealing with India?
I do not subscribe to that view at all. Latin America’s growing links with Asia, most prominently with China and India, are a key component of LAC’s diversification of its trade and diplomatic links. This is a win-win game. I do not see any frictions between LAC and China either. Prime Minister Wen Jiabao has just had a very successful visit to the region. The first state visit abroad by the newly elected Brazilian President Dilma Rousseff in early 2011, with a delegation of 500 businessmen, was to China.
I do think that China and India bring different assets to the table in their dealings with LAC. But we should also keep in mind that China is far ahead of India: Sino-LAC trade in 2011 was US 241 billion, up from 164 billion in 2010. Indo-LAC trade in 2011 was only US$ 25 billion. This does not mean it cannot be ramped up quite quickly. But it does mean that much work remains to be done.
The reason for the region’s growing interest in India has nothing to do with China. It is due to the fact that there is a New India out there, and governments and businesses have realized that those who ignore it do so at their peril.

7. India’s growing activity is unambiguously good for both Latin America and the United States. Is Washington happy to see India challenge China in Latin America?
I would question the premise of this statement. I do not see India challenging China in Latin America (and if it were to be the case, she would have a long way to go, with only half the number of embassies China has in the region and 10 percent of the trade volume with LAC). That said, a big asset India brings to her foreign relations is her “non-threatening” image. This opens many doors and facilitates many things. I would say that Washington has a positive view of India’s presence in the Americas, as it offers new trade and investment opportunities for LAC countries.

8. What are the implications of China’s foreign policy and soft power in Latin America for US ? Hillary Clinton, the US Secretary of State, has noted that China and Iran are making “disturbing” gains in the region.
The days when the US State Department could tell LAC countries who to have diplomatic relations with are past. Some may wish that this were not the case, but there is little Washington can do about it. Over the past decade, and particularly since 9/11, the United States has become disengaged from the Western Hemisphere and focused on the so-called “war on terror”. In turn, LAC countries, and particularly those in South America, have realized that Asia has become “the new Europe”, and that there is where the action is. China is at the very center of Asia’s rise. For a number of South American countries, China today is their # 1 trading partner, displacing the United States. It is not inconceivable that in the not-too-distant future this will also be true for the region as a whole. The full implications of this remain to be drawn. But China has been very careful not to appear to be impinging on U.S. “turf” and has made it clear that the last thing it wants to do is to provoke Washington as it deals with LAC.