Thursday, March 09, 2017

Trump triggers greater Latin American interest in India

" So far from God ….but so close to Trump", is the cry of the Mexicans these days to their patron saint, Virgin of Guadalupe, affronted by Trump's racist comments and accusation of Mexican immigrants as 'criminals, rapists and drug dealers'. They feel insulted by his demand for Mexican money to build the border wall. Not since the American annexation of Mexican territories and the US-Mexico war  in the 19th century that the Mexicans are so outraged with the Big Brother. Trump has called NAFTA as the 'worst trade deal in human history' and has threatened to impose tariffs on imports from Mexico, which depends on US for 81 percent of exports and  close to 50% of its imports. In 2016, Mexico's exports to US were 294 billion dollars and imports 231 billion. Traumatised by Trump, Mexico has started pursuing diversification of trade partnership focussing on large markets like India. 

Like Mexico, Central America also fears deportation of large numbers of their citizens from US and loss of remittances. Cuba, which began normalization of relations with US, is back to the wall again by Trump's reversal of some of the policies of Obama administration. Colombia, Chile, Peru, Dominican Republic and the five Central American countries which have signed Free Trade Agreements with the US are apprehensive expecting the worst fromTrump. The Latin Americans cannot believe that the US, which preached and forced Latin American governments to open up their markets and liberalize imports in the name of "Washington Consensus", is doing exactly the opposite by resorting to protectionism.  

During the annual CELAC (Community of Latin American and Caribbean States) summit in January this year, the leaders of the region were unanimous in their condemnation of the Wall and solidarity with Mexico. The outgoing Secretary General of UNASUR (South American Community) Ernesto Samper had said, "U.S. President Donald Trump's migration policy and trade protectionism are threats to South America and the region must take a stand against them instead of appeasing him". Mario Vargas Llosa, the celebrated Peruvian writer and Nobel Prize winner, whose latest novel is about the Fujimori dictatorship in Peru, has called Trump as an ' uncouth, populistic and nationalistic demagogue dangerous for Latin America'.  The Latin Americans who had suffered long in the past from dictatorships are shocked that the Caudillo (typical Latino authoritarian strong man) has reappeared in North America in the form of Trump  reviving their  bad old memories of the 'arrogant Yankee'

While Trump is alienating the Latin Americans, the Chinese have steadily expanded their presence in the region. China has overtaken US to become the largest export destination for Brazil, Chile and Peru among others. It has replaced European Union as the second largest trade partner of the region. The Chinese target is 500 billion dollars of trade and 250 billion investment by 2025. China has given a credit of 21 billion dollars to Latin America in 2016 alone and their cumulative credit is an impressive 141 billion dollars, since 2005. They have captured the imagination of Latin Americans with announcement of mega infrastructure projects such as the Bi-Oceanic Railway between the ports of Santos in Brazil and Callao in Peru as well as the Nicaragua Canal project. But the Latin Americans have become conscious of the risks and perils of over dependence on China which has used its leverage to bully some countries in the region. In any case, the Latin Americans, who have come out of dictatorships just three decades back, are uncomfortable with the Chinese communist dictatorship and its non-transparent policies and intentions. Not surprisingly, the US think tanks and NGOs are stoking the fires of distrust of China by maligning Chinese projects and exaggerating the damage to region's industry and environment by the flooding of cheap Chinese products and extractive ventures.

The Latin Americans are disillusioned equally with Europe, with its rising nationalism, anti-immigrant agenda and trade barriers. 

Caught between the bullying Trump, indifferent Europe and the suspect Chinese, the Latin Americans have started looking more seriously at India, attracted by its huge and growing market as well as its vibrant and diverse democracy. They have taken note that India has already overtaken China in growth rate and the Indian population is set to exceed that of the Chinese in the coming years.They do not feel threatened by the Indian exports or investment unlike in the case of Chinese. The Indian IT and pharma companies are perceived as having contributed positively to the region. India has already become the second largest market (after US) for crude oil, the largest export of Latin America. Since US is reducing imports of crude oil (thanks to the shale discoveries), India will become even more important a market for Latin American crude exports.  In 2014, India was the third largest destination for Latin America's exports. The region had exported more to India than to Germany, France, UK, Italy, Spain and Japan. 

Trump's withdrawal from TransPacific Partnership (TPP) is good for India. The TPP had extra protection for patents (pushed in by multinational corporations) which would have caused problems for the pharmaceutical exports of India to Mexico, Colombia and Chile, the Latin American members of TPP. If TPP had become successful, it would have inspired more such second generation trade agreements adversely impacting some of India's exports. 

The Latin American economy has recovered from the recession of the last two years and has resumed growth in 2017. Except for Venezuela, the macroeconomic fundamentals of the region are generally stronger and  growth prospects better. The region offers a large market of 614 million people with a combined GDP of 5.2 trillion dollars and per capita income of 8500 dollars. The region's imports are close to a trillion dollars. 

Distance is no longer a deterrent. Fresh fruits from Chile, Peru and Argentina are available in Indian markets. India exports more to the distant Guatemala than to the nearby Cambodia.India's exports to Brazil in 2014-15 were more than its exports to Japan, Korea, Malaysia, Indonesia, Thailand, France, Italy and Spain. India's exports to Mexio exceeded its exports to Russia, Canada and Australia.

Latin America is the largest destination for India's car and motor cycle exports. Indian pharmaceutical exports to the region are around a billion dollars. Over twenty Indian IT and BPO companies have established operations in the region employing more than 25,000 local staff. Latin America, with a 15-20 percent  share of India's crude oil imports, has come to stay as an important contributor to India's energy security helping India's strategic policy of diversification and reduction of over dependence on the Middle East. Besides large reserves of oil, the region is well endowed with minerals and agricultural potential which are useful for 'Make in India' and food security.The India- Latin America trade which was 30 billion dollars in 2015-16 has the potential to reach 100 billion in the near future. 

This is, therefore, the right time and an unmissable opportunity for India to intensify its win-win economic partnership with Latin America. One of the immediate measures to take is to increase the credit to the region to facilitate trade and investment. The cumulative Indian credit to the region is very much below one hundred million dollars while the Chinese credit is 141 billion. The negotiations for widening and deepening the PTA with Mercosur ( which has been going on indifferently for the last ten years) needs to be concluded without further delay. Trade Agreements could be signed with Mexico (the largest destination of India's exports to the region in the last two years) as well as with Colombia and Peru the other major markets. Prime Minister Modi should undertake annual visits to the region, like the Chinese President does.The Commerce and External Affairs Ministers of India need to engage their Latin American counter parts with a new message of serious partnership.The annual India-Latin America and Caribbean Business Conclave needs to be organized in a larger scale with more funds and high-level participation. Opportunities for Indian exporters and business in the region need to be disseminated regularly with the latest information on the economies and markets through trade and industry bodies and export promotion councils.

Edited version of this appeared in The Wire

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