by Ben Miller
Trade and FDI flows, not to mention portfolio investments,
between India and Latin America remain modest at best, and pale
in comparison to the region’s much trumpeted
relationship with China. But this is starting to change, and
quickly, amid expectations that India could play an equivalent
or even more important role in Latin America’s
Latin America’s abundance of fresh water, land
and natural resources are becoming increasingly important for a
densely populated India, whose growth rate may soon surpass
China’s. Gaining access to food sources and raw
materials will clearly be a top priority.
Indeed, India holds much promise for Latin America,
representing a massive market for its commodities and a way to
lessen its reliance on China. While trade barriers and other
competitive disadvantages threaten to stifle investment flows,
bankers and policymakers are already touting the enormous
potential of the developing ties between the two
"If India continues to grow at the pace of the last 10
years, without necessary reforms and infrastructure
improvement, they will hit a constraint, and will start
importing a massive amount of raw material," says Mauricio
Mesquita Moreira, an economist at the Inter-American
Development Bank (IDB).
Mesquita estimates that LatAm’s exports to
India could reach more than $55 billion per year by 2020, up
from $8.4 billion in 2010. For now, however, trade flows
between LatAm and India remain comparatively tiny, though they
have spiked in recent years.
For instance, trade with Brazil, India’s
partner in the now famous BRIC acronym and its biggest source
of exports and imports in the region, hit about $9.5 billion in
2010, up from less than $2 billion in 2003, according to
Standard Chartered. Yet, Brazilian trade with China over the
same period surged from nearly zero in late 2000 to around $60
billion, or six times the amount of trade with India on an
It’s a similar story with overall investment
flows to LatAm from India, which according to TCA Ranganathan,
chairman of the Exim Bank of India, reached about $25 billion
in 2010 from virtually nothing 10 years ago. Still, that falls
far short of $140 billion from China.
Yet, the modest scale of investment flows also speaks to the
enormous capacity for growth. According to the United
Nation’s Economic Commission for Latin America and
the Caribbean (ECLAC), India’s share in the
region’s trade with Asia-Pacific is still a
relatively meager 6.2%, lower than the 8.8% represented by the
Republic of Korea, while India only accounts for just 5.1% of
LatAm’s imports from the Asia-Pacific region.
The resiliency of Latin American economies during recent
global economic downturns and what ECLAC calls the "the
favorable mindset of Latin Americans towards India" means there
is significant potential for increasing trade between the two
regions, it says.
Food is the Key
For now, food and India’s need to feed its
enormous population at a time of rapid economic growth is being
seen as the kernel of this relationship and arguably the
catalyst for its growth. India may be the world’s
seventh-largest country by size, covering 3.2 million square
kilometers, but it is running out of space.
A population that will soon surpass China’s is
moving toward the cities and the land it leaves behind lacks
water and other suitable conditions for farming. Space is
getting tight, particularly for non-staple crops. As with
China, this is where Latin America becomes relevant.
"At any given point of time with the limited amount of land
that India has, you will always feel competition from different
crops," says Gautam Wave, head of strategy and planning at
Shree Renuka Sugars, India’s largest sugar
company. "The staple food will always get
preference…[and] you realize quickly that India has a
shortage of land and a shortage of water."
Shree Renuka’s business is water-intensive, and
sugar is not seen as one of the country’s staple
foods, so it is now looking abroad to the vast arable lands in
Brazil, where it has bought four crushing mills and will soon
"After two decades of evolution, India is faced with rising
food and energy prices," says Exim’s Ranganathan.
"It is in food where Latin America will offer the most
Ranganathan refers to two decades of free market-oriented
policies, which have produced powerful companies, many driven
by visionary entrepreneurs, and stellar growth that has put
pressure on its own supply of natural resources. For instance,
India has already become a net importer of high-value crops,
such as sugarcane, due to shortages in water and land.
India’s GDP growth rate is set to pass
China’s this year, says Standard Chartered, and
will be the world’s fastest growing economy from
that point forward. The bank sees 9.8% annual growth for
By 2030, India could be the world’s third
largest economy, with a GDP reaching $30 trillion from $1.5
trillion last year. Urbanization and demographic trends should
mean a broader domestic economy driven by a growing middle
class, and this will present enormous challenges for the
country as it seeks to meet the increased demand for food,
water and energy generated by a more affluent population, the
"Brazil will be a natural beneficiary of this demand, much
in the same way that China has been a great source of demand
for the region’s resources," Standard Chartered
Ashutosh Maheshvari, CEO of Motilal Oswal Investment
Banking, says that Latin America may in fact be
India’s last frontier for expansion, behind
Europe, US, Africa and the rest of Asia, but that there is a
sense of urgency, due to India’s need for assets
in energy, minerals and food. This is most urgent in farming,
as in India corporate farming is not permitted. Brazil, on the
other hand, allows for scale.
Sensing this challenge, Shree Renuka and other Indian
agricultural companies have already begun to arrive in LatAm.
Mining and mineral operations, manufacturers and even some
consumer-focused companies have also started to set up shop.
Some have their eye on supplying India’s future
needs, but others are seeing potential in LatAm’s
own growing middle classes.
Like China but Different
Such needs have convinced many that over the next 10 to 20
years India will match China as a major importer of LatAm
minerals and agricultural products, bringing the region a vital
counter-balance to its reliance on its largest trading partner,
Skeptics, however, think that India’s
slow-moving and bloated democracy is incapable of following the
same path taken by China, and LatAm-India trade, while poised
to grow, will be nothing more than padding on top of the real
driving demand that comes from other places.
Ostensibly, LatAm and India would appear to be natural trade
partners. LatAm has a surplus of a variety of commodities and
raw materials and a shortage of labor. India’s 1.2
billion people provide an abundant labor force, but the country
lacks essential natural resources.
Similar arguments have been made in favor of China and
LatAm’s trade dynamics. However,
India’s involvement in LatAm will differ in its
scale, as the country is not governed by an authoritarian
regime that can direct state-owned enterprises around the globe
and make strategic long-term investments. India’s
emerging class of entrepreneurs-turned-billionaires are
expected to move forward at their own pace, and in a more
"You won’t see a $140 billion figure [from
India-LatAm trade, as you do with China]," says Motilal
Oswal’s Maheshvari. "It’s not the
government driving it. These are corporates that are
accountable to those from whom they raise money."
While experienced Indian entrepreneurs may be better
disciplined and use capital wisely, Maheshvari explains, it
also means they might not be able to take a 20 to 30-year view
like the Chinese might. They also bring a different skill
Expertise in services, engineering and other specialty areas
is where India is especially poised to add value in the future,
rather than through sheer dollar size. Information technology
businesses could also make their way to Latin America, at a
time when many Indian companies have achieved the scale to fund
"Indian corporates have raised a lot of capital in the last
five years," Maheshvari says. "There is a lot of capital
available for growth."
Maheshvari’s shop has advised Indian buyers in
LatAm, including on Shree Renuka’s Brazil
purchases, where it was joined by Itaú on the local
side. Indeed, Indian companies are becoming more acquisitive in
Dealogic data counts 63 M&A transactions in LatAm with
an Indian acquirer since 2000, for a total value of $6.66
billion. That is just a small portion of the $47.4 billion of
Indian acquisitions in developed countries between 2000 and
2008, according to ECLAC, but it is not insignificant and will
For now, most LatAm purchases by Indian entities have been
focused on raw materials or agriculture. For instance, Jindal
Steel and Power acquired in 2008 the development rights for 20
million tons of iron ore reserves in Bolivia. The company plans
to invest $2.1 billion in an integrated plant for steel, power,
sponge iron, and iron ore pellets.
This project will constitute the single largest investment
by an Indian company in Latin America, and also the largest
foreign investment in a single project in Bolivia. It joins
National Mineral Development Corporation (NMDC), invested in a
Brazilian iron joint venture.
Agrochemicals company Punjab Chemical & Crop Protection
(PCCPL), also acquired in 2007 an 89% stake in an Argentine
company for $10 million and plans further LatAm expansion.
Meanwhile, Arcelor Mittal has steel plants in Argentina,
Brazil, Mexico and Trinidad and Tobago, and acquired
steel-finishing and distribution companies in Argentina, Costa
Rica and Uruguay.
Indians have also joined the rush of Chinese, Europeans and
others looking to tap offshore oil reserves. ONGC Videsh
Limited (OVL) has invested $500 million in oil fields in blocks
in Brazil, Colombia, Venezuela and Cuba, mostly with other
international and regional majors. Reliance Industries,
India’s largest conglomerate, recently acquired
offshore blocks in Colombia for more than $50 million and is
also present in Argentina and Peru.
This comes after Indian Oil and Natural Gas Company invested
(ONGC) $200 million in natural gas reserves in Trinidad and
Tobago and created a joint venture with Petrobras for
exploration and development projects in both India and Brazil.
In April 2008, the governments of India and Venezuela also
entered into a joint venture agreement – with India
putting up $356 million for a 40% stake – to develop
fields in the Orinoco basin.
The notable trend in these initial investments is Indian
companies’ preference for partnering with local
know-how. Not only do joint ventures allow them to share risks
and lower initial costs, but Indians can rely on the experience
of locals to mitigate labor, tax, and other risks. It is also
advantageous given the wide cultural gap between India and
"You have to have a local partner to help you identify
targets and sectors," says Janaki Chaudhry, head of strategy
for Tata International.
Tata’s motors unit has a joint venture with
Brazil’s Marcopolo to manufacture bus parts in
India, while Indian manufacturer of high voltage engines and
generators WEG has forged a similar path in Latin America.
"I would advise a joint venture over an M&A
transaction," says Michael Diaz, partner at Diaz Reus, speaking
of Indians looking for opportunities in LatAm.
He explains such an entry is preferable due to tax and labor
issues, particularly in Brazil, where there is a potential to
inherit a lot of problems when buying an asset outright, as
Punjab Chemical learned.
"We want to grow in Brazil, and we had plans to grow fast,"
says Avtar Singh, executive director of Pujab Chemical and Crop
Protection. "We have had to slow down [due mainly to legal
There is an advantage to be found in keeping local
management on board as well, explains Kapil Gulati, general
manager for lighting provider Havells Sylvania, which now has
LatAm-wide operations thanks to its purchase of Sylvania in
"The management in Latin America is very mature, very
competent and very reliable," says Vikram Shroff, executive
director of United Phospherous, which has made six investments
On the consumer products front, examples like Havells
Sylvania are fewer at this point, but Indian companies have
started to purchase assets. The pharmaceutical sector seems to
be offering the most opportunities at this early stage. Strides
Arcolabs has acquired pharmaceutical assets in Brazil for $75
million and has manufacturing units in Brazil, Mexico and
Venezuela. Dr. Reddy’s Labs also acquired a
pharmaceutical plant for $60 million in Mexico in 2006.
Meanwhile, Latin Americans are also venturing into India for
the first time. For instance, Mexico’s
Cinépolis has joined Marcopolo, operating movie theaters
in four Indian cities since 2009. Seeing similar opportunities
to build low-income housing as in Mexico, Homex has set up a
joint venture with Daksh Builders. Large companies like
Brazilian oil company Petrobras and steel maker Gerdau have
inked joint ventures in India, while miner Vale has set up an
With such investments in a broad group of sectors, it is
hoped that India’s relationship with LatAm will go
beyond the resource heavy dynamic that dominates trade flows
and investments with China.
"If you address those constraints, and if India keeps
growing at the rate it has been growing, it is a sure bet there
will be a trade relationship very similar to the one the region
has with China, [but] hopefully it will be more diversified,"
says the IDB’s Moreira.
For LatAm, the best outcome would be to gain more inbound
FDI directed at boosting domestic manufacturing in
non-commodity products and adding value in commodity
production. This holds true for both India and China, Standard
As for exports to India, trade barriers could prove
problematic. Lacking the most-favored nation status of
countries belonging to The Association of Southeast Asian
Nations (ASEAN), LatAm is working with a competitive
disadvantage. When transportation complications and other
non-tariff barriers are factored in, exporting to India becomes
prohibitive in many cases.
According to ECLAC, such disadvantages could be lessened if
LatAm nations simply signed free trade agreements with ASEAN.
India has already inked trade accords with Chile and Mercosur,
but so far they have had limited direct impact, partly because
they cover a very narrow list of products.
At the end of the day, India’s more gradualist
approach to LatAm may work in its favor.
"It won’t be as fast [as China], but perhaps it
is going to be more sustainable," Moreira says.
China’s state companies and development banks
make big moves, but aren’t necessarily building an
environment for them to expand. India, and its private sector,
may see more goodwill.
"India doesn’t have the war chest or reserves
that China has now," Moreira says. "I don’t think
this is a bad thing, because even the infrastructure investment
that the Chinese are making just reinforces the idea that they
are there for the natural resources and nothing else. This type
of FDI is very concentrated – very few countries in a
very few industries."
India’s pattern is different, Moriera explains.
For instance, IT companies don’t necessarily bring
much investment, but they do import knowledge and opportunities
for export. Most of the natural resource investment is through
private companies, which doesn’t raise the same
concerns as might big purchases in strategic mining assets.