Towards a new era of cooperation
Over the last 15 years, business relations between India and Latin America have developed rapidly. Now, New Delhi imports more than 20% of its crude oil from Venezuela, Colombia, Mexico, Brazil and Ecuador

The past fifteen years have witnessed a rapid transformation in India–Latin America relations. After more than five decades of relatively limited economic and diplomatic engagement, establishing deeper ties with Latin America has become a top priority for decision makers in New Delhi. India has embarked on a campaign to deepen its economic outreach to the Latin America and Caribbean (LAC) region, particularly in the energy arena. In fact, trade and energy cooperation constitute foundational pillars of India–Latin America ties and could expand even further if current trends affecting both regions continue to persist. In this realm, as in so many others, the two are moving quickly to make up for lost time after more than half a century of lackluster relations. On the surface, India and Latin America historically have shared several important similarities. Both were colonial prizes of powerful European powers that later faced serious development challenges after earning independence. After World War II, both adopted socialist systems before serious economic crises moved them to implement more durable liberal regimes. These reforms fundamentally transformed their respective economies and laid the foundation for future engagement by generating large-scale prosperity, creating an ever-growing middle class and increasing consumer demand. Given their shared historical experiences, one would have expected India and Latin America to have forged closer ties much sooner than they actually did. But a host of factors precluded them from doing so. These included the immense geographical distance separating India, other domestic and international prerogatives that were accorded higher priority and the absence of cultural, linguistic and diaspora links in Latin America that connected India to nearly every other region of the world. A change occurred more than fifteen years ago as a congruence of economic and commercial interests between the two regions made Latin American a much more compelling destination for Indian attention and investment.

Building closer economic ties

Forging closer cooperation with Latin America holds immense economic potential for India. According to the most recent estimates, the region’s GDP totals more than $5 trillion and boasts a combined population of more than 610 million, nearly half of whom are younger than thirty. Unsurprisingly, India has focused its efforts on strengthening economic ties with Latin America. With a burgeoning population, the resource-rich region is experiencing rapid economic growth and increasing democratization, some obvious exceptions notwithstanding. The dynamic echoes India’s own remarkable growth story. Against this backdrop, India has realized that Latin American represents a huge export opportunity, capable of further fueling India’s economic growth. Those factors previously regarded as barriers to closer engagement—distance, culture and language—are no longer seen as insurmountable obstacles to fostering cross border trade and investment. New Delhi views Indian and Latin American economic interests as increasingly aligned. The numbers illustrate just how much progress has been achieved in recent years. India’s trade with the region has grown from less than $2 billion fifteen years ago, to more than $50 billion today. This trade is primarily occurring in the mining, automobiles, agriculture, information technology (IT) and pharmaceuticals sectors. Indian Prime Minister Modi’s home state of Gujarat comprises nearly sixty percent of total trade between India and Latin America. India’s biggest and most prominent companies have also flocked to the region, reflecting the deep interest Latin America has generated among India’s potent private sector. The Aditya Birla Group currently generates more than $2 billion in revenue from the region through a host of diverse endeavors that spans the spectrum from yarn manufacturing to aluminum production. The Indian agribusiness giant UPL Limited derives larger revenues from Brazil than its other operations around the world combined excluding India itself. Tata Consulting Services has established extensive operations in Uruguay, while more than 35,000 Latin Americans are now employed at Indian IT consulting services across the region.

Energy cooperation

Energy cooperation, however, remains the cornerstone of India–Latin America relations. India’s immense energy demand is driven by its 1.2 billion citizens and swiftly growing economy. But with limited reserves of its own, India is one of the biggest net importers of crude oil in the world, with more than 80 percent of its reserves imported to the country from abroad. The country is confronting a serious energy crisis with chronic shortages having become the norm. The magnitude of the problem was put into sharp focus in 2012 after India experienced the largest blackout in human history and more than 600 million of its citizens were plunged into darkness. Latin America, with its massive petroleum reserves, has emerged as a key contributor to India’s energy security. The South Asian country is increasingly relying on LAC to fulfill its energy needs. India now imports more than 20 percent of its crude oil from Venezuela, Colombia, Mexico, Brazil and Ecuador collectively. During the first 8 months of FY 2016-17, Venezuela accounted for 7.7 percent of India’s total crude oil imports. India’s imports of Venezuelan petroleum are the defining feature of bilateral ties between the two countries. With its political and economic instability currently worsening, Venezuela is increasingly dependent on oil trade with India to generate revenues for its government coffers. Plummeting oil prices, however, have created a windfall for India, which imported $13 billion worth of crude from Venezuela in 2013 but spent less than half that amount for the same volume of oil last year. In 2012, India surpassed China as the largest Asian purchaser of Venezuelan oil. In 2014, India became the second largest destination for Colombia’s oil exports. Colombia has doubled its oil production in the last five years and is one of just four Latin American countries to register substantial surpluses for export abroad. In addition to oil, Colombia and Bolivia account for 10 percent of India’s gold imports. Colombia is the largest destination for India’s motorcycles and third largest destination for Indian exports overall which totaled more than $880 million last year. Energy trade and economic ties between Mexico and India are also flourishing. India is the third largest purchaser of Mexican crude oil in the world. India’s second largest private oil company, OVL, has opened offices in Mexico aimed at bidding for rights to explore and develop oil and gas fields in the country. The move comes at a time when Mexico has begun to increasingly turn its attention to India as its traditional trading partners like United States are experiencing their own energy boom and reducing their reliance on foreign oil as a result. Certain governing geopolitical realities have also prompted Mexico to cultivate economic ties with countries beyond the United States. The election of Donald Trump to the American presidency has compelled leaders in Mexico to rethink their country’s economic relationship with its northern neighbor. Trump’s persistent attacks on Mexico were one of the hallmarks of his presidential campaign. His calls for the construction of a border wall financed by Mexico, for imposing tariffs on imports on goods from Mexico and for NAFTA to be abrogated because it was the "worst trade deal in human history" has predictably created alarm and outrage in Mexico and prompted decision makers in the country to look for other countries with which to deepen ties. The European Union presents an equally unattractive prospect with its rising populism, anti-immigrant sentiment, economic nationalism and proliferating trade barriers. Viewed from this perspective, India appears to be an attractive alternative. The focus on India appears to be paying off. Mexico overtook Brazil this past year as the top destination for Indian exports for the first time. Trade between India and Brazil dropped more than 50 percent last year compared to prior years, a reflection of the political and economic turmoil roiling India’s BRIC counterpart. But the two nations have still sought to maintain strong trade. India’s exports to Brazil in 2014-15 were more than its exports to Japan, Korea, Malaysia, Indonesia, Thailand, France, Italy and Spain. Latin America’s growing role in India’s energy security is part of a conscientious effort by India to diversify its oil suppliers, which have traditionally been dominated by countries in the Middle East, including Saudi Arabia and Iran. Several years ago, India learned the dangers of failing to reduce its dependence on West Asia for crude as its oil trade with Iran demonstrates. For several years, Iran was India’s second largest exporter of crude oil with most of India’s oil refineries constructed to process Iranian oil exclusively. But beginning in 2012, India was obligated to curtail its crude imports as the result of U.S. and U.N. sanctions targeting Iran’s profitable oil industry over Tehran’s suspected nuclear program. Consequently, New Delhi was compelled to locate other energy supplies to overcome the shortfall. Latin America and its abundant energy reserves helped fill the gap and became permanent fixtures of India’s energy security matrix. Beyond fossil fuels, Latin America is also home to one of the cleanest energy matrixes in the world. Given India’s own ambitions in this realm, green energy is potentially another area of potential collaboration.

The China factor

India’s growing presence in Latin America, however, is still dwarfed by China’s own expansive footprint in the region. China’s $260 billion trade with Latin America stands in stark contrast to India’s $50 billion trade during the same period. Moreover, Chinese trade in LAC is projected to reach $500 billion over the next ten years, while India’s investment is predicted to hover around $250 billion during that period. Nevertheless, India has captured a higher share of Latin America’s energy market than China. According to the Inter-American Development Bank, India accounted for 50.1 percent of LAC’s energy exports to Asia in 2013, compared with 44.8 percent for China. Additionally, LAC’s share of India’s total oil imports increased from 4.5 percent in 2003 to 20 percent in 2014, while LAC accounted for only 10 percent of China’s total oil imports in 2014. China has adopted an aggressive approach in Latin America, spending billions of dollars across the region to finance infrastructure projects, provide credits and export a plethora of goods to scores of different regional markets. To be sure, Beijing has surpassed India in its engagement with LAC by virtually every measure. Officials in New Delhi are acutely aware of the ongoing disparity and understand the necessity of maintaining some influence in the region even if it cannot match China at a commensurate level. India’s primary objective is to preclude Beijing from garnering a complete monopoly in the region while still recognizing the limits of its ability to compete. To many, India’s approach to Latin America is too restrained and cautious. But there is growing evidence that India’s strategy in Latin America may be more fruitful than that of its Chinese counterpart in the long-term. Beijing’s forceful, multibillion-dollar strategy in Latin America has generated backlash in some quarters. Many Latin Americans resent the deluge of ultra-cheap Chinese imports flooding markets and undercutting local businesses, while many Latin American governments are increasingly suspicious of the onerous conditions upon which Chinese money is invested in their respective countries. By contrast, India trade and investment is viewed as uncontroversial in Latin America and less exploitative. New Delhi invests relatively little in extractive industries in the region. India’s investments in the region generate employment, hire almost exclusively local talent, and go through great lengths to cater to local markets and culture. India is also mindful that further enlarging its presence in the region could make it vulnerable to the same difficulties facing China. As a result, India’s current strategy may confer it with an unexpected competitive advantage over China in the region in the long run.


Despite the unprecedented progress achieved so far and the immense potential for future growth, formidable challenges persist in the India–Latin America economic relationship. At the most fundamental level, these include India’s lack of knowledge of local markets relative to other regions in the world, as well as an ongoing shortage of adequate financing for project development in LAC. Additionally, while the huge distance separating India and Latin America is no longer the limiting factor it historically once was, the absence of direct shipping routes has inevitably impacted trade and the overall commercial relationship, with lead times still averaging between 1 to 2 months. India also finds itself at competitive disadvantage with respect to trade agreements in the region. Many of Latin America’s fastest growing countries, including Mexico, Chile and Peru, enjoy free trade agreements with some of the world’s largest and most prominent economies, including the United States, the EU and China. By contrast, India does not have a free trade agreement with a single Latin American country. New Delhi’s recent decision to initiate negotiations for one with Peru is welcome news and a step in the right direction that will hopefully lead other countries in the region to pursue free trade agreements with India in the future. Moreover, although the scores of Indian companies operating in Latin America have become powerful symbols of the robust India–Latin American commercial relationship, it has not always been smooth sailing. India’s Jindal Steel & Power, for example, made global headlines after investing $2.3 billion in Bolivia’s El Mutún mine, the largest foreign direct investment project in the country’s history. Unfortunately, the project has become mired in a series of disputes for the past several years and the company is fighting a protracted legal battle to rescind the contract and leave the country. Other smaller Indian companies have also jettisoned their stakes in the region after failing to realize any profit from their respective endeavors. The divestitures demonstrate the extent to which Latin American still remains challenging terrain for Indian investment.

Future perspectives

The change in India–Latin America economic ties, particularly in the energy arena, is nothing short of transformative. Part of the change can be attributed to a transformation in attitudes in both India and Latin America. India traditionally regarded Latin America as an undemocratic region plagued by political instability, hyperinflation and currency devaluation. From the perspective of many Latin American countries, India’s abject poverty and uneven growth confirmed its status as a Third World country. But as both India and Latin American began experiencing a surge in economic growth, attitudes changed along with their GDPs. Overall, trend lines are moving in the right direction. With energy trade at the forefront of cooperation between India and Latin America, progress has been steady, even and significant. But the two should not become complacent with what has been achieved so far. With the full promise of their relationship still yet unfulfilled, these countries have only begun to scratch the surface of what is possible, particularly in the energy arena. Leaders in both regions should enumerate a vision for the future that takes advantage of the opportunities created by governing geopolitical realities that will help propel their relations to the next level. By capitalizing on these opportunities and on the growing momentum and budding progress between them, India and Latin American can build a strong, sustainable energy and trade partnership that will herald a new era of cooperation.