In 2006, New York Times columnist Thomas Friedman wrote about Tata’s experience in Uruguay: “in today’s world having an Indian company led by a Hungarian-Uruguayan servicing American banks with Montevidean engineers managed by Indian technologists who have learned to eat Uruguayan veggie is just the new normal.” India’s old barrier mindset concerning distances and language is long gone, and it began to erode as young women in Bangalore picked up phones ringing from New York. Taking that progression one step further is necessary; it is in India’s interests to invest across the world.
But using Latin America to better serve the United States is only one small part of the potential benefits of Indian investment. Asia is increasing its share of Latin American trade. According to ECLAC (Economic Commission for Latin America and the Caribbean) Asia, led by China, will help offset some of the decline in export demand in the developed countries. Since 2001 more Latin American and Caribbean imports have originated in the Asia-Pacific region rather than in the European Union, and the share of Asia-Pacific imports is rising steadily. If the current trend continues, by 2010, as much as 30 percent of Latin American and Caribbean imports could come from the Asia-Pacific region.
Furthermore, the private sector in many Latin American countries has learnt lessons from past crises and is exercising more discipline. It has proven itself to be very well prepared for this crisis. While large western institutions like Lehman Brothers collapsed, no Latin American banks or companies have collapsed in this economic downturn. Firms have become substantially more insulated from currency risk by building up foreign exchange reserves. Over the past ten years, many firms have lowered their exposure to a sudden devaluation by reducing the share of debt contracted in foreign currency. The average share of foreign-currency-denominated liabilities in Latin America dropped from 35 percent in 1998 to 17 percent in 2007.
What this demonstrates is that in Latin American companies Indian firms will find suitably responsible partners which are not only embedded in the local socio-economic culture but also have the business practises already in place. This reduces time and costs of starting-up. Reliance Petroleum has demonstrated how lucrative business can be, its sale of diesel oil accounts for nearly 40 percent of India’s trade with Brazil. The scope of activity across the region grew 30 percent in 2008 with variations in patterns of trade. The largest proportion was $3.6 billion with Brazil, then over $1 billion with Mexico, $478 million with Peru, $428 million with Chile, $418 million with Argentina and $328 million with Colombia.
It is not just a case of an Indian opportunity; Latin American firms see a vast market for their goods in India. Vineyards like Chile’s Casillero del Diablo see the burgeoning Indian middle class as a target audience for their products. Nearly 36 percent of Chile’s exports going to Asia- Pacific region (the rest of the region’s export percentages to the Asia-Pacific region being: Dominica, Cuba, Peru, and Costa Rica between 31-24 percent; and Brazil, the Bahamas, Argentina, Uruguay, and Bolivia between 18-12 percent). India’s January-November 2008 imports from Chile were worth $1.7 billion, eleven times that of imports from neighbouring Bangladesh. What currently stands at $428 million in Indian exports to Chile will increase as Indian investment matures.
But this requires a sustained Indian commitment, one which is sorely lacking. In comparison to India’s current $11 billion trade with the region, China’s began in 2000 at $12.6 billion and today stands at $126 billion. However, despite Latin American fascination with Chinese growth, regional economic actors relate themselves, their concerns and their situation more with India, which has shown by its example that growth and transformation is possible in a democratic system despite so many challenges arising from such a vast diversity and political spectrum.