India - Latin America trade relationship: Importance, scope, implication and challenges

Abstract

Latin America has become a breeding ground for trade and investments across the globe owing to several factors: Economic: Markets have opened up for expanding trade relations globally and there has been a reduction of tariff/non-tariff barriers. Infrastructure: Existing infrastructure has become modernized and new infrastructure has been created for the growth and development of the region. There has been privatization and liberalization of financial markets. State enterprises have been privatized and the recent liberalization process has resulted in integration of these economies with the global economic system. Political: Democracy has been established in most parts of Latin America. It is the second fastest growing region in the world. According to the Economic Commission for Latin America and the Caribbean (ECLAC), Latin America and the Caribbean grew by around 1.9 % in 2009, after a growth of 4.6 % in 2008. Growth for 2010 is projected at 4.1% for the region. The Latin American and Caribbean (LAC) region comprising 43 countries, accounts for about 3.67% of the total world trade in 2009 (source WTO). It is rich in natural resources. In many countries inflation has been controlled and the debt crisis has been overcome. Apart from that, regional trade arrangements such as MERCOSUR, ANDEAN PACT, CARICOM, etc. have been activated. All these aspects contribute in attracting several economies in building and enhancing trade and investment relations with Latin America. In the recent years, Latin America has shown growing interest in putting up trade relations with Asian countries. The combined gross domestic product of India and China is growing at an extraordinary rate and is expected to highly exceed the entire annual output of Europe in around 30 years’ time. Latin American countries being aware of such projections are flourishing their trade connections with Asian countries and have formed pacts with them of which India is one of the partners. Trade and investment relations between India and Latin America have improved over the years. Their economies are greatly complementary with similar demand patterns from their low and middle class income populations. Latin American exporters are serious about exploiting the opportunities of the large and growing market of India and have become alert of India’s export capabilities. Imports from India are available at affordable prices. The Latin American countries are welcoming the entry of Indian companies in their markets. IT, pharmaceuticals, energy, steel etc. are the main sectors of Indian investments in the region. India is Latin America’s fifth largest trading partner in Asia.