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India and CELAC: Beyond Commodities

On August 7, India’s foreign minister held the country’s first dialogue with a troika representing a recently formed 33-nation Latin American group, the Comunidad de Estados Latinoamericanos y Caribeños (Community of Latin American and Caribbean States—CELAC). The meeting drew little attention, and most media outlets dismissed it as a routine affair, akin to India’s engagements with other multilateral blocs. A more nuanced look, however, indicates a window of opportunity for both India and Latin America.

First, we must explore Latin America’s changing geopolitical priorities over the past few years.

The very nature of the CELAC grouping is reflective of this shift: it was formed in defiance of the Organization of American States to leave out the United States from its political confabulations. Latin America now looks less to its traditional trade partners—Europe and the U.S.—which are preoccupied with their debt crises and political transitions, and the region also no longer sees them as a model they can emulate.

As a result, China is a dominant player in Latin America, with an annual trade of $240 billion. The Chinese presence there is maintained by two pillars: primarily, by a massive exchange of commodities and natural resources, and secondly, by a large Chinese diaspora totaling upwards of 2 million people. This will continue to sustain China’s relationship with Latin America, though more recently there has been a subtle change of policy positioning toward Beijing. Some perceive the flooding of Chinese goods into their markets as a risk; others simply want to engage with new markets.

This is where India comes in. It presents Latin America with an opportunity to diversify and opens the door to a large and promising market.

Chilean Foreign Minister Alfredo Moreno succinctly expressed CELAC’s intent: India was chosen as the first dialogue partner due to its size, similar political positions and affinity toward developing countries. The key points from the India-CELAC Joint Statement—to set up a Business Council, a CEO Forum, an Energy Forum, a Science Forum and an Agricultural Experts group—indicate that there are indeed commonalities to build on. More significant, though, is that the groundwork for these mechanisms has already been laid.

Energy is the starting point. It is the biggest trade component in the India-Latin America relationship, accounting for more than $10 billion in annual trade and contributing to roughly 10 percent of India’s total oil imports. The increasing instability in the Middle East and frequent sanctions on Iran have compelled Indians to look to new markets like Latin America.

Private oil players like Reliance and Essar have taken the lead here. In September, 2 billion barrels of crude from Colombia will arrive at Essar’s Vadinar refinery. This is not an ad-hoc arrangement; Essar plans to obtain one-third of its crude supplies from Latin America, equal to or more than its imports from the Middle East. These companies are proof that the barriers of distance or mismatched refineries for crude can be surpassed.

The Energy Forum that India and CELAC plan to set up may provide a platform for increased energy cooperation. However, if India is to abate its massive energy woes, what is required is a conscious national policy decision to diversify into new oil markets like Latin America.

Apart from energy, agriculture also constitutes a large part of India-CELAC trade—with edible oil and sugars forming the majority of this category. A network of agricultural research institutions, farmers and traders, farm equipment manufacturers, (e.g., Mahindra & Mahindra Ltd, which has a large presence in Latin America) and fertilizer organizations can fast-track collaboration in this sector.

Other areas too—science and technology, transportation, and infrastructure—can contribute to a deepening of the India-CELAC relationship. More importantly, in the larger geopolitical context, both sides find each other within their comfort zone.

Nevertheless, unlike the industrialized world with which Latin America is accustomed to doing business, India brings forth new challenges and opportunities. Some of these challenges may be offset by: removing trade barriers or signing commercial agreements; diversifying trade; and introducing favorable investment policies. For starters, India could become a member of the Inter-American Developmental Bank, which would provide greater credit facilities for Indian investors in Latin America.

Despite all this, CELAC should not be expected to be the driver in India-Latin America relations—at least not yet. After all, India already has 17 embassies in Latin America, and Indian companies—especially in information technology—have a commanding presence in the region. R. Viswanathan, former Indian Ambassador to several countries in Latin America and an expert on the region, maintains that, rather than providing economic focus, CELAC provides a political platform and may ensure a sustained political dialogue. He adds that the grouping will only complement India’s existing bilateral engagements with countries in Latin America and the Caribbean, and also with regional alliances like Mercosur, with which India already has trade agreements.

Whether CELAC will be transient or long-lasting will depend on political and economic will from both sides. Other countries and regions will continue to maintain their greater engagement with Latin America as a whole; what India must do is fill in the gaps, engage in economic diplomacy and play to its strengths.

Hari Seshasayee is a researcher in the Latin American Studies Programme at Gateway House: Indian Council on Global Relations, based in Mumbai, India. He can be reached at seshasayee.hari@gatewayhouse.in.

Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Tags: trade, energy, Agriculture, India, CELAC

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