The Washington Diplomat / November 2010
By Larry Luxner
This summer, India quietly unveiled a new symbol for its rupee: an artistic combination of the letter “Ra” in the Devanagri alphabet and the Roman letter “R.” Adoption of the symbol makes the rupee (currently worth about 2 cents) only the fifth currency worldwide to have its own distinct identity — along with the dollar, euro, British pound and Japanese yen.
Yet India’s rise on the global economic stage is more than symbolic. The world’s largest democracy, the country boasts a gross domestic product of $1.2 trillion and projected GDP growth of 8.5 percent this year.
As President Obama visits India for a state visit this month, America’s growing relations with New Delhi — also a strong foreign policy focus of the Bush administration — will naturally come under the spotlight. Less visible though to most Americans are India’s budding partnerships with other nations. Although China’s foreign relations forays to places like Latin America and Africa garner the most headlines, India is quietly but aggressively courting trade and investment in emerging markets ranging from Argentina to Zimbabwe.
In June, the Washington-based Carnegie Endowment for International Peace hosted a conference on India’s growing interest in Africa. In late July, the Woodrow Wilson International Center for Scholars sponsored a seminar titled “India: Latin America’s Next Big Thing?”
In early August, the Middle East Institute invited U.S. foreign policy expert Geoffrey Kemp to discuss his new book, “The East Moves West: India, China, and Asia’s Growing Presence in the Middle East.” And last month, the Asia Society in Washington hosted the event “India’s Rising Strategic Importance in Asia.”
It appears that India — long a backwater that rarely appeared on the international stage — is making waves in places not normally associated with this predominantly Hindu nation.
Luis Alberto Moreno, president of the Inter-American Development Bank (IDB) and Colombia’s former ambassador to the United States, says India and Latin America “are increasingly together at the table when major decisions are taken” — a reference to India’s preferential trade agreement with the Mercosur bloc that covers 900 products, as well as a separate free trade agreement with prosperous Chile and India’s cooperation with fellow BRIC member Brazil.
“For most of our history, India and Latin America have been on the periphery of each other’s foreign policy. And for nearly half a century, both turned their backs on the world economy,” said Moreno, speaking at the Wilson Center event, which was co-sponsored by the IDB and the Asia Society.
“But this is not the case anymore,” Moreno asserted. “Having paid a price in terms of missed opportunities, and having fallen deeply behind their counterparts in East Asia since the late ’80s, both India and Latin America have made extraordinary progress finding their way back. They’ve left behind the years of relative stagnation. It was just a matter of time before they were on each other’s radar screens.”
Moreno said India offers “vast potential for cooperation” and a mutually beneficial exchange of knowledge between the two regions.
“India can provide valuable lessons in college education, in [information and communications technology], aerospace, off-shoring, microfinance and pharmaceuticals, just to name a few. Latin America can provide success stories in agriculture, mining, biofuels, private pension schemes and poverty alleviation programs,” he explained. “Yet all these activities have yet to achieve a critical mass. Compared to China-Latin America relations, India-Latin American relations have only scratched the surface.”
Nevertheless, according to a 140-page IDB report written by Brazilian economist Mauricio Mesquita Moreira, trade between India and Latin America nearly doubled from $6 billion in 2005 to $11.2 billion in 2007.
Meera Shankar, India’s ambassador to the United States, says that in 2009, total trade with Latin America exceeded $15 billion. Yet that’s still way behind Sino-Latin American trade, with India’s portion of the region’s commerce reaching only 0.8 percent, compared to China’s 7.7 percent.
“The East Asian model was driven by exports, while India’s growth has been driven by domestic demand and investment,” she said. “Trade has expanded, but it hasn’t been the key driver of India’s economy.”
Furthermore, noted Shankar, subsistence agriculture sustains between 500 million and 600 million people in India, which explains why tariffs on Latin American agricultural goods average 65 percent compared to China’s 12.5 percent. “It’s difficult for us to reduce tariffs because of the social and political implications it would have on people’s livelihoods,” she said.
The main reason New Delhi is so interested in Brazil and the Spanish-speaking nations of South and Central America is the region’s abundant natural resources. According to an analysis in the Journal of Energy Security,oil makes up 90 percent of Mexico’s exports to India, while India’s state-owned Oil and Natural Gas Corp. (ONGC) has exploration stakes in Brazil and Colombia. ONGC has also leased drilling concessions off Cuba’s Gulf of Mexico coastline.
Likewise, India sees an opportunity to buy up South American agricultural land to bolster its food security, with farmland prices cheaper than in many parts of India, according to the country’s ambassador to Argentina, Rengaraj Viswanathan.
Such agricultural support is key for a country that — despite glowing reports of its economic advances — remains mired in poverty compared to its developed counterparts. According to a recent New York Times article, India’s eight poorest states have more people in poverty — an estimated 421 million — than Africa’s 26 poorest nations. This means that India’s foreign outreach is both a natural consequence of its success, and a necessity to overcome the significant challenges that remain.
To that end, India’s trade with countries like Brazil and Chile is growing at around 30 percent a year, while in the case of Peru, it nearly doubled in 2007. Meanwhile, Indian companies are setting up operations throughout Latin America, particularly in IT, chemicals, auto manufacturing and pharmaceuticals.
“This is part of the new global reach of Indian business to explore new markets,” said Viswanathan. “Our companies are seriously pursuing business opportunities there.”
India enjoys a natural advantage in the Caribbean, where countries such as Trinidad, Guyana, Suriname and Jamaica have large ethnic East Indian populations with strong ties to the motherland. But India is also reaching out to Spanish-speaking markets like the Dominican Republic.
Earlier this year, Dominican President Leonel Fernández met with Indian IT mogul Sam Pitroda, who’s interested in building a “city of knowledge” on the outskirts of Santo Domingo in a potential investment venture exceeding $500 million. Meanwhile, Frank Hans Dannenberg Castellanos, who opened the Dominican Embassy in New Delhi in 2007, said bilateral trade has skyrocketed by more than 300 percent since then, especially in pharmaceuticals. Dannenberg, now the Dominican ambassador to Malaysia, said that no less than 14 call centers from India have been established in Santo Domingo and its environs, generating employment for thousands of young bilingual Dominicans.
India’s hunger for new markets is also driving its interest in Africa. Rajan Bharti Mittal, president of the Federation of Indian Chambers of Commerce and Industry, said India’s trade with Africa reached nearly $40 billion in 2008 — up from only $3 billion in 2000. At the same time, U.S.-Africa trade was around $77 billion. Cumulative Indian investment in Africa comes to around $9 billion, compared to U.S. investment of $36 billion.
“It’s not that this continent isn’t getting enough traction or enough money,” said Mittal, speaking at the Carnegie event. “The point of the discussion: is the continent doing enough with the resources that it is getting?”
At the same time, some of India’s new investment bedfellows have raised eyebrows — at least from the U.S. point of view.
In late July, Burmese dictator Gen. Than Shwe ended a five-day visit to India, home of nonviolent resistance champion Mahatma Gandhi. The signing of a $60 million deal to build a road linking the two countries, a $10 million grant for Burma to buy agricultural machinery from India, and other bilateral accords to combat terrorism and drug-trafficking — not to mention Shwe’s red-carpet treatment — infuriated thousands of Burmese pro-democracy activists and Buddhist monks.
Attempting to justify India’s engagement with the military junta that rules Burma (also known as Myanmar), as well as its stony silence in the face of the regime’s continuing crackdown on human rights, Pranab Mukherjee, then India’s foreign minister, told reporters, “We are a democracy and we would like democracy to flourish everywhere. But we cannot export our ideologies.”
In a similar vein, Ashok Sewnarain, an Indian banker based in South Africa, said recently he plans to invest millions of dollars in Zimbabwe gold mining concessions — despite that country’s atrocious human rights record under President Robert Mugabe — arguing that “mining, if properly funded, could turn the economy around in a short timeframe.”
Ambassador Shankar, who also spoke at the Africa event, attempted to explain her country’s policy.
“In India, our democracy has been vociferous, vigorous and noisy. In fact, the question has always been, did India pay a price in economic terms for choosing democracy as the path which with it would govern itself?”
She noted that her country’s 1947 independence from Great Britain “owes much to Africa because Gandhi’s political consciousness was attained during his struggle against apartheid in South Africa. It was there that he honed his whole strategy of nonviolent civil resistance.”
Now, of course, things have changed, and India has become quite aggressive in pursuing opportunities there — both economic and social. The Africa-India Framework for Cooperation sets priorities in education, agricultural productivity, food security, industrial growth, health, communications and IT, explained Shankar.
Over the past five years, India has offered $2 billion in credit lines to its African allies, the ambassador said, adding that “we’ve decided to double that to $5.4 billion for the next five years, which means roughly $1.1 billion a year. And this credit will be used primarily for building infrastructure, including railways, telecom, power generation, physical connectivity and, of course, agriculture and food security.”
Moreover, India has doubled grants and aid to Africa to around $500 million while offering 1,600 scholarships a year to promising African students.
“I think the Indian model has been sensitive to Africa’s development aspirations and it has tried to work with Africa’s priorities, even as we try to promote political stability, capacity-building and good governance. But we do it in a quiet way,” Shankar said, distancing India from chief rival China, which is often criticized for flooding poor countries with cheap imports while contributing absolutely nothing to the local economy.
“We would hope that Indian companies would follow a model of corporate responsibility,” she said. “One way in which we are distinct from the Chinese projects is that we largely employ African labor. Our policy is to use local resources to the largest extent possible. We don’t import wholesale workers from India; we bring in workers only if we can’t find adequate local expertise in a particular field.
“As the middle class in Africa grows, the demand for goods and services is only going to increase,” she added. “It’s a continent with enormous natural resources and increasingly, we’re seeing political consolidation and improvements in governance which augur well for the future.”
Another very promising target for India is closer to home: the Middle East. Geoffrey Kemp, director of regional strategic programs at the Nixon Center, noted that “in discussions about the Middle East and Asia, 90 percent of the lectures you go to are about China. In fact, my thesis is that India may be more important than China, starting with geography,” he explained. “It’s less than 1,000 miles from Mumbai to Muscat [Oman].
Historically, when the Persian Gulf was part of the British Empire, it was run from India. During World War II, it was Indian troops who put down uprisings in Syria and Lebanon, and invaded Iran in August 1941 under British command, so they know the territory. The Chinese, by comparison, were last in this region back in the 15th century.”
Today for instance, India has become a key market for Israeli goods and services, jumping from eighth to second place, according to the Israel Export and International Cooperation Institute. India’s purchases from Israel came to $990 million in the first half of this year, a 102 percent increase from the same period in 2009. The reason for this huge increase was a 63 percent leap in exports led by Israel’s mining, minerals and quarrying sector, particularly fertilizers, to India.
Bilateral trade now stands at $4 billion a year, and the two countries are currently negotiating a free trade agreement that could nearly quadruple Israel-India trade to $15 billion, according to David Goldfarb, spokesman at the Israeli Embassy in New Delhi.
Kemp noted that India also enjoys an edge in the Middle East thanks to the sheer number of Indian laborers working throughout the region — particularly in oil-rich Gulf states of Saudi Arabia, Kuwait, Bahrain, Oman, Qatar and the United Arab Emirates. “It’s estimated there are over 6 million Indians alone — everyone from the guy who checks you into your hotel to the man who cuts your hair. All of it is done by Asian labor,” he said.
But he cautioned that the Gulf will continue to attract foreign investment only as long as it’s protected by the Americans. “The richest area in the world depends on Asian labor and the U.S. Sixth Fleet. Take those two away and these little countries would not last very long. They’d be totally vulnerable. All it takes is one or two terrorist incidents in Dubai to shut things down.”