Latin Finance - January/February 2012 - 15

debt fundlatam-india trade manager survey

towards India” means there is significant potential for increasing trade between the two regions, it says.

Food is the Key

For now, food and India’s need to feed its enormous population at a time of rapid economic growth is being seen as the kernel of this relationship and arguably the catalyst for its growth. India may be the world’s seventh-largest country by size, covering 3.2 million square kilometers, but it is running out of space. A population that will soon surpass China’s is moving toward the cities and the land it leaves behind lacks water and other suitable conditions for farming. Space is getting tight, particularly for nonstaple crops. As with China, this is where Latin America becomes relevant. “At any given point of time with the limited amount of land that India has, you will always feel competition from different crops,” says Gautam Wave, head of strategy and planning at Shree Renuka Sugars, India’s largest sugar company. “The staple food will always get preference…[and] you realize quickly that India has a shortage of land and a shortage of water.” Shree Renuka’s business is waterintensive, and sugar is not seen as one of the country’s staple foods, so it is now looking abroad to the vast arable lands in Brazil, where it has bought four crushing mills and will soon add more. “After two decades of evolution, India is faced with rising food and energy prices,” says Exim’s Ranganathan. “It is in food where Latin America will offer the most synergistic relationship.” Ranganathan refers to two decades of free market-oriented policies, which have produced powerful companies, many driven by visionary entrepreneurs, and stellar growth that has put pressure on its own supply of natural resources. For instance, India has already become a net importer of high-value crops, such as sugarcane, due to shortages in water and land. India’s GDP growth rate is set to pass China’s this year, says Standard Chartered, and will be the world’s fastest growing economy from that point forward. The

bank sees 9.8% annual growth for 2011-2020. By 2030, India could be the world’s third largest economy, with a GDP reaching $30 trillion from $1.5 trillion last year. Urbanization and demographic trends should mean a broader domestic economy driven by a growing middle class, and this will present enormous challenges for the country as it seeks to meet the increased demand for food, water and energy generated by a more affluent population, the bank says. “Brazil will be a natural beneficiary of this demand, much in the same way that China has been a great source of demand for the region’s resources,” Standard Chartered says. Ashutosh Maheshvari, CEO of Motilal Oswal Investment Banking, says that Latin America may in fact be India’s last frontier for expansion, behind Europe, US, Africa and the rest of Asia, but that there is a sense of urgency, due to India’s need for assets in energy, minerals and food. This is most urgent in farming, as in India corporate farming is not permitted. Brazil, on the other hand, allows for scale. Sensing this challenge, Shree Renuka and other Indian agricultural companies have already begun to arrive in LatAm. Mining and mineral operations, manufacturers and even some consumerfocused companies have also started to set up shop. Some have their eye on supplying India’s future needs, but others are seeing potential in LatAm’s own growing middle classes.

Like China but Different

Such needs have convinced many that over the next 10 to 20 years India will match China as a major importer of LatAm minerals and agricultural products, bringing the region a vital counterbalance to its reliance on its largest trading partner, China. Skeptics, however, think that India’s slow-moving and bloated democracy is incapable of following the same path taken by China, and LatAm-India trade, while poised to grow, will be nothing more than padding on top of the real driving demand that comes from other places.

January/February 2012

LatinFinance 15

Latin Finance - January/February 2012

Table of Contents for the Digital Edition of Latin Finance - January/February 2012