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Like Canada, India is home to a vibrant parliamentary democracy. In recent years, successive elections have resulted in coalition governments both at the Centre and in several states. These governments have endured and demonstrated a commitment to restructuring and reforming the Indian economy. This is no mean feat given the size, complexity and plurality of the Indian populace. India is home to over 1 billion people, countless languages and dialects, cultures and communities. India’s institutions such as legal systems, media and civil society are healthy and provide a backbone that supports and strengthens Indian society. The face of Indian society is changing. The already sizeable middle class (200-250 million) is growing and has strong political, social and economic aspirations. More Indians are literate and technologically savvy than ever before. Consumerism is increasing and tradition and modernity find new expressions in the new India. The new India projects large on the world stage as well. From a robust foreign policy to rising Indian exports, from being a key player in world trade negotiations to being home to the world’s largest film industry, India is an emerging political, economic and cultural colossus amongst the family of nations.
Bilateral Relations
Canada has a strong, historical relationship with India. Both countries work together in the Commonwealth, the United Nations and World Trade Organization on a number of multilateral issues ranging from peacekeeping to trade and development. As well, Canada benefits from a large and vibrant Indo-Canadian community, which has contributed to its cultural fabric and acted as a catalyst for bilateral trade. A large number of Indian students at all levels choose Canada to study. People-to-people exchanges of academics, artists, journalists, scientists, business people and the like create linkages in science and technology and the arts and humanities, media, government and business. Canada and India enjoy a direct air-link. There have been a number of high level visits from both sides in the past few years, including Prime Minister Jean Chrétien’s visit in October 2003. Particularly in the context of economic relationship, notable Canadian visitors included International Trade Minister Pierre Pettigrew who led the biggest ever Canada Trade Mission to India in April 2002. Canada regards India as an emerging market in terms of trade and investment opportunities both as a destination for Canadian goods and services and as an emerging source of foreign direct investment into Canada.
Economic Profile of India
The Indian economy has been on a higher growth trajectory
A politically vibrant India has provided an enabling environment for a healthy economic growth. The Indian economy has grown in excess of 6 percent for several years since the beginning of reforms in 1991. Over the past year, the GDP growth accelerated to 8.2 percent, a phenomenal growth rate which ranked India as one of the fastest growing economies of the world, second only to that of China.
Growth Prognosis
The GDP is estimated to grow in the range of 6-7 percent this year (2004), and is likely to stay on a higher growth trajectory for the next 4-5 years as more capital and reform measures are injected into the system and as growing prosperity propels demand for goods and services. The Indian Government is seeking US$150 billion in infrastructure investments and is seeking to build an investment friendly environment which can encourage and sustain large scale infrastructure investments. Infrastructure remains India’s biggest constraint for growth.
A Supporting Macroeconomic Environment
The growth recovery in 2003-04 was attained in an atmosphere of macroeconomic stability. Prices remained relatively stable. There has been a steady accumulation of foreign exchange reserves (currently around US$120 billion which is worth more than one year’s imports), reflecting a strong balance of payments position. The equity market showed strong signs of revival in 2003/04. A soft interest rate regime continued to provide a conducive climate for investments. Most of these factors continue to remain favourable this year, with the only exception of prices showing inflationary spurt in recent months. A healthy macroeconomic scenario fulfills one of the primary conditions for accelerating and sustaining a healthy growth trend in medium to long term. The policy measures proposed through the Union Budget for 2004/05 are generally supportive of a healthy growth prospect for the Indian economy this year.
Reform Measures have put India on the Path of Globalization
As the fourth largest (in purchasing power parity terms) and one of the fastest growing economies of the world, India has continued to make good progress in increasing incomes and improving living standards. These developments have been supported by the wide-ranging reforms launched in 1991 to open and deregulate the economy.
Reforms have Changed the Rules of the Game, and also some Segments of Economy and Society
Although the pace and intensity of reforms has slowed since 1996, the cumulative changes have been substantial, improving the overall investment climate. The scope for private activity has further widened. Trade policy and the exchange rate regime have been further liberalized. Financial and capital markets have also been reformed. At the micro or sector levels, various reform measures introduced since 1991 have brought about significant changes. In the context of corporate performance, for instance, tariff cuts, low inflation, and relatively soft interest rates have created an enabling environment for firms in India to be far more efficient than they have ever been. While tariff cuts produced the dual impact of competition and cost reduction, the low rates of inflation and interest rates induced the firms to go through a tough process of re-engineering and restructuring. As a result, firms – both survivors of the transition process and the new ones – today are far more competitive and better able to face the challenges of globalization. The success of services exports serves as yet another example of a link between the process of reforms and performance of the economy. Policy measures have revolutionized the telecom industry in India, by removing monopolies and introducing competition. Thanks to improvements in telecom, a whole range of labour and skill-intensive activities (such as back office processing, database creation, call centres, etc.) are now being traded internationally. Improvements in telecom and other infrastructure such as roads and ports are contributing toward making firms competitive in the global arena.
Government’s Reform Inclinations Continue
By proposing hikes in FDI caps in key infrastructure segments of the economy, the Government has signalled a pro-reform stance. Of interest to Canadian firms, the Government has proposed raising FDI levels from the current 40 to 49 percent in the aviation sector, from 49 to 74 percent in the telecom services sector, and from 26 to 49 percent in insurance. There are also indications that by the next Budget (Feb 2005), more substantive reforms pertaining to investments, competitiveness and subsidies will be underway.
Basic Challenges, However, Remain
With an HDI rank of 127 in 2003, India continues to be an under-performer on the human development front. It also suffers from a negative perception about corruption (with a corruption perception index of 83 in 2003) and a low global competitiveness ranking (56 in 2003).
Commercial Opportunities
An opening, prospering India is of interest to Canada as trade underpins the Canadian economy and is the source of its prosperity. India continues to offer significant oppor-tunities for Canadian trade and investment, particularly in areas of traditional Canadian strengths. In 2003, total Canada-India merchandise trade accelerated to a record $2.12 billion, with Canada exporting goods worth $0.7 billion and importing to the tune of $1.42 billion. However, these figures understate Canadian exports to India since they do not include goods transhipped via the US or trading entrepots such as Singapore, UAE, etc., nor do they include services, especially consulting services in financial, engineering and software areas. In addition to merchandise trade, joint ventures and other forms of industrial collaborations and investment are of increasing importance to the Indo-Canadian commercial relationship. Indian business increasingly looks to Canadian business as a partner of choice.
Primary Sectors for Canadian Business/Investment Interests
Canada has a spectrum of technologies, products, processes and experiences that respond to India’s needs. The key sectors of Canadian interest include: oil and gas, hydro and other forms of energy, mining, construction, transportation, telecommunications, environmental technologies, natural resources management, education, agriculture, food products and food processing, and information communication technology. Notably, infrastructure development continues to be accorded a place of high priority in India’s development agenda, and therefore, much of the direction of new investments relates to infrastructure.
Climate Change Technologies
India offers huge potential for clean energy projects to qualify under Clean Development Mechanism (CDM). The main segments offering CDM opportunities include power generation, renewable energy, energy efficiency, waste to energy and fuel switching out of which power generation alone would result in potential emission reductions of about 90 million tonnes a year. India has also implemented favourable policies to encourage such projects and has a target addition of 10,000 MW power from renewable sources alone by 2012. India also has stressed the importance of clean coal technologies, R&M of power plants, T&D loss reduction, agricultural DSM and load management.
Information and Communications Technology (ICT)
Increased ICT cooperation with India is important for Canada. As a result of a healthy supply of highly qualified people and appropriate government support, India is widely recognized as a leader in ICT. Collaborative product and services development with advanced training opportunities holds particular promise for Canadian enterprises. Several areas are of commercial interest including wireless, photonics, broadband and its applications (such as e-government, tele-health, tele-education, e-markets for India’s largely rural population) and rural telephony. Also booming is the Indian demand for geometrics and bio-informatics.
Power
Canada’s involvement in India’s power sector development is a historic one. Canadian companies, such as SNC Lavalin, and Crown Corporations have helped build such key power projects as Idukki and Chamera and continue to be engaged in several ongoing power projects in India. With a rapidly growing economy, India’s power needs are also rapidly rising. The power generation capacity is slated to double by year 2012, in which the role of the private sector will be significant. India’s power sector, therefore, offers huge business potentials in areas of generation, transmission and distribution. With the enactment of the Electricity Act 2003 providing a liberal and progressive framework for growth of the power sector, business opportunities for Canadian companies are expected to rise in different segments of generation, trading and distribution of electricity. Of particular interest to Canadian firms will be the emerging opportunities in areas of hydro power generation, modernization of existing generation units, building and modernizing power transmission and distribution networks, and providing a variety of tools and solutions pertaining to energy audit, energy conservation, demand side manage-ment, communication and GIS, etc.
Automotive
Propelled by growing incomes and easy access to retail credit, the automotive sector is one of the fastest growing segments of the Indian industry. The liberalization of the norms for foreign investment and import of technology for manufacturing of vehicles, and permission for 100 percent foreign direct investment under automatic route have all helped the automotive sector to restructure, absorb new technologies and get integrated into global production chains. Automobile exports have rapidly increased in recent years. Also, there has been a major upswing in the export of automobile components, growing by as much as 30 percent last year (2003). A host of major international automobile companies are increasingly harnessing India has a production base, either directly through FDI, or indirectly by contracting with firms operating in India. The automotive segment of Indian industry presents commercial opportunities for Canadian firms in a number of areas, including i) production of body parts, engines and components, transmission parts, anti-skid devices, electronic systems and controls, and a whole range of specialized vehicles for industrial and infrastructure development use; and, ii) application of new materials and technology pertaining to the sector. To global investors, India offers not only a huge market potential but also a strategic base for business expansion in the region and skilled human resources.
Agriculture and Agri-Food
A mismatch between food crops and cash crops, low crop yields, volatility in production and wide disparities of productivity over regions and crops, and a very low base of food processing characterize Indian agriculture. While India has earned self-sufficiency status in production of several food items, it imports in sizeable quantities, edible oils and pulses, to satisfy domestic demand. Development of horticulture and floriculture has received increasing policy emphasis in recent years which has resulted in growing emphasis on building infrastructure such as cold storage, refrigerated transportation, processing, packaging and quality control. While India’s dependence on imports for pulses and edible oils continues to offer business opportunities for Canada, the growing emphasis on processing food products offers a range of opportunities for Canadian firms for joint ventures and other forms of investment in areas pertaining to infrastructure development, agriculture marketing management, etc.
Education
Driven by growing economic prosperity, more Indians are joining the ranks of those seeking better educational opportunities, at home and abroad. In this context, Canada is fast emerging as one of the sought-after destinations for higher education among Indians. In October 2003, the prime ministers of both countries issued a joint statement that sought to “strengthen government, commercial and civil society linkages” and encouraged academic and cultural linkages between the two countries. Hosting about 175,000 international students annually, Canada is becoming the country of choice for students from all parts of the world. An increasing number of Indians have joined Canadian universities and colleges in the past years and the number of students interested in Canadian educational institutions is rapidly rising. Students have a diverse choice of 92 universities and 175 community colleges and technical institutes offering an amazingly wide array of study programs. Given the interest in India in seeking quality education, Canadian universities and technical institutions have been exploring collaboration opportunities for setting up campuses in India and offering joint study programs.
Infrastructure
The current Indian government has focussed on the need for the creation, upgrading and modernization of India’s infrastructure and made it a key economic priority. India’s roads, airports, seaports and rail network as well as communications infrastructure are in significant need of refurbishment. Opportunities for Canadian companies abound especially in the engineering, project management, intelligent transportation systems and consulting areas. Such companies as LEA Associates have already established a remarkable presence.
Transportation
India’s aviation sector is booming thanks to deregulation of the industry in the 1990s. A number of private carriers are looking abroad to Canadian suppliers of aircraft, aircraft components, avionics, training and maintenance. In particular, regional jets, built by such Canadian manufacturers as Bombardier have successfully entered into the fleets and on to the routes of many Indian airlines. With the advent of an underground metro system in the Indian capital New Delhi, a number of other cities are looking to develop both their urban transit infrastructure and capacity. The rail sector continues to play a vital role in India’s economic life and requires modernization. Canadian enterprises are well-suited in terms of technology and expertise to provide the requisite upgrades.
Investment Potential - Canadian Investment in India
India is considered as one of the most promising developing countries over a 10-year investment horizon, according to an Ex-Im Bank of Japan survey. Since reforms began to liberalize foreign investment and simplify the approval process, the level of FDI in India has grown considerably (from US$0.4 billion in 1990 to US$3.45 billion in 2002). The major investment flows are from the US, Japan, UK, Germany, France, South Korea, Singapore and Switzerland. Policy changes regarding investments, including allowing private participation in such crucial sectors as telecommunications, power, insurance, roads, ports, etc., have attracted investors’ interest in India. However, India’s investment potential is huge which can be rapidly realized by further improving the investment climate, especially by removing product and factor market distortions and infrastructure bottlenecks. The potential gains from removing key investment climate bottlenecks have been estimated in the range of 2-4 percentage points of annual economic growth. Canadian investment in India ranges from the mining sector to financial services, small manufacturing units to information technology development partnerships.
Indian Investment in Canada
India is a modest investor in Canada, principally in pulp and paper, IT and financial services. There is scope for further Indian investment in Canada in IT (particularly for strategic alliances to serve the North American market), pharmaceuticals, metals, pulp and paper, petrochemicals, and auto ancillaries. Several major Indian software development firms have established regional centres in Canada.
Assisting Canadian Business in the Indian Market
Canada’s Trade Commissioner Service, with a mandate to promote Canada’s economic and commercial interests in the global arena, has been helping Canadian companies do business in the emerging Indian market.
Canada’s trade team in India is located in a number of offices – The Canadian High Commission in New Delhi; the Consulates General in Mumbai and Chandigarh; the Canadian Trade Office in Bangalore; the Canadian Consulate in Chennai; and, the Honorary Consulate of Canada in Kolkata. Together, we strive to serve Canadian business interests in every part of India.
With a view to serving the Canadian business interests efficiently and effectively in the diverse Indian market, responsibility for the Indian market is shared. The Consulate General in Mumbai, along with the Canadian Trade Office in Bangalore, is responsible for the western coastal states of India - Maharashtra, Gujarat, Goa, Karnataka and Kerala. The Commercial Section of the Canadian High Commission in New Delhi, together with the Canadian Consulate General in Chandigarh and the Canadian Consulate in Chennai, covers the rest of India and also the Himalayan kingdoms of Nepal and Bhutan. The Canadian High Commission in New Delhi also takes the lead on national issues, including government relations and trade policies. Also significant to Canada-India business relations are several other key functions of the High Commission in New Delhi, including public advocacy functions and those concerning economic and political aspects of the larger bilateral relationship with India (www.india.gc.ca)
All of the offices in India also provide assistance to Indian companies interested in doing business with Canadian firms (www.infoexport.gc.ca) or investing in Canada (www.investincanada.gc.ca)
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