challenges and opportunities in india-canada trade relations
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CHALLENGES AND OPPORTUNITIES IN INDIA-CANADA TRADE
RELATIONS
By Dr. Ruby Ojha1
An overview of India-Canada Relations
India was, at one time, the largest recipient of Canadian development aid to the
developing countries. Though Canada was a member of Non Aligned Treaty
Organization (NATO) and India was firmly Non-aligned still Canada co-operated
India with the economic assistance through the Canadian International Development
Agency (CIDA) in early years of India's independence. Canada remained an
important development partner for India during 1950s and 1960s. However, aid
figures have progressively gone down over the years as the India-Canada relationship
has transformed into one based on trade, rather than aid.
Politics and economics have not always gone together in shaping the bilateral
relations between India, and Canada. India's peaceful nuclear explosion of 1974 led
to relations being frozen with Canada alleging that India had violated the terms of
agreement under which Canada had supplied a nuclear reactor in 1956 under the
Colombo Plan. Activities of Canada-based Sikh terrorist groups in planning and
carrying out acts of violence in India during the 1980s introduced an additional
element of strain. (India, Canada Trade & Economic Relations, FICCI, 1999)
1 The author is Reader in Department of Economics, PGSR, SNDT Womens University,
Churchgate, Mumbai. The paper was presented in International Conference on EconomicDevelopment and competitiveness Canada and India organized by SNDT Womens University,Mumbai and Canadian High Commission, New Delhi from Oct. 3-5, 2008
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But as time passed, trade between India and Canada picked up in the 1990s. With the
beginning of economic reform by India in July 1991, Canada began to expand its
economic presence in markets other than in the USA. The financial crisis in South
East Asian countries in 1997 also contributed to Canada's change in focus from South
East Asia to South Asia and it identified India as the largest market in the South
Asian region with enormous scope for business collaboration. Canada started
focusing on India in a big way. Special thrust was given to Focus India initiated by
the visit of the then Canadian Prime Minister Jean Chretien to India in January 1996
when he led a Team Canada delegation. Focus India was a document released by
the then International Trade Minister Roy Maclaren. This document had mapped and
matched Indias requirements for international business with Canadian capabilities
and exhorted Canadian corporations to cash on the new business opportunities offered
by the Indian market.
The chill in India-Canada bilateral relations generated by Indias nuclear explosions
in May 1998 was broken and efforts were made to restore normal diplomatic relations
by the visit of the new Canadian Foreign Minister John Manley in November 2000
with his decision to re-engage India. He announced earlier on March 20, 2001 that
Canada would henceforth pursue the broadest possible political and economic
relationship with India. On its part, India welcomed this initiative. Since then, the
pace of high level political and business bilateral visits between India and Canada has
steadily grown to higher levels. (Charan Wadhva, 2005). Government to government
relations expanded with Canadas enhanced trade presence in India. In the recent past
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there have been a record number of bilateral visits at the political as well as the
official levels.
The Asia-Pacific Foundation of Canada (APFC) has completed several major trade
studies and is fostering new ways to deepen commercial and economic relationship
between India and Canada. Several bilateral business organizations, such as the
Canada-India Business Council and the Indo-Canada Chamber of Commerce are also
working towards boosting economic and trade ties between the two nations.
The visit of Mr. Jim Peterson, Canadas Minister for International Trade leading a
trade mission with a strong 70 member delegation of Canadian business
representatives to India during April 6-8, 2005, was fruitful in many ways.
Announcement was made that Canada and India would set up an India-Canada CEO
Forum. Indo-Canadian CEOs Forum had concluded that Canada and India should
enter into a new era of cooperation which should result in their concluding a
comprehensive Free Trade Agreement in 2008. Mr. Peterson also announced that
Canada is currently negotiating a Foreign Investment Promotion Agreement (FIPA)
as well as a Science and Technology agreement with India in order to share research
and development and promote commercialization of products. Canadian Trade
Minister Peterson also identified the five key areas i.e. Agro foods; Information
Technology; Communications; Energy; and Transportation &Financial Services
where Canada can contribute to Indias development.
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Canada-India business to business cooperation at the institutional level also grew
overtime. The Canada-India Business Council (CIBC) was set up in 1983. The CIBC
was a party to inter-institutional cooperation protocols between India and Canada
along with the Federation of Indian Chamber of Commerce and Industry (FICCI) and
Associated Chamber of Commerce (ASSOCHAM) of India. The third largest apex
chamber in India, the Confederation of Indian Industry (CII) had an operational
cooperation agreement with the Canadian Manufacturers Association (CMA) since
1982. (Charan Wadhva, 2005)
Most notable in the continuing chain of exchange of more frequent high level visits
between India and Canada was the visit of Canadian Prime Minister Paul Martin to
India in January 2005. A joint Declaration was issued by the visiting Prime Minister
Martin and the Indian Prime Minister Dr. Manmohan Singh on January 18, 2005 on
their meeting. Both Prime Ministers agreed on initiatives that strengthen the India-
Canada partnership and contribute to addressing global challenges more effectively.
Facts Relating to Canada and India
Canadas economy is both mature and diverse, benefiting from an advanced services
sector, an abundance of natural resources, sound management and free trade
agreements. The Canadian economy is the eighth largest in the world according to the
IMF. As of 2007, its nominal GDP was $1.274 trillion, with growth of 2.7%. It is part
of the G8 and other rich clubs such as the OECD.
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Unlike most developed economies, Canada has moved from agriculture straight to
services, which now account for nearly 67.9% of GDP. This industry is very diverse
and includes the retail sector, financial services, real estate, education, health, high-
tech, entertainment and tourism. The service industry employs 75% of the 17.9 million
working Canadians.
Another important factor in the countrys development was the free trade agreement
with the US that was signed in 1989, as well as the NAFTA treaty of 1994. These
agreements linked several other key countries such as Mexico, Israel, Chile and Costa
Rica to Canada and its economy. In January 2008, the country has also agreed to a
Canadian-European free trade association that has further developed its robust
economy.
On the other hand, India is a great country because of its rich culture and open
democracy. India represents a large and growing economy, one with which Canadian
businesses must engage more actively. With a GDP of US$821 billion in 2006, India
is the 14th largest economy in the world (the fourth largest economy in the world
using purchasing power parity). Its population of 1.1 billion is more than 30 times
that of Canada. Per capita income in India rose 14.2 percent in 2006-07, prompting
dramatic increases in business investment, consumer spending and savings, but its
GDP per capita (at purchasing power parity) is still low at US$3,652.
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Indias gross domestic product has expanded by an average of nine percent in each of
the past three years, primarily due to strong performances in the services, mining and
manufacturing sectors. India is on a path to become a global economic heavyweight
and has the potential to become the worlds third-largest economy by 2050.
Indias strengths include a growing middle class and a large pool of educated and
skilled workers, many of whom speak English fluently. This has contributed to the
rapid expansion of the services sector and to Indias emergence as a regional
manufacturing centre. The opportunities for Canadian firms are therefore significant
in terms of investment and linkages into Indias large and quickly growing domestic
market as well as key global value chains. ( India and Canada: A New Era of
Cooperation, Report to Ministers of India-Canada CEO Roundtable Delhi and
Ottawa, September 2, 2008). The potential to collaborate with an Indian partner --
whether inside India or through outsourcing, joint ventures or partnerships in third
countries -- is equally important. the Indian economy is forecast to surpass Italys by
2016, Frances by 2019, UKs by 2022, Germanys by 2023, and Japans by 2032
(Asia-Pacific Foundation of Canada, as quoted in Canada and India: Trade and
Investment Opportunities in the Services Sector, March 2007). In 1991, India started
to dismantle through reforms its import substitution industrialization model and began
to introduce and implement many market-based reforms. Since then, India has rapidly
developed into an emerging economic power.
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Since the 1991 reform process began, Indias economy has more than doubled, with
GDP increasing from $317 billion USD in 1990 to approximately $785 billion USD
in 2005. India has also realized a dramatic increase in real GDP per capita, from $318
USD in 1990 to approximately $586 USD in 2005, illustrating productivity gains and
the bolstering of the nations standard of living (World Bank 2006). In 2005,
approximately 170 200 million people had growing purchasing power, creating a
larger middle-class and expanding consumer base (US Commercial Services 2006).
India-Canada Bilateral Trade
The emergence of India on the international scene is compelling all countries,
including Canada, to re-think their economic and political engagements. Barriers to
trade and investment in India are declining with more competition being introduced
into the Indian marketplace, resulting in a growing economy and numerous Indian
firms investing abroad. India's exports to Canada comprise mostly textiles and
apparel, jewellery, and chemicals, iron and steel products. Canadas most significant
exports to India are: aerospace and aircraft parts; cereals, vegetables and fertilizers;
pulp and paper products; machinery and equipment (electrical and nuclear/boiler),
and ores, slag and nickel products.
India is Canada's largest trading partner in South Asia. But in 2006, India was
Canada's 14th largest export market. There is a room for improvement in the trade
between the two countries as India's share in Canada's imports is not even 0.5%.
India-Canada bilateral trade from 1980-81 onwards is shown in table 1.
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Table-1: Indias Trade with Canada (Rs. Crore)
Years Export to Canada Import from Canada Trade Balance
1980-81 62.30 332.30 -270.00
1981-82 67.40 308.60 -241.20
1982-83 57.50 237.30 -179.801983-84 91.80 332.60 -240.80
1984-85 131.10 499.30 -368.20
1985-86 132.10 451.10 -319.00
1986-87 136.80 380.40 -243.60
1987-88 166.00 299.00 -133.00
1988-89 197.00 428.00 -231.00
1989-90 264.00 454.00 -190.00
1990-91 281.00 559.00 -278.00
1991-92 465.00 690.00 -225.00
1992-93 554.00 1174.00 -620.00
1993-94 710.00 731.00 -21.001994-95 838.00 834.00 4.00
1995-96 1022.00 1275.00 -253.00
1996-97 1253.00 1112.00 141.00
1997-98 1610.00 1564.00 46.00
1998-99 1990.00 1622.00 368.00
1999-2000 2578.00 1605.00 937.00
2000-01 2999.00 1814.00 1185.00
2001-02 2789.00 2525.00 264.00
2002-03 3379.00 2741.00 638.00
2003-04 3507.00 3336.00 171.00
2004-05 3894.73 3485.43 409.302005-06 4465.80 3962.76 503.04
2006-07 5024.50 8042.70 -3018.20
2007-08 5094.00 7940.20 -2846.20
Source: Table is compiled from the data obtained from Department of
commerce, based on DGCI and S Provisional data as given in various issues of
Economic survey, Government of India.
As shown in the table, Indian exports to Canada have increased from Rs. 63.20 Crore
in 1980-81 to Rs. 5094.00 crore in 2007-08. Canadian exports to India also have
increased from Rs. 332.30 crore in 1980-81 to Rs. 7940.20 crore in 2007-08. We can
observe in the table that this increase in bilateral trade between India and Canada has
tremendously increased after economic reforms were introduced in India since 1991.
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The trade balance has been in India's favour ever since 1994-95 excepting in the year
1995-96. This positive trade balance was there till 2005-06 and after that imports
have more than doubled which has resulted in negative trade balance.
Several epoch making developments since 1980s including the collapse of the former
Soviet Union in the 1980s signaling end of the Cold War; intensification of the
process of competitive economic globalisation facilitated by the revolutions
unleashed by information technology and faster and cheaper transport connectivity
world-wide; and the open economy reforms launched by two of the most populated
and large sized countries, namely China in 1979 (with most visible success) and by
India in 1991(with reasonable success within the constraints of its democratic polity)
and the growing presence of the Indian diaspora in Canada have facilitated this
development in India-Canada trade relations. (Charan Wadhva, 2005).
Despite the impressive recent expansion in Canada-India trade and investment, the
overwhelming consensus of CEO Roundtable participants is that current levels are
well below potential. In addition, Roundtable participants agreed that the Canadian
private sector needs to develop a stronger presence in India. In the words of one
Canadian participant, India may not need Canada, but Canada certainly needs India.
(India and Canada: A New Era of Cooperation, Report to Ministers of India-
Canada CEO Roundtable Delhi and Ottawa, September 2, 2008)
The trade situation as it has improved in the post reform period shows the scope of
further improvement in coming years. Officials believe the improving relations will
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investment) have generated new interest among most countries of the world including
Canada.(Charan Wadhva, 2005)
Despite numerous improvements in Indias social conditions, this diverse country is
still characterized with large areas of inequality and poor infrastructure.
Approximately 60 percent of the population is illiterate and about 39 percent live on
less than one dollar a day (US Commercial Services 2006). Despite recent trends of
migration to the urban centres, it is estimated that 60 percent of the population live in
rural areas, some of which are without even the basics of electricity and roads
(Economist Intelligence Unit 2005). Also, the growing rate of migration to the major
cities coupled with decades of under investment has created infrastructure constraints
in the major economic cities. The Indian government is very aware of these
challenges and is actively attempting to address them. This provides an opportunity
for Canadian services companies in many sectors including the provision of private
education, telecommunications, energy, and transportation services as subcontractors
to the large infrastructure development projects that are currently being proposed in
India. (The Canadian Services Coalition Canada and India: Trade and Investment
Opportunities in the Services Sector, March 2007)
Following the economic reforms, the end of the Cold War, the growing realization
that Canada should expand its economic presence in markets other than in the USA
and the financial crisis in South East Asian countries in the second half of the 1990s,
Canada identified India as the largest market in the region with enormous scope for
commercial cooperation. Services trade offers great potential to Canada but especially
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to India. In terms of commercial services trade, the WTO ranks India 12th and
Canada 15th globally. However, it is universally recognized that India is a services
trade powerhouse, and will continue to grow in stature.
It is agreed that India is self-confident and leaving many with the view that it is not
just emerging, but has arrived. Canada's economic relations with India are moving
and India needs to be recognized for its own merits. In a number of recent statements,
including his nomination acceptance speech, Prime Minister Martin has identified
India as a foreign policy priority.
Three important issues, mainly for promoting commerce/trade relations, are now
being observed by Canadians in India:
1. Attitudes in India has changed dramatically with the collapse of the license raj
and easing of bureaucratic constraints. People no longer assume that things
will not happen. Instead, they are asking how they can make things happen.
This is a very positive development.
2. Governments are stable and voters are becoming more knowledgeable. The
electorate has demonstrated that it no longer blindly follows one party
regardless of its policies. It is now clear that voters are becoming more
educated.
3. The number of people who have moved above the poverty line in India has
increased. People are doing better. It is important to address the reality behind
this new found growth, prosperity and business confidence.
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Along with opportunities come challenges which are mainly based on human
development indicators and environmental factors. In particular, economic growth
can have severe social consequences which should be addressed when looking at
opportunities arising from developments in India. Economic growth has increased the
divide between rich and poor. There is unequal development in India and it is not
possible to discuss development without also examining regional differences.
Education and knowledge are critical for the future as they are the basis for growth.
Infrastructure is crucial as the population and labour force continues to grow.
This scenario presents something of a policy dilemma for Canada-India relations -
how to pursue both the challenges and opportunities in tandem.
Concluding Remarks
Both the countries, Canada and India have entered the twenty-first century with a
shared vision to promote mutually rewarding economic partnership in an increasingly
competitive and dynamic global economy. Currently, two-way trade and investment
between Canada and India is below potential. For realizing the potential following
points are worth noting:
1. Upgrading political relations between India and Canada and more frequent
exchange of views for better understanding and consensus building would
greatly help to improve the environment for business to business cooperation
in both countries for synergizing such cooperation.
2. Educational institutions and think-tanks in both countries can play a vital
supportive role for promoting public and private sector initiatives for
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strengthening economic partnership between India and Canada in the dynamic
global market economy.
3. The services sector is Canadas largest and fastest growing economic
component. Canadian services providers are continuing to look abroad in
order to take advantage of expanding opportunities in the global marketplace.
Opportunities exist in Indias financial, education, transportation,
telecommunications, energy, and computer and related services sectors. In
India, the services sector is largely responsible for the economic growth it has
experienced over the last decade and a half. The combined strengths of
Canadas and Indias respective services sectors may largely complement one-
another.
4. Canada is one of the most trade dependent nations amongst the G7 countries
with international trade representing approximately 72 percent of Canadian
gross domestic product (GDP). India can take advantage of this.
5. The products and services that Canada and India produce and what each
country needs are complementary.
Recommendations
1. Detailed feasibility studies are needed for formulating concrete action plans
for cashing on the new opportunities for international business.
2. The growth of China-Canada investment relations during the last two decades
can show the way for transforming India- Canada investment relations.
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3. Indian companies can work with Canadian companies for more easily and
profitably accessing the business opportunities in the North American Free
Trade Area (NAFTA) through Canada.
4. It would be useful to study examples of linkages between the voluntary sector
and corporate Canada as practical examples of corporate social responsibility.
5. China has done some tremendous work educating others about its
achievements. China has been successful not just because of foreign
investment, but because of the image it has managed to build internationally.
India can take lessons from that because building a relationship is about
building an image and profile.
6. There is no Canadian press in India and India is not treated seriously by the
Canadian media. NGOs can do more to promote information about India.
7. The Government's ability to promote growth will depend on whether it can
put in place adequate infrastructure. This will be a major challenge but cannot
be left to the private sector to do.
8. Nothing is done without self interest. Relations between Canada and India will
improve if there is a reason to do so. As yet, in Canada, new developments in
India have hardly been noticed. Therefore, there is a need to showcase the
opportunities in India that can be grabbed by Canadians.
The scope to conduct business bilaterally is limitless and that the time to engage is
now.
References:
1. Ajit Jain, India, Canada FTA Recommended Toronto, Sep.10, 2008
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2. Canada India Fact Sheet, Foreign Affairs and International Trade
Canada, 2008
3. Canadas Economy, Economy Watch, 2008
4. Charan Wadhva A Note on Recent Trends and Prospects for Strengthening
India-Canada Economic Partnership in World Economy, Centre For Policy
Research New Delhi, India, 2005
5. India Export Import Trade Statistics with Trading Partners, Infodrive
India, 2008
6. India, Canada sign pact to protect trade, investment, Behind the News,
June 25, 2007
7. India, Canada Trade & Economic Relations, FICCI, 1999.
8. Jade Norton, Will Canada-India Trade Spice Up? in BC Stats, Service BC,
Ministry of Labour and Citizens Services, May - 2005, Page 3
9. Phil Taylor, EDC to establish second Indian representation in Mumbai
Public Affairs, Export Development Canada 2008
10. The Canadian Council of Chief Executives and Confederation of Indian
Industry India and Canada: A New Era of Cooperation, Report to Ministers
of India-Canada CEO Roundtable Delhi and Ottawa, September 2, 2008
11. The Canadian Services Coalition Canada and India: Trade and Investment
Opportunities in the Services Sector, March 2007
12. Victoria Walker, Roaring India - A Dialogue on India-Canada Relations,
Full Report, , South Asia Partnership, Ottawa, Canada, March 1, 2004,
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