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Canada has what India needs

Canada has strong ties to India, but the economic relationship is miniscule. That can and should change.

By: /
15 April, 2015
By: Danielle Goldfarb
Associate Director of the Conference Board of Canada’s Global Commerce Centre

Canada should seize the enormous economic opportunities available in India. Narendra Modi’s historic trip to Canada from April 14 to 16—the first bilateral visit to this country by an Indian prime minister since 1973—will shine a spotlight on these opportunities.

Prime Minister Modi has championed an economic growth agenda, which includes making India friendlier to global commerce. Canada is in the midst of negotiating free trade and investment deals with India, and should continue to pursue them. But negotiations have moved slowly.

Business leaders, however, do not have to wait for the outcome of formal talks before they can take advantage of the opportunities emerging in India.

India is Canada’s largest trading partner in South Asia and is identified as a priority market under Canada’s Global Markets Action Plan. In addition, 1.2 million Canadians can trace their ancestry to India. Nevertheless, the economic relationship is miniscule, especially when India’s rapid GDP growth in recent years is compared with that of Canada’s traditional trade partners.

Known two-way bilateral trade was worth less than US$6 billion in 2013. Known foreign direct investment levels between Canada and India are also less than overwhelming—India’s FDI in Canada was C$3.7 billion in 2013; Canada’s investment in India was just C$614 million. These statistics may under-represent Canada’s full commercial relationship with India. Regardless, it is still a fraction of Canada’s global trade, amounting to less than a week’s worth of our trade with the United States.

India’s long-term growth prospects are far above the meagre rates forecast for Canada’s traditional trade partners, even in the face of recent slowdowns. The OECD expects that the Indian economy will grow to represent roughly one-tenth of the entire global economy within the next 15 years.

A 2013 Conference Board report, Hottest Prospects for Canadian Companies in India, identified several sectors of the Indian economy that fall into a “sweet spot” for Canada. In addition to being large, dynamic, and fast-growing, these sweet-spot industries—and this is the difference-maker—are relatively open to Canadian businesses.

Infrastructure is high on the list of sectors where Canada can have a greater share of the pie. India’s strong economic growth has put a strain on its existing physical infrastructure and increased the demand for massive new investment and construction. Canada has internationally recognized expertise in engineering and architectural services, and it has numerous large funds that are seeking stable long-term investments.

India’s auto sector is also growing rapidly—going from 1.5 million automobiles exported in 2009–10 to more than 3 million in 2013–14. Just last month, Ford opened a new plant in Gujarat amid its projections that India’s vehicle production will double by 2020. India is especially hungry for solutions that reduce car weight and are, therefore, more energy efficient. Canada has expertise not only in vehicle assembly, but also in auto parts and in supply chain inputs, such as plastics, rubber, and machinery.

Services are the third area where Canada has untapped opportunity. India is a services-based economy, and its growing middle class is rapidly expanding its demand for high-value services, such as insurance and telecommunications. Not only is India a massive market, it is moving toward more openness to international firms. Moreover, Indian demand and areas of openness align with Canadian expertise. Services have been Canada’s fastest-growing export sector in the past decade.

The Indian market—as well as those of other emerging economies—are not easy to navigate. According to Conference Board research, Canadian companies that have been the most successful in markets such as India are those that constantly innovate and adapt their products and services and that develop strong long-term relationships.

Prime Minister Modi’s visit to Canada symbolizes the importance that India’s new leader places on its international relationships. Canada has the expertise in areas where India has needs. Canada has another advantage—the tremendous resource offered by the more than 1 million Canadians who have connections to India. Putting these strengths to work would help to build a more prosperous long-term relationship between the two countries.

This post was originally published by the Conference Board of Canada.

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