Current Economic Relationship of Canada and India
Even with the opportunities afforded by an average annual growth rate of approximately 8 percent in India, Canada is not well represented in this expanding economy. Currently, India represents less than 0.5 percent of
Canadian exports and less than 1 percent of Canadian imports (Foreign Affairs and International Trade Canada). Moreover, India, as a destination, represents less than half a percent of Canada’s total FDI outflows.
It should be noted however that services are notoriously difficult to measure and that these statistics may not be truly representative of Canada’s involvement in the India economy. The Asia-Pacific Foundation of Canada (APFC) estimated in
2002 that Canadian firms sold $336 million in commercial services to the Indian market, which is about 2.5 times greater than the value reported by Statistics
Canada. Also, in a limited sample of 43 Canadian companies, the APFC reported that investment into India from Canadian firms represented $284 million, which is about twice Statistics Canada’s reported value.
The discrepancy in these statistics could be due to investment originating from
Canada flowing through a third-party country prior to entering India and to the difficulty in reporting the trade in services. An example of this would be the case of Mauritius, which recorded 12 times more investment in India as Canada.
However, the majority of investment originating from Mauritius is global firms taking advantage of the India-Mauritius tax treaty, which results in Canadian investment being under-recorded in India. Another example of underreporting is between $600 million and $1 billion in diamonds that flow to India via Antwerp.
Regardless of which values are correct, the importance here is for Canada to expand on its current presence in the Indian marketplace and venture into new sectors of opportunity. 10
Recently, Canadian services exports to India have been dominated by financial services, energy, and ICT representing 31 percent, 28 percent, and 13 percent respectively according to the APFC’s 2002 report. Also, financial services, power, and information & communications technology represented 85 percent of
Canadian investment in India, valued at $150 million, $64 million, and $30 million respectively. The dominance of these sectors in trade and investment to India are no surprise as they represent some of the strongest Canadian sectors.
Finding data on Canadian services imports and investment from India is also a difficult task. Indian investment in Canada has increased from $18 million in 1999 to approximately $145 million in 2005 (Foreign Affairs and International Trade
Canada 2006). India’s main trade success lays in information technology (IT) exports. India’s IT and business-process outsourcing services grew at over 17 percent annually since the early 1990s. Canadian companies are beginning to take advantage of the fact that importing knowledge-based services from India hold the estimated potential of annual cost reductions as high as 50 percent to 70 percent (PricewaterhouseCoopers 2004).
The idea of an industrialized country outsourcing services components to India could bring with it fears of job losses and the hollowing out of the domestic economy. However, in Canada’s case, we are proven beneficiaries of this trend and are a destination for outsourcing operations based on our proximity to the
United States, our skilled and less expensive labour in comparison to other industrialized nations. According to a study by Deloitte, Canada remains one of the top outsourcing destinations.
The Canada - India economic relationship is in the unique position of being largely complementary economies. Instead of viewing each other as a threat, both countries can complement the other. For example, Canadian strengths in engineering services, energy services, environmental services, and telecommunications can be used to develop the infrastructure within India.
Canadian knowledge-based information technology firms can collaborate with those in India in order to harness each others strengths in developing innovative products and services. Indian R&D intensive companies can take advantage of
Canada’s favourable R&D concessions. Canadian food processing firms can provide storage facilities for the large Indian agriculture market. Canadian companies seeking to enhance their own competitiveness can become integrated in the global supply chain by taking advantage of India’s low-cost skilled labour.
Besides the mutually beneficial trade opportunities, the presence of English as the language of business and similar parliamentary and legal systems used in both nations, create an environment of familiarity over other emerging nations and a favourable environment for trade and investment.