Canadian Prime Minister Justin Trudeau meets with Indian Prime Minister Narendra Modi at the World Economic Forum. (File Photo from Twitter)
Canadian Prime Minister Justin Trudeau meets with Indian Prime Minister Narendra Modi at the World Economic Forum. (File Photo from Twitter)

India and Canada—both among top 10 nations of the world—do not talk much business with each other. Perhaps, the geographical distance could be a problem. However, both the countries offer enormous business potential for each other. Hence, it makes sense for both countries to interact a lot more with each other than before. Pankaj Joshi takes a closer look…

When we talk of Indo-Canadian trade ties, it is important to understand that two of the top ten economies (in GDP terms) are being discussed.

Trade ties between India & Canada: Investment impetus needed

However, the mutual trade figures are quite subdued and in growth terms also there is not much velocity to speak of. India’s merchandise exports to Canada have gone up from USD 2.53 billion in 2011 to USD 4.04 billion in 2016, a rise of merely 60 per cent across five years. Likewise, merchandise imports from Canada too have moved up just 53 per cent in this time, from USD 2.63 billion to USD 3.98 billion. The trade balance is always marginal on either side.

Even in services, the figures are quite modest. While, services exports revenue for India has gone up from USD 0.58 billion to USD 1.37 billion in the 2010-15 period, Canada’s service export income in this period went up from USD 0.44 billion to USD 0.79 billion. This does not really reflect well on both the countries who are among the top ten economies. Thus, there is a need to talk more business with each other.

Trade ties between India & Canada: Investment impetus needed

Both imports and export aggregates form less than 1 per cent of the global Canadian figure, which indicates a need to find further areas of synergy and opportunity. The data does offer some significant pointers for higher trade potential:

  • Indian imports from Canada are dominated (around two-thirds) by resource-based goods and only one-third by manufactured goods. Against that, 96 per cent of Indian exports were manufactured goods. This shows that Canada views India more as a processor. It also indirectly acknowledges the breadth of India’s manufacturing canvas.
  • No single product category of exports from India to Canada contributes more than 10 per cent to the basket. Against that, leguminous vegetables contributed 28 per cent to Canada’s Indian exports in 2016 and coal an extra 11 per cent. A diversified basket of Indian products indicate multi-product acceptance which can be scaled up.
Trade ties between India & Canada: Investment impetus needed
  • With all this limited trade, India still stands as Canada’s 10th largest partner in merchandise trade and 16th in services trade.
  • As per Statista, Canada stood 12th in the list of largest exporter nations in 2016. This argues that policies and processes will be in place. The government data indicates that Canada merchandise exports are currently in the range of USD 500 billion.

One aspect of this matter is the geographical distance between the two nations, and the impact of transportation costs on the viability of the specific product pricing. This is reinforced by the historical data that traditionally states 65-70 per cent of Canada’s exports go to the USA, which is its next door neighbour. The slowdown in the US automobile industry over the past ten years has had an impact on Canada’s overall export growth. The way around for this would then be cross-border investment, which again is very modest as of now.

FDI therefore would be the way to go forward. If the opportunity were to be quantified in a very basic manner, it is Canada’s per capita income which would enthuse India and likewise India’s population which would spell export opportunities for Canada. Processed, high-value, durable items would logically therefore be the Indian basket, while Canada would perhaps look more at affordable, bottom-of-pyramid products and services for the Indian market.

Trade ties between India & Canada: Investment impetus needed

As per the Canadian government’s own statement, “India’s rapidly expanding economy offers tremendous opportunities for Canadian companies in emerging sectors such as transportation infrastructure, life-science, clean energy technology (e.g. integration of renewable energy/smart grid; carbon capture, use and storage; and energy efficiency) and renewable energy as well as in traditional sectors such as infrastructure development, natural resources, defence and security, value-added food products, mining and oil and gas. Science and technology collaboration, innovation and educational linkages are also important areas of opportunity for Canadian business.”

Here, it may be noted that there is a Comprehensive Economic Partnership Agreement being discussed, but again finalisation and conversion of agreement terms to policies and procedures can only be the real catalyst.

Trade ties between India & Canada: Investment impetus needed

Beyond these opportunities come travel and even education. India’s outbound tourism has shown rapid growth in the past decade, on the bedrock of different factors – good economic growth, rising disposable income, and a young and curious population looking to harness growing airline and airport infrastructure.

Canadian tourism official data values outbound Indian tourism at USD 22 billion (2016 estimates) and 13th largest worldwide, with 22 million departures. Indian leisure traffic to Canada was around 1, 91,000 in 2015 which went up to 2, 16,000 in 2016. While this figure represents a new record, it also shows how much upside there is in the context of total Indian overseas leisure travel and what is being captured by Canada. The Canadian authorities estimate that the 2, 16,000 figure is just 8 per cent of the market potential.

Likewise, in education, Indians studying abroad is another growing and sustainable trend. Both these could be a good growth for Canada in terms of service exports growth. Perhaps the Indian diaspora could be leveraged to that effect. Clearly, there is much to do and there are enough guiding signs on the road ahead.

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