Economies at a Glance
Canada – India Economic linkages
The Canadian economy, meanwhile, is growing at a slow pace. It fell into a mild recession in the first half of 2015, as low oil prices and a swing in inventories overwhelmed an otherwise healthy economy. The unemployment rate approached close to 7% and real GDP growth has been cut to 1.3%, partly reflecting the impact of the Alberta fires. The Canadian economy is expected to advance by 2% in 2017, in part due to post wild-fire reconstruction and government stimulus (TD Economics, June 16, 2016).
Doing Business in the 21st Century
By Dr. Surendra Gera, Senior Fellow, Canada-India Centre, Carleton University
The economy of India is the 7th largest economy in the world measured by nominal GDP and the third largest by purchasing power parity (PPP). The long-term growth prospects of the Indian economy are positive due to “demographic dividend” – its young population and increasing integration into the global economy. According to the OECD, the Reserve Bank of India (RBI) expects the growth to be 7.4 per cent for the current financial year 2016-17. India has one of the fastest growing service sectors in the world with an annual growth rate of 9%.
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The world economy is changing and so is the Indian economy – the economy is harnessing trade and investment liberalization to capture new market opportunities at home and abroad to achieve sustainable economic prosperity. Our analysis shows that bilateral economic links between Canada and India have grown rapidly in recent decades, but remain weak. India needs a faster focus on improving digital connectivity; improving global competitiveness and physical connectivity by creating new airports, metro rail networks, highways and roads; and universal access to health care, power, education and financial services. Canada can help achieve these objectives in many ways: as a collaborator in infrastructure development; as a market for Canadian commodities and value-added products and services; and as an outsourcing centre with links to global supply chains.
Quarterly updates on science, technology, trade and policy
The global rating agency Fitch finds the Indian budget achievable and that it signals gradual reforms. A report from Moody also states that the budget shows resolve for fiscal prudence. The target for reducing the fiscal deficit to 3% has been pushed back by another year from previous plans. The budget forecasts a nominal GDP growth in the range of 6.75 to 7.5%. Total expenditure in the present budget has been raised from INR 19 lakh crore (C$380B) to INR 21.47 lakh crore (C$429.4B).
The budget provides modest economic support to low- income households, benefits the infrastructure sector with a boost in public spending, and provides support for micro and small businesses by lowering the tax rate by 5% from 30% to 25%.
The government also announced that demonetization (when INR 500 & INR 1,000 notes were taken out of circulation, and replaced with new INR 500 & INR 2,000) will have transient impact and will not spill over to the next fiscal year. Although it has had some impact in this fiscal year, no long-term adverse impacts are envisaged.
Budget 2017 also saw the merger of the railways budget and union budget to improve budget transparency.
It is also expected that implementation of the Goods and Services Tax (GST) would bring more taxes and returns to state and centre governments.
India Budget 2017
Total allocation for railways is INR 1.31 lakh crore (C$26.2B).
Allocation of a corpus of INR 1 lakh crore (C$20B) for five years for Raksha Coach.
500 stations to be made differently-abled people friendly.
INR 6,400 crore (C$1.3B) allocation for highways.
Allocation of high speed Internet to 150,000 gram panchayats (villages) .
GDP growth to be in the range of 6.75-7.5 percent
Demonetization will have transient impact
A few highlights
Abolition of plan and non-plan expenditure, focuses on capital expenditure.
Capital expenditure will be 25.4%.
Defense expenditure, excluding pension, of INR 2.74 lakh crore (C$54.8B).
Expenditure in science and technology is INR 37,435 crore (C$7.5B) .
A comprehensive plan for recapitalization of public sector lenders.
Planned to infuse INR 25,000 crore (C$5B) to public sector banks for the current fiscal year.
Abolish Foreign Investment Promotion Board (FIPB) in 2017-18. 90% of FDI inflows are now automated.
PM Mudra Yojana (finance scheme for micro and small businesses), lending target at INR 2.44 lakh crore (C$48.8B) for 2017-18.
India to replace Japan in Domestic Aviation Market
This year, the Indian aviation market may overtake the Japanese aviation market, after the U.S. and China, to become the third largest domestic aviation market. India’s domestic market is on track to surpass 100 million passengers by March this year. With this, India will have achieved average domestic traffic growth of over 15 % per annum since liberalization of the sector in 2004.
As per Asia Pacific Aviation, a research centre, the growth rate could have been closer to 25% over the coming year, but will be held back by 3 to 5% due to structural economic changes taking place in the Indian economy, namely demonetization (where the Reserve Bank of India replaced INR 500 & INR 1,000 bills with new INR 500 & INR 2,000) and the Good and Services Tax regime (which will unify the Indian market from a tax perspective).
Indian Government allocates C$3.4B in budget to boost Skill India Mission
Every year about 10 million young people enter the country’s workforce. With an objective to create more jobs, to speed up the process of skilling, and to make youth more employable, the Government of India has allocated approximately $3.4B in its 2017-18 budget. The given amount is 38% higher than 2016-17’s revised estimate of approximately $2.9B.
The government has also launched the program SANKALP (Skill Acquisition and Knowledge Awareness for Livelihood Promotion Program) to provide industry-based training to 350 million youth, including women, to ensure gender parity. The government is also keen to set up 100 India International Skills Centres to offer advanced courses on foreign languages. These courses are meant to encourage Indian youth to be more prepared for jobs globally.
Canada invites Indian Funds for Canada Infrastructure Bank
Amarjeet Sohi, Canada's federal Minister for Infrastructure and Communities, announced, on a visit to India, that Canada is keen to boost its economic ties with India and invited Indian funds for the Canada Infrastructure Bank (CIB).
Prime Minister Justin Trudeau has already nominated Jim Leech as a special advisor on CIB. Mr. Leech is expected to work in collaboration with the Privy Council Office (PCO), the Minister of Finance and the Minister of Infrastructure and Communities to expedite the successful creation of the bank.
In 2015, the two-way annual trade between India and Canada was $6.3 billion and has been growing but it is relatively small, at about one-tenth the size of Canada’s annual trade flow with China. Canadian funds have invested approximately $15 billion in recent years and are expected to invest C$35 billion overseas. However, Canada is also making efforts to provide incentives to global funds to make investments in Canada’s infrastructure sector.
The proposed Canada Infrastructure Bank would operate at arm’s length from government and would help funding a major construction projects across the country.
Government of India
Make in India is a national initiative designed to: facilitate investment; foster innovation; enhance skill development; protect intellectual property; and build best-in-class manufacturing infrastructure. www.makeinindia.com
According to BP Energy Outlook, India’s demand for green energy is expected to grow seven fold by 2035. Accordingly, this will lead to a significant increase in the share of renewable energy in the country’s fuel mix, from the current 2% to 8% in 2035.
India has planned to achieve 175 GW of renewable energy capacity by 2022 as part of its commitments to the United Nations Framework Convention on Climate Change in Paris. However, even this target is not expected to meet the expected energy demand growth of 129% in India. The growth in demand is expected to be higher than not only the OECD's (52%) but also China's (47%) and Brazil's (41%).
Coal is expected to remain the dominant fuel for India's energy mix, contributing an approximately 65% share of total production in 2035. However, it is expected that renewable energy will overtake oil, which is the second largest fuel in India, as the share of the renewable energy increases from 4% to 14% and the share of oil drops from 10% to 3% by 2035.
India’s energy consumption is expected to grow by 4.2% annually, faster than all major economies in the world. As a result, its share of global energy consumption will reach 9% by 2035, making it the second biggest consumer of energy among BRIC countries by 2035. (China's share is expected to be 26%).
The increase in the share of renewable energy aligns with the current Government of India's target of reducing the growth of its "energy import" bill by 50% by 2030.
India’s energy import bill is expected to increase from $150 billion to $300 billion by 2030. India imports around 80% of its crude oil and 18% of its natural gas requirements.
Renewables to take over Oil by 2035 in India
Big science receives C$328-million boost from Ottawa
Some of Canada’s largest and unique science labs and initiatives will share a $328-million top-up, federal Science Minister Kirsty Duncan announced.
The funding, awarded through the Canada Foundation for Innovation (CFI), is intended to help provide much needed operating funds to 17 key national facilities that cover a broad range of research disciplines.
Major recipients include:
the Canadian Light Source (C$48-million), a powerful X-ray beam based at the University of Saskatchewan that allows researchers to discern structures and processes at molecular scales;
Ocean Networks Canada (C$46.6-million), a University of Victoria-run series of sea-floor observatories that conduct ocean monitoring;
Canada’s Genomics Enterprise (C$32-million), a three-institution collaboration based in Montreal, Toronto and Vancouver that sequences thousands of genomes a year;
Compute Canada (C$70-million in total), to improve access to high-speed computing – a pressing need for scientists across many fields.
A smaller (C$18.2) but equally urgent portion of the funding has been allocated to the research icebreaker CCGS Amundsen.
NITI Aayog announces support for business incubators
NITI Aayog has selected 17 well-established business incubation centres under the flagship initiative Atal Innovation Mission (AIM).
The selection process entailed four major stages: (1) screening, (2) data cleaning, (3) evaluation and (4) presentations followed by site visits.
In total, 232 applications were received under the funding competition.The highest number of applications were from Tamil Nadu and Karnataka states. After the first stage of screening,145 were selected for the second phase. Following the second phase, 93 applications were recommended for the third phase. After individual presentations and site visits, 17 centres were selected to receive INR 100 crore (C$20M) funding. A breakdown by city shows that four are from Bangalore, two each from Delhi and Ahmedabad. The other nine winners are from smaller cities such as Tiruchirappalli, Kanpur, Madras, Coimbatore and Hyderabad.
Canada - India Foreign Direct Investment (FDI) Linkages
Before the opening of the Indian economy in 1991, India’s trade linkages with Canada were very weak as India’s international trade was subject to steep import tariffs, licenses, quotas and export taxes. After 1991, India has progressed towards a free-market economy with substantial reduction in barriers to trade and foreign direct investment (FDI). As a result, from 1990 to 2015, Canada’s trade with India grew faster than with rest of the world. Total merchandise trade between India and Canada grew at 10.7% per year. Canada’s imports from India grew more quickly (11.6%) than its exports to India (10%). A key factor contributing to India’s remarkable growth in trade was a boom in services, particularly ICT services exports.
Canada’s top five exports to India are vegetables, fertilizers, paper, aircraft and precious stones. In contrast, India’s exports to Canada are more widely dispersed. Its top commodity exports in 2011 were organic chemicals, precious stone, iron and steel articles, and apparel and accessories. A noteworthy feature of Canada’s exports to India is the importance of small- and medium-sized enterprises (SMEs). The data shows over 1,500 Canadian enterprises exported to India in 2013 (Statistics Canada; Rao and Tapp, “The Potential to Grow Canada-India Economic Linkages,” IRPP Study, 2015). Canada’s trade with India is currently much less developed than that with countries like the U.S., China, Mexico, the UK and Japan.
FDI provides a powerful stimulus to economic growth and job creation. The stock of FDI in Canada has increased more than five fold over the period 1990 - 2015. During this period, although the U.S.'s share has decreased somewhat (from 64% to 50%), Asia's share has increased slightly from 6% to 10%. Bermuda is Canada's largest source of inward investment in the other North America region, which accounts for a 46% regional share. Over the period 1990 - 2014, Canada's outward FDI intensity (defined as share of outward FDI in GDP) increased from 15% to 40%.
From 2000 to 2010, India received U.S. $178 billion as FDI. The top five countries in FDI inflows were Mauritius, Singapore, U.S., U.K. and Netherlands. However, the FDI links between India and Canada remained very weak. In 2015, Canadian outward FDI (stock) to India was C$0.934 billion, just 0.1% of Canada’s world total. In contrast, inward FDI (stock) from India to Canada increased substantially during the year 2015 to C$3.1 billion, which was worth 0.4% of Canada’s total. Since 2007, FDI inflow from India to Canada has increased substantially. Canada has become a net importer of FDI from India.
Canada – India Trade Linkages
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Key areas of opportunity for Canadian companies exist in sectors such as food security (agri-food, and food processing), energy security, infrastructure (engineering services), automotive, education, innovation, and clean technology.
Canada, as a partner in the global knowledge economy, needs to pay more attention to India. According to the World Bank’s growth outlook, India is expected to grow around 8% in 2017. Canada has strong social ties with India because of its large Indian diaspora, a common business language, similar legal frameworks, and democratic federal governance structures.
India needs a faster focus on investment in education, health and other dimensions related to human capital; improving digital connectivity and global competitiveness; and physical connectivity by creating new airports, metro rail networks, highways and roads; and universal access to health care, power, education, and financial services.
Although India holds R&D facilities for 20% of all Fortune 500 companies, it will require a significant increase in R&D spending.
The Way Ahead
Canada can help in achieving these objectives in many ways: as a collaborator in infrastructure development; as a market for Canadian commodities and value-added products and services; and as an outsourcing centre with link to global supply chains.
India needs to make progress in terms of doing business – presently, it ranks poorly (130/189 days) relative to countries such as Canada, China, Mexico, and Brazil. It also faces challenges in areas such as starting a business, dealing with construction permits, taxes, enforcing contracts, and resolving bankruptcies.
Our analysis shows that bilateral economic links between Canada and India have rapidly grown in recent decades, but remain weak. There remains significant potential to strengthen these links for mutual benefits to both economies. To harness this potential would require significant efforts and cooperation both by India and Canada.
While there exist many bilateral agreements between Canada and India in different sectors of the economy, a comprehensive partnership agreement may offer significant potential to build on and grow the current economic relationship between the two countries.
Canada-India centre for Excellence
Water and global health
Visit us at Carleton.ca/India
Investment Program for Canadian investors looking to invest in India
Innovation Connections: Quarterly publication for updates on innovation related policies, initiatives and projects
KnowledgeHub.ca: an online portal for Canada-India related information, data, and connections
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Acceleration Program to train Canadian companies to enter India
Evidence-based Policy Making in India - A guide to India's policy development
Located in the heart of Canada’s capital, the Canada-India Centre for Excellence (CICE) is a research and training centre committed to strengthening ties between Canada and India
The centre works closely with governments, businesses, and academic experts to undertake projects for: