The Hottest Prospects for Canadian Companies in India

Danielle Goldfarb Associate Director Global Commerce Centre

Prime Minister Harper arrives in India on November 3rd for a week-long visit. Other key ministers in his entourage include the ministers of international trade and natural resources, both of whom have already traveled to India in recent months.

Canada has started negotiating a free trade deal with India and the PM wants it completed in 2013. Canada is also close to completing an investor protection agreement with the country. In short, India is now at the very top of Ottawa’s priority list.

Canada’s trade volumes with the US have been stagnant for over a decade, as Conference Board research has shown. As a relatively small economy, we rely heavily on commerce outside of our borders to boost Canadians’ living standards. It makes sense that the government is aggressively opening doors to the Indian market and to other fast-growing economies.

India is among the most populous, largest, fastest-growing, and most promising economies in the world. Recent stalled reforms have dampened growth prospects, but growth is still far above the meager rates seen in Canada’s traditional trade partners.

Canadian businesses are vastly underexposed to India. Annual two-way trade and investment are each roughly $5 billion. This represents less than one percent of Canada’s overall trade and investment.

But where to start? A forthcoming Global Commerce Centre study “The Hottest Markets for Canadian Companies in India” goes beyond the headline comment that Canadian companies need to do more in India, to identify the greatest areas of promise for Canadian businesses.

To identify the hottest prospects, we put ourselves in the shoes of Canadian companies that could approach India in various different ways. For example, a company might sell a good or service directly to an Indian company, or the Canadian company might actually invest directly in India and use that facility to sell into India or elsewhere in the region.

We then looked for the largest, fastest-growing sectors, with the fastest-growing profits. But—even despite two decades of reform which have dramatically reduced average tariff rates—India’s economy remains very closed. So sectors had to represent both growth potential and be relatively open to trade and investment on a variety of measures. (Note that there is not one uniform Indian market. Some states are more open than others.)

Hot areas include these four:

1. India has massive infrastructure needs and plans. This sector is relatively open to foreign activities. Canadian companies that, for example, provide engineering and design services can take advantage.
2. India’s auto sector is large, booming, and relatively open to investment and trade (though there are still tariffs and other barriers). Canada has expertise in all aspects of the auto sector.
3. India’s services sector is massive. Hot sectors include telecommunications and banking, both areas of Canadian strength. Services are more closed to investment than are manufactures, though the government has recently announced greater openness in sectors such as retail.
4. Energy security is a key Indian priority. Volumes of crude oil imports have been growing by over one third annually.

There are many other hot prospects which we plan to detail in our full report.

India is not an easy place to do business (It ranks towards the bottom of the World Bank’s ease of doing business measure—number 132 out of 185 where 185 is the worst). But our research shows that the effort could be well worth it. We find that hot Indian markets match up with key Canadian strengths.

Ottawa is opening doors to this key market. Canadian companies should take advantage of this rare coming together of economic and policy opportunities.