Thank you very much, Mr. Chair, and honourable members, for inviting EDC to appear before the committee today. We certainly appreciate your interest in Export Development Canada's activities in support of deepening Canada's trade agenda with India.
Over the past seven years, we have seen Canada's annual bilateral trade with India grow almost 80% to reach $5.1 billion as of the end of 2011. That's up from approximately $2.9 billion in 2005. This growth has been driven by a 140% increase in Canadian exports to India during this time period. At the same time, Canada's imports from India have increased 40%.
In 2011, bilateral trade was largely balanced. Canadian merchandise exports to India totalled $2.6 billion, while imports from India reached $2.5 billion. Despite recent global economic slowdowns in other parts of the world, Canada’s merchandise exports to India over the first three quarters of 2012 showed year over year growth approaching 5%.
India, indeed, is one of EDC's top strategic markets worldwide. In recognition of the importance we place on India as a country of rising trade and overseas investment opportunities for Canadians, we opened our first international representation in New Delhi in 2005. This was followed soon after by a second opening, in Mumbai, in 2007.
EDC has achieved some success in India since establishing our first local market presence. The volume of Canadian business we help facilitate has grown from less than $400 million in 2005 to well over $1.7 billion in 2010. Growth in Canada’s trade and the number of Canadian companies exporting to India and establishing affiliates in the market have consistently kept India as a top strategic priority for EDC. Furthermore, the market’s potential, particularly the development needs in India’s infrastructure sector, features prominently in our five-year corporate plan.
That said, the business environment in India remains challenging for Canadians. India is a complex and very cost-competitive market. India's ranking by the World Bank in terms of the ease of doing business has remained largely unchanged over the past several years at 132nd out of 185 markets. Relativities are important here. Compared to similar lower middle income peer countries, India ranks 34th out of 53 nations.
From our perspective, some of the top challenges include, first, the notable bureaucracy that is endemic across government and the public sector. This is clearly apparent when looking at the time required to obtain permits and approvals.
Second, India's lack of reliable infrastructure means that everything from access to electricity to the entry of goods at port and the subsequent distribution are also hurdles.
Third, doubts about the enforcement of contracts and the ease of resolving disputes reflect a concern about the efficacy of India's legal system. A court decision and obtaining due process can often take more than a decade.
Finally, access to credit remains an ongoing concern for many companies looking to operate in India. Central Bank restrictions limit foreign borrowing. As well, there is a preference in the domestic bank sector for providing shorter-term capital at higher interest rates. This means that planning a financing strategy at the outset of establishing investment in India is absolutely critical.
Despite some very real challenges in doing business in India's business climate, it would be wrong to paint them as insurmountable. We believe that it is possible to mitigate a number of these risks.
To capitalize on India’s growing consumer demand, we often counsel companies to establish a local presence, to be willing to adapt their products and business models to Indian norms, and to show that they are committed to staying for the long term. Partnerships between business and financial players, public and private, foreign and domestic, significantly increase the chance of the long-term success of an export transaction or an investment.
Canadian firms that take the time to understand the market, to develop these needed partnerships, and to adapt their products and processes to accommodate India can be successful. There are a number of real examples: McCain Foods, Sun Life Financial, TaraSpan, SENES Consultants Limited, Woodbridge, and many others. Indeed, at EDC, we are currently aware of more than 160 Canadian affiliates in India that are conducting business in the market across a wide range of sectors.
With respect to investment,
the stock of Canadian investment in India as of the end of 2011 was $587 million, significantly less than the $4.4 billion of Indian investment in Canada.
The stock of two-way investment between Canada and India has actually been declining since its height in 2008 ($7.2 billion in 2008 down to $5 billion in 2011). Dampening the enthusiasm expressed for India by foreign investors over the last couple of years has been the inability of India to move forward on needed government reforms to improve its investment climate. The general global economic downturn has also weakened investor confidence and withheld injection of capital into the market.
That said, hopes have been bolstered by a surprise slate of recent policy adjustments by the Indian government to open previously closed sectors to foreign investors, such as retail—you may be aware of Walmart's involvement now in India—and the relaxation of regulations surrounding the inflow of capital.
Sectors such as infrastructure, retail, and services are expected to create investment opportunities for foreign interests as additional reforms are implemented.
Indeed, overall there is great potential for trade and investment for Canadian companies across a wide range of sectors in India. Niche opportunities exist for Canadians, particularly in the sectors of telecom, health care, education—in strong agreement with Mr. Davidson—automotive, and infrastructure, including clean tech.
For certain, the sale of commodities such as grains and pulses, pulp, as well as metals, for example, iron ore, will continue to rank high in Canada's exports to this market. Where Canadian companies have achieved the most success is through the pursuit of business with India's leading private sector and privately held companies. These companies have rapidly been expanding their global operations, and are stepping forward to develop private sector solutions to some of India’s infrastructure constraints.
To accelerate Canadian opportunities in India, EDC is focused on the following strategies: to develop and deepen relationships with reputable private sector buyers and borrowers in India; to strengthen our financial partnerships in the region, with particular emphasis on enhancing our suite of financial services that support small and medium-sized enterprises; to help match Canadian capabilities to Indian market opportunities through targeted, planned matchmaking events with EDC strategic private sector Indian clients;
continuing EDC's efforts in reaching out to Canadian investors and exporters to discuss their strategic interest in India and promote suitable opportunities; deliver on services with bank partners that create financial capacity for Canadian affiliates in India; continued close engagement with Canada's trade commissioner service, bank partners, the Canada-India Business Council and the Indo-Canada Chamber of Commerce on delivering advisory services and tools for Canadian companies seeking to conduct business with India;
and finally, by leveraging EDC’s project finance and structured finance expertise and our relationships with multilateral agencies, to capture more Canadian procurement opportunities in India’s infrastructure sector as it evolves.
In conclusion, I would underscore four key points.
First, despite India’s many challenges, the country’s continued growth presents very significant trade and export opportunities for Canadian business.
Second, partnerships are and will remain absolutely critical to success in this market.
Third, India’s private sector companies are playing an increasing role in the development of the country. These companies’ supply chains now reach beyond India’s borders to present additional opportunities in a range of global markets.
Fourth and last, Canadian companies that are willing to make the effort to better understand India’s needs and adapt their products and processes will be the longer-term winners of these business opportunities.
I thank you again for the opportunity to be with you this afternoon.