International Trade Committee on Feb. 25th, 2013

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

That's a big issue for agriculture in my community too; we're always looking for Indian agricultural workers. They're good, hard-working people.

Thank you.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Monsieur Morin, the floor is yours for a five-minute round.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

Mr. Sood, we all form a picture of India in our minds. To me, when I read about supply chains and distribution, it seems that these are somehow abstract concepts in India, because the economy there appears to be built very differently.

If you look at the Indian milk industry, for instance, you'll see that it doesn't have anything to do with our dairy industry. Am I wrong in thinking that in every other aspect of the Indian economy there is a lot of ingenuity and that there are very long traditions of trade, which have been going on for hundreds of years?

Commerce is integrated into the social fabric, and we have much to understand, and sometimes we may get into Indian people's lifestyle and culture. Do you think it is going to take a long while for us to understand what is happening in India?

[Predeep Sood]

Yes. India is a complex country. It has a number of states, and they have a number of languages and many different cultures in various states.

But the point is that this is the right time. Because of the way the middle-class economy is growing and wanting to adapt certain things and certain comforts of the Western world, there would be a willingness to look at things differently. When these distribution networks, etc., were made, there was no better way, because of the mode of transport and where the product was grown and where it was being shifted to. Things were different then. But as the roads and infrastructure are being built, things are getting better.

So to address your point that they are different, I say yes they are different. Will it take time for us to understand? Yes, it will take time for us to understand.

But this brings me to a very important point, which I've always believed, concerning our failure to take advantage of the more than one million Canadians of Indian origin in Canada: this is where the diaspora would be extremely helpful. The diaspora networks could be extremely helpful in making Canadians understand how the system works, how it can be most useful and productive, and how success can be achieved in the shortest length of time. If you look at your own situation, you would see that you have a million people. Although not all of them will be in this corridor, much can be taught and learned by us right here in Canada to lessen the problems when we go to India.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

It's because those people know the culture, know the manners for trading, and....

[Predeep Sood]

Yes, that's right.

[Marc-André Morin, NDP, Laurentides—Labelle, QC]

I say that because I think it's about time that we changed our perspective away from seeing some sort of [Inaudible--Editor] image of the country, because that's not what's happening there now. You have some of the sharpest minds in Indian universities and in every field of science. We're going to have to start looking at it from a realistic point of view. We could participate in putting together a real supply chain and distribution network in the country.

[Predeep Sood]

That opportunity is huge for Canadian companies, because we excel at it; we are very good at it.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you, witnesses. Welcome to the committee.

Mr. Sood, let me start the questioning with this. You do market strategies; you look at trying to understand strategies for businesses to get into India. We've heard before that this is difficult to do. We obviously see that with the population of 1.3 billion people in India, we just need a fraction of the interest that is there.

We have product areas that are of interest to the Indian people. You talked about agriculture, mining, machinery and equipment, services. Then you commented that India was very regulated in a number of these areas, but that Indians need infrastructure, agriculture and food, and energy.

How do we start to break down this barriers?

[Predeep Sood]

The regulated area is really where the CEPA and FIPA will be extremely helpful. Common people like me do not know what's transpiring in the CEPA area, so we really can't tell you whether you're in the right direction or not. But the fact is that that is what CEPA really is for. If these agreements can help to take taking down those barriers by our having an understanding with the Indian government, that is what we really need here in Canada. That's what CEPA and FIPA are all about in protecting investment going into that country.

On the same point, I would just like to talk to you about the small and medium-sized enterprise situation, which I was thinking about. While the federal and provincial trade commissioners are doing an exemplary job in India and we have several agents across all sectors, it appears that the big companies and the small companies are treated with the same brush. We need to ensure that more time, effort, and hand-holding are given to the SMEs than larger companies for the same services, because they need it.

Perhaps—and this is what I want to throw out to the committee—it's time to have SME-focused trade commissioner services. You have to understand that we have two aspects. One is CEPA, which will deal with what you just asked me. There's also the small and medium-sized enterprises, which are already there. These enterprises do not have the resources to just go there and try to find everything themselves.

Part of this goes to your question. In mining, for example, a small enterprise from here can take highly sophisticated technology to India, but it will need a lot more hand-holding to get there than a large company going there to lay roads, or something like that.

So I might make that suggestion.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Thank you.

From that comment, I want to go to Mr. McRonald about the complexity of getting into a country like India, particularly with genetics, which we're talking about in the livestock industry.

Are the farms over there large or are they mostly small farms? Is there diversification?

[Rick McRonald]

It varies, but most of the holdings are small, that is, part of a traditional system. I think the social aspects were mentioned a few minutes ago, that as they modernize the dairy industry there will be huge impacts on the small holders of one or two cows. What are those people going to do if they're not producing milk any more? These are huge issues that need to be dealt with.

But there are certain parts of the country where there already are some modern dairies and where they're open to modernizing even more. So as Mr. Sood, I think it was, mentioned earlier, we need to have regional strategies. That's exactly what we need.

When we get into this issue of SMEs, our three largest artificial insemination company members already have partnerships with artificial insemination companies in India. They've made those partnerships and they're trying to introduce and develop Canadian methodologies and the way we do things with semen production alone—let alone improved genetics. Of course, that's part of it as well. So that's already started and we've already brought Indians to Canada.

Part of our proposal with the National Dairy Development Board is to send experts to live in India for a period of time. That hasn't happened yet because of the issues they're encountering inside India.

I was concerned at the lack of action that we seemed to be encountering, or the momentum that perhaps we had lost, but in digging deeper into this recently we realized that these are internal Indian issues. No country is actually gaining an advantage over us in market access or being partnered with India on the building of infrastructure, because right now the whole thing is kind of on hold.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Is the network—

[The Chair, Conservative, Rob Merrifield]

Your time is gone, I'm sorry. But he may get another round yet.

Madame Papillon.

[Annick Papillon, NDP, Québec, QC]

Thank you very much, Mr. Chair.

Mr. Sood, a little earlier, you mentioned Canada's goal of $15 billion between now and 2015. You mainly spoke about a lack of strategy. I would like to come back to that because, according to Stewart Beck, a future free-trade agreement with India may not be sufficient to get us to that much-touted $15 billion goal in trade with India by 2015.

Could you tell me more about this lack of strategy with respect to that goal?

[Predeep Sood]

The point I was trying to make was that our Prime Ministers said in 2010 that by 2015 we should reach $15 billion in trade. That was the target set for us and I think it was very sincere and done for a very noble reason, namely to challenge us.

However, to date I have never seen a road map for that. Typically, if there were a road map that said, for the sake of argument, that $8 billion was to come from the nuclear industry and that trade did not occur in that industry, then that $8 billion wouldn't happen. So at least we would know where and why we had fallen short.

My biggest point is that while numbers do have value when we hear them, it's always good to understand what constitutes those numbers. How much of the $15 billion was India going to do, and how much were we going to do? Since both prime ministers said the same thing, their intentions were very good.

For us to challenge ourselves and to even understand if we are on the right track or if we need to do something different, we need to have some kind of a road map. We need to have some information on that. That's what I was saying.

As for your point on how we can do that, progress in the larger regulated area is going to happen with the help of CEPA and FIPA. Those are what are going to help us because they will create some strong rules and regulations under which I'm sure both countries can operate productively.

As far as services are concerned, some of which are regulated as Suresh mentioned, that has to be covered under CEPA. But other services, like the one I referred to at the beginning, concern small companies. Even when Canada was not doing anything in India, these companies were doing business there and will continue to do so. They won't be affected by the CEPA until they grow to a level where they have to start working with the regulated industry in India.

So a small IT company may be doing business right now, but tomorrow if it wants to do something with the regulated industry, that will fall under CEPA. At that time, we'll need that advantage.

So I don't think there is anything that goes to the question about what we are doing or what we can do. I think we have to get CEPA done in a reasonable time. We have to get some road map in place so that we can judge and learn from that.

[Annick Papillon, NDP, Québec, QC]

It remains that more time is needed. The others also said that it takes a lot of time to establish a business relationship, especially in India, but in other countries as well.

Given that time frame, are there industry sectors where it would be better to develop a more significant strategy than others, for example?

[Predeep Sood]

There are always industries that are easier to develop like the IT services, those that are not regulated. They are straight, and you go in and meet your partners and use the diaspora to connect with some of the good businesses in India.

But to give Canada the strength to meet the $15 billion goal, we need the large industries to come into play, the mining, nuclear, and agriculture sectors. That's where the numbers will really grow, and I'm afraid that will take its course as CEPA is developed.

[The Chair, Conservative, Rob Merrifield]

Thank you very much. The time has gone.

Perhaps Mr. McRonald would like all of that $15 billion in trade to be in dairy, but we'll find out.

Go ahead, Mr. Hiebert.

[Russ Hiebert, Conservative, South Surrey—White Rock—Cloverdale, BC]

Thank you.

I want to respond in part to some of the questions raised about the progress we've been making by stating that Canada's trade with India was only $1.7 billion back in 2010. In the two years from 2010 to 2012, we've tripled our trade to $5.2 billion.

Last year, we signed a nuclear cooperation agreement, which will open up opportunities in the nuclear sector. If the foreign investment protection agreement gets signed, that will provide the ground rules for more foreign investment, and I understand that it's very close to being completed. If the CEPA, the comprehensive economic partnership, comes along, I think we'll still be well within the ballpark of reaching our objective of $15 billion by 2015. If we can triple in two years, then certainly we're not that far off.

I was recently reading a report by McKinsey & Company highlighting the fact that there are 500 million people under the age of 25 in India and demand for 1,000 universities and 40,000 community colleges in the next decade. It also mentioned that India has the fastest-growing middle class in the world, at 300 million. These are people with disposable income who want, in part, Canadian products and services.

There's no doubt that India's future is bright, but what we're discussing here, in part, is how to get it right, so my questions to you, Mr. Sood and Mr. Madan, relate to the comments you made earlier in your presentations.

Mr. Sood, you mentioned that a lot of Canadian companies are doing quite well in the non-regulated segments. I'd like to understand how that's possible when Mr. Madan is saying that the bulk of foreign investment in India must go through Mauritius or Cyprus, or a third country that you mentioned, because there are strict limitations on foreign investment. I'd like both of you to respond to that.

In addition, Mr. Madan, you also mentioned that Canadian companies can't buy Indian securities directly, but I have first-hand knowledge that Canadians can buy securities directly, maybe not through a corporation, and maybe just as an individual, as you said they could do for real estate.

Those are my questions. I leave you the time to answer those questions.

[Predeep Sood]

On your first question regarding my saying that they're doing it successfully and Suresh saying that it's difficult and they have to go through Mauritius and all that, the thing is that for the small companies in the area where I belong, there is actually no problem, because repatriation of money and everything is pretty straightforward. There is no problem. You have to apply to the Reserve Bank of India. They'll look at the documents and all, and whatever part has to come to you, it comes to you. I'll let Suresh answer that.

But on the Mauritius part, there are people going through Singapore and all these places and investing in India, whether it's in equity and/or whichever. Even Sun Life, for that matter, I believe went through Mauritius for investment.

The thing is that certain advantages arise because of the agreement that India has with Mauritius. I believe some of this been changed because they want to protect certain things. Very recently, some changes have happened to this agreement between India and Mauritius, so things may change. I don't have the details of that, but yes, it is true that most of the large companies find third-country hubs to invest in India. That is true, but I'll let Suresh elaborate on that.

[Suresh Madan]

Thank you for the question. I think for clarity we need to distinguish between foreign direct investment and portfolio investment in India.

If you know a single specific company and you are interested in buying 50% or 40% or 30% of, for potential strategic reasons, India permits that investment from Canada, and many companies have done that. The level of investment in these types of situations is limited. Most Canadian investors invest in companies on a portfolio basis, because a portfolio helps you mitigate risk. We, as Canadian investors, use asset management companies or funds to invest in the stock market locally as well as abroad, and these Canadian investors are very much interested in investing in India, but because of the limited amount of information available from Indian companies, they will not invest in any single company but in a diversified portfolio of a number of companies in a given sector.

That strategy is used by investors primarily to mitigate risk and to deal with the limited amount of direct information available from any single individual company.

Those portfolio investments, if done directly, are subject to significant restrictions both in terms of taxation and of approvals from the Reserve Bank of India. So many companies have used the route of Mauritius to make those portfolio investments, but because the investor in that case is a company from Mauritius and the information flow comes from that company with a significant lag back to Canada, investors become less and less interested in investing.

Many Canadian investors have invested in Indian companies listed on the New York Stock Exchange or the London Stock Exchange, but our regulations do not permit Indian companies to directly list on the Toronto Stock Exchange. If they could do that, many Canadian investors would be able to purchase those securities as well.

So we definitely need interventions to avoid these hindrances in the financial services sector.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Shory, you have five minutes.

[Devinder Shory, Conservative, Calgary Northeast, AB]

Thank you to the witnesses.

Mr. Sood, I would agree with you on the trips you mentioned by those in the Indian Administrative Service. Along with that, as a matter of fact, there were 17 finance ministers of different states who joined them, and no doubt Canada is a model for India.

As a matter of fact, I was talking to a couple of those ministers lately. They're working on a model similar to what we have in Canada. They're basically following it.

My question will be for both Mr. Madan and Mr. Sood.

When we talk about opportunities, definitely on the one hand India has a consumer market of 1.3 billion people, and at the same time Canada has an opportunity there—for example, I will mention the successful launch of an Indian satellite. This shows that our technology is also working in India, that it's being used.

Being a Canadian who was born in India, I know that the Indo-Canadian community supports bilateral trade between Canada and India. What role can the Indo-Canadian community play in identifying and maximizing the market opportunities that could result from this bilateral trade?

As my second question, because the chair will not give me more time, I would like you to comment on this. When I drive in India, I see all of these highways being built by foreign countries. India has an ambitious goal to improve its infrastructure. Why can't Canadian companies get the benefit of that market? What are the obstacles? How can we overcome those obstacles?