India-Canada Trade & Economic Relations

India and Canada enjoyed a close and cooperative relationship through the early years of India's independence, despite the fact that Canada was a member of NATO and India was firmly Non-aligned. Canada remained an important development partner for India during 1950s and 1960s. It began extending economic assistance to India in 1951 through the Canadian International Development Agency (CIDA) and India was at one time the largest recipient of aid from Canada.

India's peaceful nuclear explosion of 1974 led to relations being frozen with Canada alleging that India had violated the terms of agreement under which Canada had supplied a nuclear reactor in 1956 under the Colombo Plan. Activities of Canada-based Sikh terrorist groups in planning and carrying out acts of violence in India during the 1980s introduced an additional element of strain.

Following the economic reform process initiated by India in July 1991, the end of the Cold War, the growing realisation that Canada should expand its economic presence in markets other than in the USA and the financial crisis in South East Asian countries in the second half of the 1990s, Canada identified India as the largest market in the region with enormous scope for commercial cooperation.

Prime Minister Jean Chretian led a Team Canada delegation in 1996 and Governor General Romeo LeBlanc visited India in March 1998. Unfortunately Canada again chose to put relations with India "on hold" following the nuclear tests of May 1998. However, despite this political standoff, trade continued to grow between the two countries. The arrival of new Foreign Minister, John Manley, in November 2000 paved the way for a new beginning in bilateral relations with his decision to "re-engage" India. In the last two years there have been a record number of bilateral visits at the political as well as the official levels.

Indian exports to Canada have increased from C$ 280 million in 1992 to C$ 1326 million in 2003 (January to November): a five-fold increase. Canadian exports to India have marginally increased from C$ 529 million in 1992 to C$ 658 million in 2003 (January to November). The trade balance has been in India's favour ever since 1993: it was C$ 76 million in 1993 and is now C$ 668 million in 2003 (January to November). This positive trade balance was even there in 2001 when Indian exports to Canada dropped by 6% due to anti-dumping measures initiated by the Canadian Government against Indian iron and steel, which constituted more than 11% of total Indian exports to Canada. However, despite the significant increase, India's share in Canada's imports is still less than 0.5%. Detailed statistics of trade since 1992 are at Annexure 'A'.

India's major exports to Canada include readymade garments, textiles, cotton yarn, carpets, floor spreads, gem & jewellery & precious stones, organic chemicals, coffee, spices, light engineering goods, iron & steel articles, footwear and leather products, rice, cereals, processed foods and marine products.

India's major items of import from Canada include newsprint, wood pulp, asbestos, potash, peas, iron scrap, copper, minerals and industrial chemicals.

On the investment front, recently there has been a rapid increase in FDI in Canada by Indian software companies with the intent to establish software development centres in Canada. Indian companies include Tata Consultancy Services, Wipro, Infosys and Satyam. Areas of Indian investment also include pharmaceuticals, metals, petro chemicals, auto ancillaries, financial services, etc. SBI, Canada has four branches in the country and ICICI has recently started operations (December 2003).

Canada has a modest presence in India in terms of investment. Their major thrust is in five areas: power & energy, equipment & services; oil and gas; environment products & services; telecommunications & information technology; and the financial sector, including insurance.

Finally, regarding Canadian aid: Aid figures have progressively gone down over the years as the India-Canada relationship has metamorphosed into one based on trade, rather than aid. Canada's aid programme now constitutes less than about 0.3% of its GDP. Canadian studies have shown that as much as 70% of Canadian aid funds found their way back to Canada. In 2003, the Government of India took a decision to decline bilateral aid from several countries including Canada. The Department of Foreign Affairs and International Trade (DFAIT) has named India, China and Brazil as the three countries on which stress has to be given.

ANNEXURE 'A'

Source: Indian High Commission, Canada