We looked at the Canada-India trade relationship from three different angles:
- Merchandise Trade
- Trade in Services, and
- Inward and Outward Foreign Direct Investment
We reviewed the Canada-India trade data provided by Statistics Canada and UN Comtrade, as well as the plans of Canadian exporters regarding exports to India.[i]. As our efforts have been limited to secondary research, we concede that our information gathering related to the export plans of Canadian companies is limited. A more elaborate research project is recommended, but we also do not consider that our prediction and projection are without merit. We are of the view that such discussions are important for the goal of enhancing trade between Canada and India. We stand to be corrected for our short-term predictions and would be extremely happy if the actual numbers were significantly higher than our prediction.
Canada-India – Trade in Merchandise, Service and Foreign Direct Investment
(US$ millions)
Mrchnd Exports | Mrchnd Imports | Trade | Service Exports | Service Imports | Two-Way Service Trade | Outward FDI (Stock) CDIA | Outward FDI (Stock) FDIC | |
2016 | 3,006 | 3,048 | 6,054 | 655 | 938 | 1,593 | 908 | 2,108 |
2015 | 3,376 | 3,083 | 6,459 | 620 | 1,013 | 1,633 | 1,033 | 2,576 |
2014 | 2,918 | 2,880 | 5,798 | 649 | 1,014 | 1,663 | 622 | 3,562 |
2013 | 2,719 | 2,890 | 5,609 | 803 | 1,127 | 1,930 | 974 | 3,114 |
2012 | 2,362 | 2,858 | 5,220 | 641 | 809 | 1,450 | 617 | 4,137 |
2011 | 2,658 | 2,562 | 5,220 | 538 | 635 | 1,173 | 386 | 2,799 |
Source: Statistics Canada and Global Affairs Canada
Merchandise Trade
In our assessment, the Canadian trade with India will most probably grow to about US$7.5 billion by 2020, and would not likely be more than US$9 billion, given the way merchandise trade is computed by Statistics Canada today. We chose the United States dollar (US$) for consistency and because it is the most commonly used currency for trade. These numbers are based upon extrapolation of the 2016 trade figures; the Canadian merchandise export to India is US$3.0 billion and the Canadian import from India US$3.0 billion. We also note that these numbers are lower than the 2015 figures when most predictions indicated that Canada-India trade would grow.
Taking an extremely optimistic outlook, the Canadian exports can double by 2020 if significant gains are made in the aircrafts, defence and nuclear sectors. However, we do not see much hope for Indian exports to Canada to grow by more than one billion dollars by 2020. This is the reason why we are predicting US$7 to US$9 billion. The Canadian export to India could be higher if there is a major crop failure in India and it is forced to purchase wheat, cooking oil or lentils. This is clear when we look at the export value of 2015, when India purchased US$331 million of HS code 0713 –leguminous vegetables (mainly lentils and dried peas) more than in 2016. While such increases are a possibility, we do not see India purchasing more than one billion dollars extra of agricultural products in these coming years. Its purchasing metal ores and scraps in big numbers is also highly unlikely. On the other hand, as we have indicated in the past, there is a good possibility that more gold, diamond and silver will go from Canada to India, much of which does not get registered directly in the official trade statistics.
Trade in Services
Our assessment for service exports and imports can change drastically if Statistics Canada improves significantly the way it collects the service trade data. As for example, according to Statistics Canada, the total service trade between Canada and India is US$1.593 billion in 2016 – the latest available data. This seems to be based upon the Extended Balance of Payments Services Classification (EBOPS2002) also used by the UN Comptrade. However, experts knowledgeable in BPO (business processing abroad) think that the actual service trade is higher and estimate that the service trade between Canada and India will be in the range of US$3 billion by 2020.
Foreign Direct Investment
We are of the opinion that Brexit, present United States investment environment (H-1B visa issues) and India’s quest for oil and gas will increase the appetite of Indian investors to invest in Canada. The efforts of the Canadian Trade Commissioners based in India are also noteworthy. In fact, we may also see more investments from India in sectors other than oil and gas. We definitely noticed serious interest in mining, aerospace, defence and telecommunications. The outward investment scene is not encouraging. We do not think that without the Foreign Investment Promotion and Protection Agreement (FIPA) with India in place, Canadian direct investment to India will see any significant gains. Regarding FIPA with India, we sincerely do not have any prediction.
We estimate that the total two-way investment would rise to approximately US$7 billion range, with Indian investment to Canada – FDI (Stock) doubling by 2020. We do not predict Canadian investment (CDIA) to go beyond the US$1 billion mark. The measurement of FDI to India is difficult, and we base our estimation upon Statistics Canada’s present methodology.
Conclusion
While we would like to be more optimistic and loudly announce that the merchandise trade will triple in the next three years, the reality is that this is unlikely even with major export expansion in aircrafts, defence and nuclear sectors. The export of precious metals will likely grow due to the ever-increasing appetite of Indians for jewelry. The service trade area will show increases, but not for actual services increasing. It will be due more to improved means of data gathering. The area which, in our opinion, will see expansion will be Indian investment to Canada. We will not be surprised to see a doubling of FDIC by 2020, and we feel that the work of the Canadian trade commissioners in India will be rewarded.
[i] We did not use the trade statistics database provided by the Indian Directorate General of Commercial Intelligence and Statistics (DGCI&S), as it is not particularly user-friendly and has a number of restrictions