Unlock India-Canada economic potential via CEPA

Interdependence of countries is the order of the day. The scale of dependence has converted the world into a global village. Communication technology has reduced distances. Intercountry flows of goods, services and financial transfers has integrated the world at a level never seen before.

There is a specificity to the development of partnership between Canada and India. This is expressed in terms of a large Indian diaspora in Canada. This diaspora is integrated in the Canadian society and is active, socially and politically. Some of them have done very well economically and are interested in developing their ancestral land.

The formation of the World Trade Organisation in 1995 formalised the framework of global economic integration. Since then, the scale of economic exchanges between countries has increased and given a fillip to the rise of emerging economies. India is one of the beneficiaries of globalisation.

As of 2023, India’s economy reached $3.57 trillion (3.40 per cent of the global GDP), while Canada’s stood at $2.14 trillion (2.03 per cent). Both are market-oriented economies well-integrated into global trade networks, with a total recorded bilateral trade of $7.55 billion in 2023. This trade includes $3.77 billion in Indian exports to Canada and $3.78 billion in imports.

These figures, while significant, represent a smaller portion of the global trade compared to the two countries’ combined economic contributions. However, in percentage terms, the trade between the two big economies is much lower than their share in the global income.

At an aggregate level, the trade between the two countries should be equal to their average share of income in the global economy. This average works out to be 2.72 per cent, but actual trade is less than 2 per cent.

This means that the unexploited potential of trade between India and Canada amounts to as much as 50 per cent of the present level. This potential expansion could be facilitated by India’s substantial diaspora in Canada, which provides a strong base for trade in goods and services that cater to the Indian community’s cultural preferences.

The Census data of 2021 shows that migrants from India constitute 3.6 per cent of Canada’s population. If children born to Indian migrants in Canada are included, the population with Indian ancestry rises to 5.1 per cent.

This population continues to follow Indian food patterns, with a large component of items imported from India or other South Asian countries. They include long grain rice (basmati), spices, clothes, jewelry etc.

The Indian diaspora also continues to maintain close contacts with the people and places of their origin.

This foundation of demand underscores the untapped trade potential, yet there are challenges to address for these opportunities to be fully realised.

For economic ties between Canada and India to grow, it is crucial to overcome certain trade barriers. In a competitive world, the countries must compete with their rival suppliers to access their respective markets. This requires each country’s producers to improve efficiency and product quality continually. Moreover, sufficient surplus products must be available to meet each other’s demands. Overcoming these economic barriers involves addressing non-economic challenges, such as regulatory and policy constraints.

On the Indian side, the supply of agricultural goods such as long grain rice or coarse grains, vegetables, fruits or dairy products must be free from pesticide residues and preferably produced by organic farming.

Since the distance between the two countries is long, perishable items have to be transported through refrigerated containers or cold supply chains. This would require a lot of investment to improve production, storage and transport technology to access the Canadian market. Given the present level of dynamism of development, India can achieve this in the near future. This can enable Canada to break the monopoly of California in the supply of fruits and vegetables.

Another area in which India has the capacity and advantage in price and quality is the service sector. In software technology, India has established itself in the world, but the presence of Indian software companies in Canada is not sufficient.

The export of pharmaceutical products is only at the level of telemedicine or test-related services. India can improve her position in Canada in this field. There is a lot of pressure on medical services in Canada. India can help in easing it through medical tourism.

The current list of exports from India comprises consumer goods such as jewelry, worked diamond, long grain rice etc. The other goods are chemicals, plastic, rubber, metallic and non-metallic minerals.

The scale of the existing exports from India can be raised and more goods and services added to the list.

Similarly, the Canadian list of exports to India can be enlarged. The present list of exports from Canada to India includes metallic and non-metallic minerals, farm products, fishing food and energy products. Nearly half of the Indian imports of lintels come from Canada.

Further economic cooperation between Canada and India can be supported through increased Canadian investments in Indian manufacturing, aimed at producing goods and services for export. Additionally, increasing daily flights between Indian and Canadian cities would support business travel and cultural exchange, further enhancing trade and investment opportunities.

It is a question of increasing economic cooperation between the two countries for mutual benefits. To expand partnerships, both the countries must be on board. The diplomatic hurdles that cropped up a couple of years back, involving citizens in the breach of safety and security of the two countries, must be cleared.

Similarly, a large number of Indian students studying in Canada are facing problems due to changes in its migration policies. With the resolution of these issues, the two countries can take economic relations to greater heights. India and Canada must resume negotiations to discuss the Comprehensive Economic Partnership Agreement (CEPA) to expand and achieve the full potentials of trade and investment.

The two countries have differences in factor endowment: there is an abundance of young and skilled population in India while Canada has scarcity of labour. Both the countries fall in different climatic zones, which creates complementarity between them. As they are geographically apart, there are no perennial conflicts between them.

The CEPA can create a path of economic expansion for both the countries.