With 1.3 billion people, India has the world’s second largest population, and has also been one of the world’s fastest growing economies in the past few years. And with recent reforms to improve the business environment, the economic outlook is bright.
Most analysts expect medium-term growth of around 6-8% annually, meaning India’s economy could double in size over the next decade or so. Such strong growth prospects offer considerable potential for Canadian businesses in the Indian marketplace.
India’s improving business environment
Under Prime Minister Modi, India’s government has implemented a series of positive economic reforms. Most notable was the adoption of a new goods and services tax, which will improve internal trade and broaden the fiscal base. India has become more open to foreign direct investment. New bankruptcy laws will strengthen borrowing capacity and potentially attract equity investment. And streamlined approval processes are also making it easier to start up a business, among other reforms.
These changes have noticeably improved the environment for investors, businesses, and financial institutions, as reflected in significant gains in the World Bank’s “ease of doing business” — where India now ranks 100th out of 190 countries.
Notwithstanding such improvements, challenges remain. Future plans include enabling trade processing and duty payments and lowering transaction costs with faster and easier documentation for goods clearing customs.
Big infrastructure needs
To achieve its full economic potential, India needs to vastly improve its infrastructure. Government spending is ambitious in this area. However, even with strong government action and domestic private sector involvement, estimates suggest that India requires an additional $25–$30 billion annually in foreign infrastructure investment to fill gaps over the coming decades.
In the medium term, about 80 percent of India’s infrastructure spending is expected in power generation, transportation, and urban sectors.
Canada’s limited engagement in India to date
Statistics Canada data on merchandise goods trade (but not including services exports) finds that roughly 1,650 Canadian enterprises exported to India, for a total export value of $3.6 billion in 2016. This averages out to $2.2 million per exporter (a value that’s nearly doubled since 2010) but remains far below the over $10 million average found in Canada’s other international markets.
The story is similar for officially reported Canadian direct investment in India. With a stock of only $2.6 billion, it ranks a disappointing 32nd for Canada, directly behind Indonesia.
Some analysts and businesses active in India suspect the weak record in Canada’s official statistics is partly explained by mismeasurement. Our official stats may not be capturing all bilateral activities, some of which are routed through other intermediary countries, such as the United Kingdom, Belgium or Mauritius.
In fact, Canadian pension funds and institutional investors are estimated to have roughly $20 billion in direct investment in India, mainly in infrastructure projects such as airports, toll roads, and solar energy, which constitutes a respectable share of FDI stock in India.
Sectoral opportunities for Canadian businesses
Canada possesses comparative advantages that could create significant value in India. Canadian firms with engineering and project management in infrastructure will be needed. Other demands for Canadian business include:
Roads need massive investments for widening, paving, maintenance, and safety improvements. For long hauls across the country, metro and light rail development are needed and it’s expected that all rail will be electric by 2022.
Ambitious plans are underway to increase capacity in air transportation as passenger and freight traffic grow. It’s expected that $36-$45 billion will be needed to build 55 new airports by 2030 and more funds will be allocated to refurbish existing ones. There are also plans to strengthen ports and shipbuilding and to connect these to other transport modes to increase logistical efficiency, improve competitiveness and reduce transactions costs.
India has designated 99 “smart cities” that will provide long-term opportunities for firms in high-tech sector, including the “Internet of Things”.
Canadian clean-tech companies can take advantage of the significant need for renewable energy. The energy sector is projected to offer investment opportunities worth $300 billion over the next decade.
One increasingly popular way to enable investment is through public-private partnerships. PPPs offer opportunities in toll roads, health care (hospitals), metro rail, airports, power transmission, road/highway construction, and cleantech partnerships in renewable energy (e.g., solar park development).
How to get started in India
To find out how your business can take advantage of opportunities in India, watch our webinar on-demand. Get information about the fastest growing sectors of the Indian market. Learn more about:
- How to navigate business opportunities in India, and the country’s relationship-driven business culture.
- How to capitalize on the rapid growth of India’s middle class.
- The importance of a sector-specific or region-specific market entry strategy.
- The challenges that can arise when exporting to India.