By Bradley Dunseith
Canadian foreign direct investment (FDI) into India reached an estimated US$14 billion in 2016. Much of this inflow came from large asset management companies and pension funds, which see India as an ideal destination for stable, long term investments.
Summarizing this optimistic view of India’s economic growth, Michael Sabia, President and CEO of Caisse de dépôt et placement du Québec (CDPQ), has called India’s potential “bright in a world of gray.”
Why are Canadian investors suddenly so charmed with India?
Canada investing in Indian infrastructure
India’s economy is growing at 6.1 percent per year. By 2022, India will have the world’s largest and youngest labor force. The middle class is expanding, fueling a dynamic consumer market. The country is now one of the most popular destinations for FDI in the world, reaching a record US$60.1 billion in FDI inflow in the 2016 financial year (FY).
India needs stronger and more expansive infrastructure to make this economic growth sustainable. Canadian pension funds, which look for long term investments, like CDPQ, Ontario’s Teachers Pension Plan (OTPP), and the Canadian Pension Plan Investment Board (CPPIB) have begun investing in India’s power, construction, and logistics sectors.
In the first half of 2017, CPPIB became India’s top investor in real estate, entering two deals worth US$750 million, collectively.
The OTPP’s US$200 million investment in the digital startup Snapdeal attests to both the importance of India’s startup sector as well as India’s growing digital economy. With the Indian government’s push towards Digital India, private players are increasingly investing in digital infrastructure.
Large Canadian investment groups like Brookfield and Fairfax have also begun investing in commercial and retail real estate and infrastructure. In 2016, Fairfax invested US$321 million into the Bengaluru international airport.
Canadian investors are betting on India’s growth.
Good infrastructure means sustainable growth
By investing in India’s growing infrastructure, Canadian investors are writing themselves into India’s growth story.
While the pace of urban migration in India is increasing productivity, it is burdening the operational capacity of cities. Under initiatives such as Smart Cities or Skill India, the Indian government is working to make urban growth sustainable. But, the government still requires huge investments to improve and expand its strained infrastructure.
Canadian investors are not only helping to make this growth sustainable; they are incorporating themselves into the fabric of India’s economic development.
Nonetheless, Canada’s rising investments into India are still minuscule in comparison to other countries’ contributions. According to the Department of Industry and Policy Promotion (DIPP) under the Ministry of Commerce and Industry, Canada is only India’s 23rd biggest investor.
The rise of protectionism throughout Western nations and widespread cynicism towards globalization are calling into question once dependable trading relationships. As the Canadian government prepares to renegotiate the North American Free Trade Agreement (NAFTA), Canadian businesses should look to new partners to stimulate growth.
India’s expanding economy, its ballooning consumer market, and new economic reforms like the Goods and Services Tax (GST) – set to make doing business in India easier – making the country a perfect partner.
India is Canada’s largest trading partner in South Asia. Yet, Canada’s growing investment footprint in India has not yet translated into the same kind of ‘brand’ recognition other countries possess.
But, in important ways, this is changing.
An approximate 1,000 Canadian companies are active in India; 400 of them have a physical presence. In the last nine months, eight Canadian cabinet ministers have visited India, along with numerous trade envoys – fostering important relationships between the business communities of both countries.
On July 2, 2017, Air Canada began four weekly nonstop flights between Toronto and Mumbai – adding to their existing direct connections between Toronto and Delhi as well as Delhi and Vancouver. Improved connectivity will increase new business opportunities as traveling between India and Canada becomes easier and faster.
As Canada becomes an increasingly important part of India’s growing economy, Canadian businesses will have the opportunity to re-brand Canada. In India’s growth story, Canada will have its own part to tell.
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The third edition of Tax, Accounting and Audit in India is updated for 2017, and provides an overview of the fundamentals of India’s tax, accounting, and audit regime. The guide also includes a detailed introduction of the Goods and Services Tax (GST) that was launched on July 1, 2017, representing the complete transformation of India’s indirect taxation structure.
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