Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 5 - Evidence, April 1, 2009
OTTAWA, Wednesday, April 1, 2009
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:05 p.m. to study the rise of China, India and Russia in the global economy and the implications for Canadian policy.
Senator Consiglio Di Nino (Chair) in the chair.
[English]
The Chair: Welcome all to the meeting of the Standing Senate Committee on Foreign Affairs and International Trade. The committee is resuming its special study on the rise of China, India and Russia in the global economy and the implications for Canadian policy.
Appearing before the committee today I am pleased to inform you we have Mr. Shashishekhar M. Gavai, High Commissioner for the Republic of India to Canada. Mr. Gavai joined the Indian Foreign Service in 1975. Since then, he has served in several important assignments in India and has served in India's diplomatic missions in Yugoslavia, Hungary, Zimbabwe, Indonesia, Germany, Scotland, Maldives and in Houston, Texas. Mr. Gavai began his current position as India's High Commissioner to Canada in November 2008.
Mr. Gavai, a warm welcome to you to the Senate. We will start with brief remarks on your part. We will leave those remarks to be defined by you, sir, and then we will follow with questions from our committee.
His Excellency Shashishekhar M. Gavai, High Commissioner, High Commission for the Republic of India to Canada: Thank you. I am very grateful to members of the Standing Senate Committee on Foreign Affairs and International Trade for having given me this opportunity. It is indeed a privilege to be here.
I believe that some data that I have provided has already been circulated. This is some essential information on the Indian economy. I have been given 10 minutes to say my piece, so I will get to the point immediately.
My presentation will be in two parts. I will speak briefly about the Indian economy and where it is at present. In the second part, I will speak to the economic relationship with Canada and how we hope it will develop in coming years.
Regarding the Indian economy: We had several restrictions in the years following independence. For many years, it has been growing at the rate of about 3.5 per cent, because it was a highly regulated economy. In the 1980s, we started taking some tentative steps, opening up a little bit.
In the 1980s, we grew by about 5.5 per cent, but the real change came in 1991 when the entire economy was opened up quite rapidly. A number of big-ticket reforms were undertaken.
For the past 18 years, the economy has been growing at more than 6 per cent or more per year. In each of the last three years, it has grown at more than 9 per cent. Of course, the global recession has had the inevitable effect on our economy as well. In the export sector, jobs have been lost; the export sector has been badly affected.
The SENSEX of the Bombay Stock Exchange had gone up to 20,000. It fell to 7,000 in October last year.
We expect the growth in GDP, which was, as I mentioned, 9 per cent for the last three years, to be about 6.5 per cent for the last financial year, which ended yesterday, March 31. The final figures are still to come out, but our expectation is that it will be about 6.5 per cent.
For the next year — that is the current financial year, April 1 to March 31, 2010 — we expect the economy to grow by about 6 per cent. India is not really in recession because the economy is still growing. This is a slowdown. There are some reasons for this. Ours is an economy driven by domestic consumption. Exports only account for about 20 per cent of GDP. Our banks and financial institutions are highly regulated. They are in pretty good shape, as in Canada. Toxic assets are almost negligible. Our savings rate is quite high; it is about 38 per cent. The economy is driven by domestic consumption. That continues to be high.
To give you a few examples, in January 2009, 16 million new mobile phone subscribers were added, just in one month. In February 2009, car sales increased by 22 per cent. International travel has been affected, but the domestic airline sector continues to grow.
Like so many countries, we have announced a stimulus package. It is a modest one — $16 billion — and we hope the effects will kick in during the current financial year. The stock market has already rallied. It has gone up 30 per cent since October. It is still volatile; we do not know whether this is a trend that will continue. Of course, a lot depends on the international situation.
This is where we stand as of now.
We hope the economy will continue to grow. In fact, we have very little choice because we cannot afford to go into recession. The economy must grow.
Coming to the India-Canada relationship, we have been constrained by a few factors in the past. In the last several years our relationship could perhaps best be described as one of benign neglect. Trade has been at very low levels because Canada has been so focused on trade and economic relations with the U.S. There are other minor irritants, such as visas for businessmen. This is a situation of which the government is aware, and I understand that some remedial measures are being taken.
This relationship is changing rapidly. It is moving from periphery to priority. There is, of course, a lot more interest in India here. That is evident from the number of speaking engagements that I am required to undertake at business associations and chambers of commerce.
With respect to Canadian ministers, we have had four ministers visit in the first two months of this year. We have had the cabinet secretary, Mr. Kevin Lynch, in India. The provinces have been taking delegations to India.
Canada has opened new trade offices in India. I saw a statement by International Trade Minister Stockwell Day that the aim is to triple the trade in the next five years. Right now, it is at $4.5-$4.6 billion, which itself is an increase. If you look at Canadian export figures, you will see that exports to India in 2008 increased by as much as 34 per cent. From 2004 onwards, the increase is as much as 240 per cent. This is a very positive sign.
My job here is not just to promote India's exports, but also to encourage Canadian companies to export to India, to get more engaged in trade with India.
There are a few agreements that will take this relationship forward. We have under consideration the civilian nuclear cooperation agreement with Canada. The counter-draft that the Indian side has presented is presently under consideration by the Canadian side and we hope to start discussions on the finer points of the agreement.
There is a bilateral investment protection agreement that will again provide the right atmosphere for investments. The ball is in the Indian court on this particular agreement and we hope to clear that agreement soon.
As you would be aware, there is a proposal for a free trade agreement, or, as you call it, the comprehensive economic partnership agreement, for which Minister Day has invited suggestions from the public and from other organizations. These are all very positive things that are happening.
I am one of those people who believe, as does the government in India, that it is not at all difficult to meet the figures that Minister Day indicated, to take trade up to $12 billion or even more over the next five years. Opportunities exist in several areas.
From Canada, opportunities are there in the coal sector, phosphate, uranium, newsprint, infrastructure-related equipment, security equipment, food processing and mining equipment. All these areas present great prospects.
On the investment side, again I think Canadian investments in India are about $500 million. I understand that Indian investments are of a far greater order; $12 billion is the figure I have. There are opportunities, again. In the mining sector we have opened up 100 per cent to foreign direct investment. Infrastructure is an area where we are lacking considerably. We need to develop our infrastructure sector, because without that our growth targets will not be met. We have a very ambitious program of investing about $500 billion over the next five years or so in this particular sector.
Hospitality and tourism, hotels, we are 100,000 rooms short in India. Real estate is a very crucial sector and offers great promise. So do IT, agri-business, pharmaceuticals, energy, including nuclear energy, biotechnology, environment, telecom, education. Education is something in which I have been interested. I have been meeting universities here. Most of the universities I have visited have some kind of cooperation research programs with India. Once our own policies of allowing foreign investment in higher education become clearer, the opportunities will be even greater.
With that, I will stop there and I will be happy to clarify any issues.
The Chair: Thank you. We appreciate your comments. Already I have a long list of our colleagues who wish to ask questions.
First on the list is Senator Stollery, the deputy chair of this committee.
Senator Stollery: As it is a long list, I will be brief. Thank you, Your Excellency, for your statement. What interests me is India's position in the multilateral trade system negotiations. As you know, your minister of industry has become quite outspoken about not agreeing to an agricultural deal except under certain circumstances. I would not try to paraphrase those circumstances, but I have heard him speak rather eloquently on the subject. He was accused, as you know, by some people of having basically broken any deal that Doha Round might have come up with. This is about a year ago, if I am not mistaken.
My question relates to the agricultural negotiations of course, which are as important to India as they are to so many other developing countries. Could you enlighten me as to whether the situation has changed, where it is at, and maybe enlighten some of my colleagues about his position because it was pretty dramatic?
Mr. Gavai: First, let me say that we are as interested as anyone else in the successful conclusion of the negotiations in the Doha Round. Regarding what Minister Kamal Nath has been saying in the positions that he has taken, there has been sensationalism in the way the press has projected it. It is projected as if he is extremely intransigent and not open to reason, but that is absolutely incorrect.
The position that we have taken has been taken by successive governments. There are certain ground realities in India which cannot be ignored. We have the agricultural sector which accounts for only about 20 per cent of the economy. However, 65 per cent to 70 per cent of the population is dependent on it, and they are poor people. That is a sector which we cannot afford to play around with. It is a very sensitive area for us; therefore whatever concessions we make must be carefully measured. It depends a lot on what the developed countries have to offer on this as well. Subsidies are also a major issue. All these issues are interlinked, but it is an area which is extremely sensitive. No government in India can survive if it just gives up on this particular sector, because such a large sector of the population is dependent on it.
Senator Stollery: As I recall when I listened to the minister, he said — and I am not sure that I am exactly right — that if the U.S. farm bill reduced the subsidies by $1 he would sign the deal. Is that what he said?
Mr. Gavai: Exactly, that is the point I was trying to make, because there must be corresponding concessions from the developed world on this particular sector. That is important. We are not taking a completely negative stand on this; it is just that we must protect the poor farmer in India.
The Chair: Mr. Gavai, I heard you say corresponding concessions. It seems to me we are talking about a symbolic gesture. Am I correct in interpreting from what you said that some of the other countries really are being intransigent and do not wish to make any concessions whatever? Is that what you were saying? I know you are a diplomat, but I was trying to clarify the position at least in my own mind.
Mr. Gavai: Let me just say that there is a need for greater flexibility on the part of some of the developed countries on these issues. We will be prepared to show flexibility as well, because for us it is such a vital sector. It really affects the person who is right there on the ground.
Senator Segal: Thank you, Your Excellency, for taking time from your busy schedule to help us out and thank you for your presentation.
I wanted to ask you to share your perspective on two specific issues, if I may. The first one was your sense of whether Indian companies are being given adequate opportunity to bid on Canadian government procurement, whether it is defence or other kinds of procurement, where India has skills, products and manufacturing capacity to offer. Are there undue barriers that you think this committee might want to address in its reflection. The other side of that is whether, in your view as a proponent of both Indo-Canadian exports and Canada-Indian exports, you are comfortable that Canadian companies, should they wish to be considered for procurement and other activities in India, are not unduly restricted from so doing? If so, perhaps for good and substantial reasons in terms of economic development, what might we reflect on in terms of a constructive force to increase economic opportunity in both directions?
The next question is completely unrelated. It relates to the remarkable progress your country has made on the poverty issue. I note that your Gini coefficient numbers are encouraging and that you have made remarkable progress in terms of raw percentages.
From your perspective as a diplomat who has served his country honourably in many places, could you share with us what you think are the high points of your domestic government's focus on poverty. What do you think is generating the most success and what advice would you give us as we reflect on countries that have other poverty issues about which we care very much, in terms of learning from India's success on that front?
Mr. Gavai: I have not heard any Indian companies complaining about access to various projects here. Some of them have had problems with visas, so that is something which they have been speaking of.
As far as Canadian companies are concerned, again, I have not been here for too long. Canadian companies have not really articulated these kinds of concerns. There are certain sectors that are still to be deregulated in India, such as the banking and financial sectors. That has probably not been such a bad thing, given the present situation. That is a reform that is still "on the anvil."
The education sector is another area that the universities would be looking at.
My overall impression from my interaction here is that there is a great amount of interest in India. Companies here think it offers great opportunities for business. It was a similar kind of experience in my earlier posting in the U.S. Companies with operations in India are extremely satisfied in terms of their profitability and the returns on their investments.
If there are any specific issues, we have mechanisms where we can take this up. We have consultations at the level of the trade ministries at the foreign office level. These issues are flagged at that point. We would be happy to address them.
Your second point is about poverty. We are coming into election mode soon.
Senator Segal: I note for the record that your present government "only" encompasses some 16 parties in its coalition. It should give us all a sense of perspective here when we worry from time to time about two or three.
Mr. Gavai: Yes. It has not always been like that. We have been discussing this here. We had one-party government in India for several years. The coalition is something we have adapted to. We have been doing all right. There are always problems in a coalition.
I will talk about the point of poverty alleviation. It is a major issue for any government in India. Despite the fact that we started with a situation in 1947 where 80 per cent of the population was below the poverty line, today about 25 per cent of the population is below the poverty line. That is an achievement. However, it still means 250 million people are below the poverty line and that is an unacceptable figure.
Therefore, it is imperative for any government to recognize poverty as a priority. Therefore, we have various schemes. The rural employment guarantee scheme is one of them. There are other schemes for the empowerment of women. Agriculture is an issue since a large number of these people are dependent on agriculture.
We tried a kind of Fabian socialist system in the years following independence. For 30 years, we had a system of complete regulation and a highly regulated economy. We only managed to grow by about 3.5 per cent a year. It obviously did not work. As I have said, we have opened up quite seriously since 1991. We have found that more people have come out of poverty since we opened up the economy and started growing at a higher rate than in the previous 35 to 40 years.
There is a link between growth and poverty alleviation. Of course, it can be argued that this kind of situation benefits only a certain number of people and some people grow richer. However, if a small group of people are growing richer, a large number have come out of poverty.
We have realized there is a link that exists between growth and poverty alleviation. Of course, we must ensure that growth is inclusive; we need to make the growth more widespread and take it to the villages. That has been our experience.
The Chair: I would like to share some experience with honourable senators. During my recent visit to Vibrant Gujarat, India — which was quite an eye opener — there was quite an extensive discussion about poverty at the conference I attended.
I was struck by some strong points made by one or two people. They informed the conference that, if we are able to elevate this large group of 250 or 300 million people still in poverty, it is a bigger market than the U.S. They were saying, for our own selfish Indian benefit, we should do whatever we can to create that market for us to be able to sell our services to. I was struck by that.
Senator Andreychuk: It is a bit of a follow-up to Senator Segal's question. I was aware of one of your high-tech industry presidents talking about some of the successes and challenges in India. As you pointed out, in 1991, a strategic plan was to go from what would have been protectionism to globalization. Globalization was embraced with all of the structures and changes that had to go with that. That was coupled with research and development and education emphasis, plus a conscious effort to understand how the use of English in a modern commercial world was an advantage. This was embraced in a strategic way and was coupled with the long-standing democracy in India with all of its complexities.
Perhaps the challenges you saw before that were still to be tackled were infrastructure and the environment.
Coupled with the economic crisis now, how do you believe that strategic kind of analysis and plan for the future has to be readjusted to continue the kind of growth that India saw?
Incidentally, this was put in the context that China made other choices and, therefore, India would be able to come out of this economic difficulty with greater ease because you have cushioned yourself for that — not intentionally but with the structures you put in place.
Mr. Gavai: You mentioned democracy. That, of course, is something of which we are proud. We are the largest democracy in the world. Inherently, there are some constraints because of that and we accept that. We know that we do not have the kind of system that China has, which would enable us to grow at 12 or 13 per cent, which is the rate at which China has been growing at for some time. That is something we have to accept. Democracy for us is an imperative, not a variable.
On the liberalization side, when we opened up in 1991, it was not done all of a sudden. There were some major measures undertaken, but it has been done quietly over the years, without ruffling too many feathers. We have a democracy and there are so many different opinions in a coalition.
For instance, you might be aware of what happened when the nuclear deal was being negotiated with the Americans. At that point, the government had the support from the leftists, from the communists. From outside they were supporting the government. Finally, of course, we had to call their bluff. The government did make the point and it survived.
It has been a process that has not been done with much fanfare. The liberalization has been ongoing. Governments have changed. After 1991, we had a number of governments. We started with the Congress government, and the finance minister at that time started the process. We had two governments in between and then we had another government, the BJP government. Despite all that, the reform process has continued.
There is a broad consensus in India that irrespective of the government in power, the way is forward. There is no going back to the pre-1991 kind of situation. General elections begin in the middle of this month and go on until the middle of May — it is a huge exercise. Elections are done in five phases over a one-month period. After that, we do not know who will come into power. Whichever government comes into power, there is no doubt that the process forward, the opening up of the economy, will continue.
I do not know if I understood your question correctly and if I was able to answer it.
Senator Andreychuk: I was asking about the comparison of having made some choices of globalization and education into research and development; the use of English was an intriguing one to me. I was told that you have consciously understood the linkage — that the world is moving into the use of English in the commercial area and you have positioned yourself, using that as a tool, into other markets.
Mr. Gavai: English is something we have had for a long time, because we inherited it from the colonial power. Right from independence, it has been the official language of communication. In fact, in the Foreign Office, right from 1947, our communications have been in English, as well as in the bureaucracy and in government. That is not a decision that was taken consciously. It is something we inherited, in the absence of a common national language.
We do have Hindi, which is understood by a majority of Indians, but it is still not a language that is understood all over the country. If we were to insist that Hindi become the major language of communication, people in the south would have a major problem. People in the northeast might have a problem with that as well.
English was the language of convenience. Therefore, it was not really something that was consciously adopted. We inherited it, we continued with it and I think we were able to take advantage of it. I do not think the credit really goes to us.
Senator Andreychuk: Businessmen say it is a conscious decision.
The Chair: I was informed during my last visit that they have 18 official languages in India. That has to be an interesting challenge for the scribes and the translators.
Mr. Gavai: Yes, you are absolutely right.
[Translation]
Senator Fortin-Duplessis: Your Excellency, I appreciate your accepting to come before this committee.
On the eve of the April 2 summit in London, with 20 major economies of the world in attendance, the debate concerning a new world financial architecture that would usher in a multipolar organization is heating up. Russia and China want to create a new designated currency for the world. The U. S. rejects this idea and proposes instead to uphold the role of the dollar as an essential means of payment in the world. Russia and China have already devised initiatives in view of the summit, and these initiatives are more or less identical. According to Russia and China, the main advantage of such an alternative currency is that it won't be linked to any one state, and this will insure its long term stability. Russia would also favour a partial return to the gold standard in order to solve the financial crisis.
What is India's position regarding such a designated currency other than the dollar, as China and Russia would have it?
[English]
Mr. Gavai: I think this has just been announced. It is a very recent development. I have not seen any clarification or any comments from the Indian government on this. They are probably still studying it. In any case, I doubt if this can be addressed with any seriousness during the G20 summit. There is so much hype about the summit and everyone seems to think that the summit can take on everything.
I saw our prime minister's interview in the Financial Times. I think it was today's Financial Times, where he has given an interview. Our expectations are modest from the G20 summit. We do not think it is a panacea for everything.
However, we hope that at least some of the immediate issues could be addressed. We are particularly concerned about issues that impact on developing countries — in particular, protectionism. The prime minister has specifically mentioned that. We are cautiously optimistic about the outcome of the summit and we hope there will be some kind of consensus there.
The issue of a new global currency is something we still have to seriously apply our minds to. I am not in a position to make any statements on that.
[Translation]
Senator Fortin-Duplessis: You said earlier that education at the university level seems quite adequate, as well as training in high technology, but I am afraid, after reading this last weekend about India, I feel that the state of education at the primary level is quite worrisome. Indeed, it is very difficult to teach basic hygiene to illiterate women.
Illiterate men cannot find good jobs. Yet, 65 per cent of the population was literate in 2001 — if we are optimistic — compared to 90 per cent in China, even if India's governments have been promising for two decades to correct the situation at the primary level.
The present government is no exception. Last year, the budget for education was slightly under 3 per cent of the gross national product, which is about half the amount spent by Kenya.
Can you tell us if the Indian government intends to increase the budget for education, and, if this is the case, by how much?
[English]
Mr. Gavai: Yes. I would admit that education, both primary and even higher education, is far from satisfactory in India, with the facilities that are available. On the primary education side, our illiteracy rates are unacceptably high. Thirty-five per cent of our population is still illiterate. That is a very high percentage. Although it is a change from 1947, when only 15 per cent of the population was literate and 85 per cent was illiterate, we still have a long way to go. It has been a question of resources. The government has now undertaken a number of schemes.
For instance, the midday meal scheme is applicable across India. This scheme is meant to ensure that children from poor families, while they are in school, get a meal. That acts as an incentive for them to stay on in school and get an education.
There are also partnerships with NGOs. A large number of NGOs are involved in primary education. Government funds those projects, because we have realized that some of the measures can be better done through NGOs, rather than government doing everything on its own.
These are some of the measures that are being done. Government certainly has every desire to put in more resources. Yes, it is an undeniable fact that we need to do much more, because the link between poverty and illiteracy is relevant and real.
We have institutions of higher education that are excellent, but they are not enough. For some of the top institutions, such as the Indian Institutes of Technology, 100 bright students compete for one slot. If they do not get it — and 99 per cent do not — they have to go to a lesser institution.
That is an area where we need foreign universities coming into India. I personally feel strongly about this. I believe that we need partnerships with good foreign universities — and Canadian universities are amongst the best in the world. I have been reaching out to them. We, of course, need to put some of our policies in place in India on higher education, which we will, because there is no alternative.
Once that is done, we will be able to fix the higher education aspect as well.
Senator Mahovlich: I have two questions, Your Excellency. Traditionally, Canada's export markets have been mostly in the United States. Which Canadian sectors in particular will be most affected by a greater share of Canadian exports being directed to India?
My other question is: How have the recent terrorist attacks in Mumbai affected Canadian exporters and investors?
Mr. Gavai: I mentioned that our trade is just about $4.5 billion, which is what Canada does with the U.S. in three days. The opportunities are enormous. India is a net importing country. It has always been like that and we will continue to be like that in the foreseeable future. We import a lot of coal. We need phosphate for our agriculture. We are already importing it from Canada, but there are more possibilities there.
Uranium will be a new area once the civilian nuclear cooperation agreement is signed. Canada has the largest uranium reserves in the world. Uranium will be an important area.
We have a large number of newspapers in India. We import newsprint. We produce very little newsprint of our own in India.
As I said, we have a huge program for infrastructure, over $500 billion for power stations, roads, bridges, ports. We need equipment for infrastructure-related projects.
Senator Mahovlich: What about automobiles?
Mr. Gavai: We manufacture our own cars.
Senator Mahovlich: Do you not import Canadian cars?
Mr. Gavai: No, we do not import Canadian cars. We manufacture our own cars. There are foreign companies. GM has production facilities in India. Mercedes-Benz, the Japanese companies and the French companies all have their own facilities in India. These cars are either assembled or manufactured in India. Direct imports will not be very competitive, so it has to be either a production facility or an assembly facility. A completely built-up car will not be competitive.
These are some of the areas — mining, food processing — where Canada has strengths. There is much scope here.
You are talking about the post-Mumbai scenario. Mumbai is resilient. I come from Mumbai. I was there three days before the attack, in the Taj Hotel. Of course, it came as a great shock. However, Mumbai has bounced back rapidly. The Taj where the attack took place will open soon. Mumbai is very much back on track. There are no concerns, because we issue business visas regularly from the High Commission and from our two consulates in Toronto and Vancouver, and we have not seen an adverse impact from the Mumbai attacks on business visitors.
If there is a drop in tourism, it is part of the global phenomenon. India, as a business destination, is very much on everyone's horizon, and it will continue to be that way.
Senator Corbin: Your Excellency, as you told me before the meeting, four months ago you were in Washington, and you are now in Canada. How would you compare Indians doing business in the U.S. with doing business in Canada? Are there lessons that we could learn? Are there problematic areas that we could improve or correct?
Mr. Gavai: I was consul general in Houston and I covered nine states in the south. I do not know if I am qualified to give advice, but the U.S. is our largest trading partner. U.S. companies have probably been more engaged in India than Canadian companies have been over the years. We really need to see a situation where Canadians companies look outside the immediate neighbourhood and look at other countries, including India. I believe that is happening.
Once that happens, the opportunities are the same for a U.S. company or a Canadian company because Canadian companies and technology is held in high regard. It is only that we have not been exposed to Canadian companies as much in India as we have been to the U.S. All the big U.S. companies are in India and have been there for years, particularly after liberalization. They have research facilities there; they have companies like Microsoft, Dell, and HP. All of them have major research and development facilities in India, as well as business operations and production facilities.
Once we have this situation where Canadian companies start looking at India, and my interaction with Canadian companies indicates that that is happening now. There is far greater interest in India than in past years.
The Chair: I would like to piggyback a question from the other side.
We have seen in the last two or three months some activity — a little late, I guess, but better late than never — from our government for cabinet ministers to visit India. From your experience, have we been missing the boat by not being as aggressive as the Americans have?
You put it in rather diplomatic terms but we have heard from others that Canadian businesspeople, and in effect our Canadian government, have not been as forward and as aggressive as they should be in soliciting business in India. Would you agree with that statement?
Mr. Gavai: That is a fair statement, Mr. Chairman. We have had this kind of situation of benign neglect for several years. The U.S. was a market so close that Canadian companies did not need to look elsewhere. I think that perhaps may change. In many ways it is a good thing because then there is greater in dependence and you are not putting all you your eggs in one basket. There is greater diversification.
I get the sense that that is changing at the government level, as well as at the level of business. We welcome it and look at it as a positive development.
Senator Housakos: Mr. Gavai, I am interested in your reflection on where certain sectors in Canada stand. We have had a view here in Canada that we are world leaders in regards to telecommunications, transportation, energy and certain other high-tech industries, and we have been quite active and competitive in places like Africa and the Far East. In the last few years I have seen that Canada has had ferocious competition from the Americans, the Europeans and even the Chinese. I would like to know your impression of where we stand with India at this point in time with regard to these particular industries. What do they need to do to maintain an edge, if indeed they have an edge, vis-à-vis our competitors?
Can you enlighten us on what these industries should be doing to better prepare themselves over the next decade so they are well positioned in India?
Also, what do we need to do as a federal government in order to better equip these industries — telecommunications, transportation, energy and high-tech industries — so they can maintain an edge, and if they do not have an edge they can get an edge in comparison to our competitors?
Mr. Gavai: The opening of the new trade offices is a positive step. It is a step in the right direction. There is no alternative to physical presence there. These trade offices will act as catalysts and will bring about the required change.
Apart from the trade offices, the provinces are also in the process of engaging more directly with Indian business and having a presence in India. Quebec has opened an office within the Consulate in Mumbai. We see more initiatives coming out of the provinces and engaging with India.
I have been speaking to individual companies as well, companies which have had relationships with India, like SNC- Lavalin and some of the others. There is a lot more happening.
Sometimes it becomes a chicken-or-egg situation, whether to open an office or to first generate business and then open an office. Some of the companies need to be a little more adventurous and invest a little bit in opening an office in India; companies which see prospects but might not be doing very much business, or those for whom it might be a completely new area, a green field area. They should go ahead, take that little step and have a presence, even a local representative, because local presence makes a lot of difference. I am sure some of the companies are already doing that. I believe SNC does have an office in India. This is something companies will realize on their own.
The Canadian High Commissioner in India is also new like me. When I met him for the first time on my way here, we decided we would do business events jointly to put across the message that India is a place to do business. We are doing two events in the next couple of months; one in April in Montreal and the other in May in Toronto. This is the first time that we are building this kind of synergy where the two high commissioners come together and present a common message.
One of the messages we would be giving is, you need to establish a kind of presence there. Do not think in terms of dollars and cents because the returns might not be immediate, but you must look at India not in the short term but in the long term because India will continue to grow as a market.
Senator Housakos: I gather from your answer that some of our industries which we feel are world leaders in other parts of the world are not really as present there as we should be compared to other parts of the world.
Mr. Gavai: I think so, yes. We need greater Canadian presence there. There needs to somehow be a better selling of Canada and Canadian companies.
Senator Housakos: Is there a way to set up more alliances between companies that have certain technological added value to offer and companies already in India to create partnerships?
Mr. Gavai: There is a news item that I have just read in which CAE is setting up in collaboration with HAL, which is an Indian aircraft and aeronautical company. They are setting up a $600 million facility in Bangalore for helicopter pilot training.
These are the kinds of things which can be done because Canada has that expertise. Bombardier can also do a lot in India because our aircraft industry is among the fastest growing in the world. Also, on the defence side, we have large requirements in terms of equipment, et cetera.
There is no alternative to physical presence. Therefore, the setting up of new trade offices in India is a very positive development.
Senator Downe: High Commissioner, I am wondering if you can tell us how involved the Indo-Canadian community is in trade between India and Canada.
Mr. Gavai: We have a large community here; it is about 1 million people or so. Most of them are Canadian nationals and they are concentrated in areas like Toronto and Vancouver. There are some in Montreal and a few in Ottawa. I am not sure because I have not been here long enough. However, there are some who are in business and who have companies. Many of them are in high-tech, software and IT sectors who have links with India.
I wonder if it is really at the same level as the Indian community in the United States. I was there for three years, so I have a fairly good sense of how involved the Indo-American community was. Here, I have yet to get that sense. I do not really want to say something which may not be accurate.
So far, I have not gotten the sense that engagement in terms of business is as great here as it was in the U.S. Of course, Indo-American entrepreneurs in the U.S. have opened up some major industries. There are a few here. However, I do not know in terms of numbers. The community in the U.S. is about 2 or 2.5 million people or so, which is twice what it is in Canada.
Proportionately, they play an important role, although it is a small percentage of the U.S. population. They play a significant role in business, the academic world, in high-tech areas and in the medical field, in research. I do not know if the same is true here. I do know that, in the cities I have been to, there are Indians who are part of the faculty there involved in research. It is a little too early for me to venture an authoritative statement on how involved they are.
Senator Downe: When the G20 leaders met in 2008, they said they would resist introducing trade barriers. However, the World Bank has reported since that meeting that 47 trade restrictions have been introduced. How concerned are you that, if this trend continues, it would devastate your economy?
Mr. Gavai: I think we are very concerned and that is what the prime minister articulated in the interview I was talking about, in The Financial Times. He has listed protectionism as a priority concern for G20, because the natural tendency for the world and for individual countries is to go into a shell and protect their own turf. We are very concerned about it because we think that it will affect everyone, particularly the developing countries, which are dependent on exports and commodities.
In our case, our dependence on exports is not that great but we have a software sector which is very vibrant and highly export oriented. That has already been affected because of the recession. If protectionist measures are coming in, particularly from the U.S. and other countries — which account for a large chunk of software business from India and software exports from India — it will affect us quite adversely. We are very deeply concerned about that.
The Chair: As it relates to the first question, you may want to make a couple of comments on the diaspora conferences that India has set up. I attended one. It was a fascinating experience in that 2,000 or 3,000 people from all over the world came and talked about the relationship between those two countries. For the benefit and also for the record, can you please tell us the genesis and what India thinks its successes have been?
Mr. Gavai: The genesis can be found in our realization that we have these tremendous resources, goodwill and highly-qualified people. The India diaspora amounts to about 20 million or more the world over. Somehow, if we could harness their strengths, then we could develop better international linkages and relations. That was really the way it all started.
The Pravasi Bharatiya Divas is an event we have at the beginning of every year in different parts of India. We invite people of Indian origin and honour some of those who have made a very distinct mark and who are distinguished people in their own right. This year, Deepak Obhrai was honoured with that prestigious award.
That was one aspect of it but the other is that the overseas Indian community has been asking for more recognition. To put it in very crude terms, they are seeking "dual citizenship" because they said we would be able to contribute more if they had dual citizenship.
We have toyed with this idea for several years. There are complications because India was one country before 1947 and then it was partitioned into India and Pakistan. Of course, East Pakistan became Bangladesh later on. Then there were those Indians who went out in the 19th century as plantation labour to Mauritius and other places. Therefore, there were all these complications about giving dual citizenship as it is understood in Canada.
We found a kind of via media. We said if one of your grandparents was born in India, we would give you what is called the "overseas citizenship" of India. It is not quite dual citizenship, but it allows you to live permanently in India. It is a permanent kind of visa or residence permit. It allows you to do business in India. You cannot own agricultural land because there are restrictions even on Indians buying agricultural land in India. That is to protect against the exploitation of farmers and our tribal areas.
We worked out this rather complicated system where they would be entitled to a document that would enable them to stay permanently in India, do business in India but not engage in politics in the sense that they will not be eligible for election to parliament or government jobs. The scheme has been introduced with those conditions. It has been very successful in Canada, the U.S. and other parts of the world.
We made it applicable to 35 countries where we did not have sensitive issues, and Canada is one of those 35 countries. It had to be done after a great deal of deliberation, and some issues still need to be resolved. There are still some things that were not clearly thought out earlier, which we need to address through legislation, if necessary.
The Chair: The point I was trying to make, and I do not want to take any more time on this, is that while I was there, there was a great deal of discussion about the bridges being built between the two nations and the linkages to business. It really resulted, from what I could see, in increasing business opportunities — import-export, trade opportunities — between one country and India, from all of the different 35 countries. I think most of them were in attendance there, so that was useful.
Senator De Bané: Mr. High Commissioner, in the last few days 80 countries met in The Hague about Afghanistan. As you know, Canada has perhaps proportionately made a bigger sacrifice than any other country to bring democracy to that country.
You have, and rightly so, reminded us that India is the largest democracy in the world. What is India's contribution to putting that country on a viable foundation so that it can function as a normal country? Are you involved in that or are you essentially on the sidelines?
More and more, as you know, Canadians think that this is a problem that calls on the whole international community, but even more on the regional powers in that part of the world. You are one of the major powers in Asia, along with Japan and China.
In two weeks, there will be another international meeting called about the situation in Pakistan. What is the position of India? From here, we have the impression that you are leaving the problem of insurgency to other people. I would like very much to know what the position of your government is.
Mr. Gavai: That is a very good question. Our relations with Afghanistan are very old. Traditional relations go back 2,000 or 3,000 years to ancient days.
It is a very complex issue. We are not militarily involved in Afghanistan. We do not have troops there, for various reasons that I do not want to go into here, but we have a major aid program in Afghanistan. We have an aid program that has exceeded $1 billion.
That involves construction of a major road, which provides an alternative route from the Iranian border into Afghanistan. That road has been completed, built entirely with Indian aid. We also have built electrical transmission lines; and an old hospital which we built several years ago has been rehabilitated.
There are other smaller projects. The total value, as I mentioned, runs over $1 billion. We have a stake in Afghanistan because we realize that the stability of Afghanistan and its economic development directly impacts India one way or another.
We are very much engaged in Afghanistan. We are attending the conference as well. We believe that the entire world needs to be engaged in Afghanistan. Otherwise, the country will just go back to where it was during the days of the Taliban.
There is this talk about the good Taliban and the bad Taliban. We are unable to understand what these two entities are. We thought the Taliban was the Taliban. We believe that countries need to stay the course. We need to see Afghanistan at least in some way back on its feet.
Canada has made tremendous sacrifices. You have lost 116 soldiers there; you have 2,800 soldiers there on the ground, and you are in one of the most difficult provinces in Afghanistan. That is something we admire and appreciate.
The need is for everyone to stay on course. All these projects that various countries have undertaken — be it for women, for children, bringing in water, bringing in electricity, constructing roads, health care — will go down the drain if the Taliban comes back into power tomorrow. So much effort has gone into Afghanistan, and that will be meaningless if security is not ensured there.
Senator De Bané: As you know, one of Pakistan's arguments for not pulling its weight in that problem — and the Taliban are moving between the two countries — is that they have to concentrate their military forces on the border with India.
To what extent can the problems be alleviated so Pakistan can make its own contribution?
Mr. Gavai: All these problems emanate from Pakistan. It is well recognized that it is the epicentre of terrorism today. Its own existence is threatened by this terrorism. If Pakistan is blaming the military deployment on the Indian border for this problem, it is an absolutely disingenuous argument. It is unacceptable.
If I could go back to post-Mumbai, it was a terrible attack. There was a lot of anger. There is still a lot of anger in India. However, we did not mobilize or move any additional troops. The Pakistanis said India is doing this. It is an excuse given for inaction, either deliberate or because they are unable to act, for whatever reason. It was an excuse given in order to justify whatever they were doing. We did not move any troops, and we made it clear that we wanted the responsible persons brought to justice and we were absolutely justified in that.
Troops have been deployed on the border since independence. It is not a new thing. There is no new element added in the post-Mumbai scenario. It is not as if we sent more troops and mobilized.
There was an interesting thing which happened. Someone called up the Prime Minister of Pakistan and said that it was the foreign minister of India speaking and threatened the Prime Minister. On that basis, they sent a few divisions to the border. In reality this call was never made. They didn't verify whether this call was made or not. This is not the way international diplomacy is conducted. Obviously they were trying to clutch at straws and trying to find excuses. It is not at all valid. It is an argument that does holds any water at all.
The Chair: We do allow flexibility, but we should remind all of us that we are talking about trade and commerce, and the business we can do between the two countries.
Senator Banks: My question is much more mundane, the chair will be happy to know.
Your Excellency, I think I heard you say — I would like to confirm that I heard you say — that investments by Canadians in India are $500 million, thereabouts.
Mr. Gavai: Yes.
Senator Banks: Investments by Indians in Canada are $12 billion.
Mr. Gavai: Yes.
Senator Banks: We are living up to our self-deprecating reputation at being unadventurous when it comes to investment. You have said India is a place to do business. If I were a Canadian businessman looking to do business in India, what would be the impediments to my doing that? I am assuming there are because the IMF has said India is not at the top of the list of good places to do business. What kind of things do I run into? Is it bureaucracy?
Mr. Gavai: People are intimidated by some of the procedures. We have simplified matters a great deal since 1991, but some are intimidated by what they see as impediments.
If these were really impediments, or if they were real problems, why would so many Fortune 500 companies be in India, and not just be there but doing well there? If you ask these American companies, whether it is HP or Dell or GE or whatever, at the business level they are happy doing business in India. Their profit margins are high. They are competitive.
I do not know what the IMF has to say about this, but companies that are actually doing business in India are very happy there, including the Fortune 500 companies that are there. I would go by the actual experience of companies doing business in India, rather than someone sitting in Washington doing some studies and saying that these are the problems. Of course there are some issues that need to be sorted out.
Senator Banks: Are they bureaucratic?
Mr. Gavai: There would be some bureaucratic issues, but these companies have managed to deal with them and establish good, profitable businesses there. That is no longer an issue. These are irritants rather than issues.
The Chair: Senator Banks was not here when I made the comment being at the Vibrant Gujarat business conference. The world was there beating the doors down to do business with India. I have sympathy for the High Commissioner's comments.
[Translation]
Senator Fortin-Duplessis: My question relates to the impact that one of your neighbours could have on your country and its economy. Bangladesh, which is presently a military dictatorship, is a country of 153 million people who live in the delta and are hostile to India. Illegal immigrants have already triggered armed clashes in the north-east of the Indian province of Assam. In view of the floods and the rise in water levels, the UN Intergovernmental Panel on Climate Change considers that, by 2050, 35 million people will cross the borders coming from Bangladesh. It can be said that this phenomenon will probably change the picture of the country. These people will cross the border to flee problems linked to climate change.
According to a World Bank report published in 2007, the countries of South Asia are among the least politically and economically integrated in the world. In fact, world trade accounts for less than 2 per cent of their gross national product. In East Asia, this number is 20 per cent.
What are the South Asian countries doing to improve cooperation regarding, among other things, climate change? These problems could also have an impact on your economy.
[English]
Mr. Gavai: I have seen the report you are talking about. I have a little correction. Bangladesh has since become a democracy, because they had elections and there is a democratic government in Bangladesh. Of course, they continue to have problems because there was this mutiny by the border guards and that caused enormous problems. We were very worried about that because it is actually on the Indian border. We have a 2,000 kilometre border with Bangladesh.
These issues are of concern. You mentioned the problem of immigrants coming in. We already have approximately 10 million. It is difficult to put any clear figures on this, but they say there are about 10 million illegal Bangladeshis in India who have come in over the years. They are settled in various parts of the country, not just Assam or in the northeast, but also in Mumbai, Delhi and other major metropolitan cities. It is a huge problem. We entirely agree there needs to be overall regional development. This is what we have been saying: We need to have greater cooperation.
Some countries that have done this have benefited. India is a huge economy. India by itself is about three times the population of all the other neighbouring countries put together. Plugging into the Indian economy is an opportunity for neighbouring countries and they need to avail themselves of that.
Bangladesh has natural gas, for instance. India is the logical market for natural gas from Bangladesh. Tata was very keen on putting up a big project in Bangladesh. That did not work out. The natural gas project, as well as the Tata project, did not work out because there are political mindsets that are difficult to overcome. There is the feeling that Indians are trying to dominate them militarily, economically or are trying to bully them. We cannot deal with these kinds of imaginary things.
Countries that have plugged in, smaller countries like Sri Lanka and Bhutan, have benefited enormously by plugging into the Indian economy.
Bhutan is a small country. The per capita income in Bhutan, which was the lowest in Southeast Asia, today is the second-highest through the simple mechanism of plugging into the Indian economy and taking advantage of the strengths it has to offer. Hydroelectric projects were set up in Bhutan and the natural consumer is India. There is a major shortage of electricity in India.
Nepal can do the same thing because Nepal has the largest hydroelectric potential in the world. I believe it has about 80,000 megawatts of untapped hydroelectric potential. India needs this power. If Nepal had the political will to undertake these projects, they would benefit. Nepal is a country of 20 million people. It could benefit enormously and the standard of living could rise very high.
These are some of the issues facing the Southeast Asian Association for Regional Cooperation. It meets every year and at various levels. However, because of these kinds of issues, it has not been able to make the kind of mark that it should have.
These are some of the reasons we have not been able to cooperate as well as we should have.
The Chair: Trade is usually described as exports and imports between two countries to hopefully benefit both countries. However, there is one component of the Indian-Canada trade which has benefited Canada greatly, probably at a loss to India. That is the export of the 1 million-plus Indians who have come to this country to make it their home, who are contributing greatly. From that standpoint we are probably benefiting more in this relationship than India and we thank you for that.
Thank you for your comments. We appreciate them. It has been very useful.
[Translation]
Senator Fortin-Duplessis: I said that Bangladesh was a dictatorship, I am sorry, it is a democracy, I must correct my comment.
[English]
The Chair: Mr. High Commissioner, once again, thank you for taking the time and we look forward to seeing you from time to time, not only as a guest in the committee, but also hopefully around the Hill. Since you are a new addition to the diplomatic corps, we wish you great success.
Mr. Gavai: Thank you very much for giving me this opportunity.
The Chair: The meeting is adjourned until Tuesday, April 21. We will be sending appropriate notices the week prior to that.
(The committee adjourned.)