Proceedings of the Standing Senate Committee on 
Foreign Affairs and International Trade

Issue 3 - Evidence - March 31, 2010


OTTAWA, Wednesday, March 31, 2010

The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:17 p.m. to study the rise of China, India and Russia in the global economy and the implications for Canadian policy.

Senator A. Raynell Andreychuk (Chair) in the chair.

[Français]

The Chair: Honourable senators, the Standing Senate Committee on Foreign Affairs and International Trade is continuing our study on the rise of China, India and Russia in the global economy and the implications for Canadian policy.

We have today before us as a witness Dr. Ramesh Thakur, Director of the Balsillie School of International Affairs and Centre for International Governance Innovation (CIGI) Distinguished Fellow. To give senators a little of Dr. Thakur's background, he was appointed September 1, 2008, as the inaugural director of the Balsillie School of International Affairs. He is a Distinguished Fellow at the Centre for International Governance Innovation and a professor of political science at the University of Waterloo, Canada. Previously, Dr. Thakur was vice-rector and senior vice-rector of the United Nations University and Assistant Secretary-General of the United Nations from 1998 to 2007. We know Dr. Thakur has a wealth of knowledge of international affairs. Our particular emphasis today is on India.

Welcome, Dr. Thakur. I know you have opening comments, and then we will go to questions in the usual format.

Ramesh Thakur, Director, Balsillie School of International Affairs and CIGI Distinguished Fellow, Balsillie School of International Affairs: Thank you. I am very pleased to be here, not the least because I believe that the surprisingly distant Canada-India relationship does require a reboot. Trade and financial ties between what are, after all, two of the top twelve economies in the world are sparse, and political relations are thin.

Over the past decade, India has been one of the world's economic success stories, second only to China. Both proved resilient in the global financial crisis, with substantial currency reserves in central banks, limited leverage and low debt levels that gave them flexibility to promote growth and recovery through fiscal policies.

Barring major setbacks, both China and India should reach in purchasing power parity dollars the $20,000 per capita income level of a developed country by 2030, China at least a decade earlier than India. Their domestic demand will be a major driving force of export-led recovery even in the advanced economies, I would expect even in the case of Canada.

In both, growth is driven by growing urbanization, labour productivity and capital stock. India has democratic compulsions and complications of which China is free, but India does compare favourably to China in other respects. Its success is rooted in indigenous funds, markets and enterprise; China's relies relatively more on foreign investment and markets. China's is at a low-value end of the production chain, in the factory floor; India's is relatively more in the services and mid-value range. India's is led by the private entrepreneur; China's is state-led. India has the better legal framework and institutional underpinnings of a free market.

Thanks to its one-child policy, China's demographic profile is closer to the industrial countries' problem of an aging population and a shrinking working and consuming cohort. India has a young population that can better provide the workers and consumers to power both its own and the world economy in the coming decades. Having said that, if things go wrong, this rising population will present challenges with respect to social tension and political volatility as well. Half of India's population is under 25. The middle class, which by various estimates ranges from between 50 million to 100 million today, could expand to 500 million by 2025.

This rising global profile of India provides an opportunity to reset our bilateral relationship. India adjusted to the end of the Cold War by shedding statist economic policy, integrating with the international economy and forging close relations with Washington. This triple change provides a solid basis for re-engaging with Canada.

The fundamentals are still sound: Both are liberal parliamentary democracies with a shared Commonwealth heritage, market economies and a social security ethos. Both are federal, albeit India is weighted more towards the central government and Canada towards the provinces. Both are secular. Although this means separation of state from church for us in Canada, it means non-discrimination in state support for religions in India.

Shared security challenges include securing Afghanistan, defeating international terrorism, stabilizing Pakistan by nurturing the fragile roots of secularism and democracy there, containing Islamist fundamentalism, preventing nuclear proliferation and assisting China's rise as a peaceful power.

Canada and India are leading examples of unity in diversity, of power sharing and accommodation among different groups of people in an age when identity politics is one of the greatest internal and international security challenges.

In Canada's case, that includes a major influx of immigrants from India. Compared to two million in the U.S., there are one million of us in Canada — five times as many in Canada on a per capita basis. We are affluent, well educated and leaders in professional and public life. There is hardly any bad news story involving us of the sort that gets prominent press coverage in the now hyperactive Indian media. The reality of our success is a story worth telling to Canadians and an asset worth exploiting in relations with India.

Canada holds many attractions for India: strong economic growth, low government debt to GDP ratio, low and stable inflation, and a very high living standard with per capita income that is 45 times higher than India's in nominal exchange rates. We in Canada are wealthier, healthier and more educated than ever before. We have a strong rule of law with independent, efficient and effective regulatory systems; a stable financial system underpinned by strong regulation and supervision; an efficient, nationwide infrastructure system; a world-class educational system, from primary through tertiary and research institutions; a bountiful natural resource base; a business-friendly competitive environment; and safe and clean cities.

The Harper government has reversed two punitive policies that had passed their use-by dates with respect to Gujarat and India's nuclear status.

The Indo-Canadian community could provide the platform for a steep rise in the numbers of Indian tourists and students. Like most Asians, Indians give the highest priority to education. Our education system in Canada is world class and relatively inexpensive, yet we have lagged behind, and well behind, market leaders — Australia, Britain and the U.S. — in readjusting our thinking to viewing education as a top service export industry. For both tourists and students, we must fix our user-unfriendly visa regime.

The paucity of Canadian businesses to tap into India's growing market is explained by unfamiliarity with Indian business culture and practices, on the one hand, and excessive regulations, restrictions, red tape and corruption on the other. India fares poorly in the World Bank's annual ease of doing business rankings: 133rd out of 183 in this year's ranking, compared to 89th for China, 85th for Pakistan and 8th for us in Canada, and the two top are Singapore and New Zealand. Indeed, India fares badly also in the United Nations' human development index, ranking 134th in the world compared to 4th for Canada.

It seems to me there is a lesson here. Market-friendly policies can deliver pro-poor results. Imagine how spectacular India's economic performance could be with a rapid climb up the business competitiveness rankings on starting and closing a business, with easier entry and exit norms, enforcing contracts without long and costly bureaucratic and legal delays, simplifying and pruning permit requirements and procedures, and loosening labour market regulations. These would provide big incentives to attract the $50 billion annually worth of investments that India believes it needs over a decade-long period in order to upgrade its abysmal infrastructure.

India has shown growing openness to commercial ties, cultural exchanges and academic links. With the help of Indo-Canadians, powerful constituencies can be built to connect Canada and India in an increasingly networked world. Private sector, cultural and educational diplomacy can reinforce, but never supplant, traditional state-to-state diplomacy.

The Chair: Thank you, Dr. Thakur.

I need one clarification. When you said there are one million Indo-Canadians in Canada, how do you define "Indo- Canadian''? Are you talking about the people who came directly from India, or are you talking about the heritage?

Mr. Thakur: I am talking about the heritage. I am including those born and raised here as well.

Having said that and having looked at the figures, I am not sure that they necessarily are limited to those actually from India as opposed to a generic South Asian. I am not sure in my mind about that.

[Traduction]

Senator Fortin-Duplessis: Welcome, Mr. Thakur. Allow me to tell you that we are pleased to have you here today. For many Canadian companies, it is difficult to do business in India. There are, however, some countries that succeed in this, and I would list, among others, Japan, Korea, Germany, Italy and the United States. So why not Canada? I know full well that there are business people who cannot, who are incapable of doing business in India even if they are interested in doing so. What advice could you provide these business people, these Canadian industries, in order for them to have better relations with India?

[Français]

Mr. Thakur: Thank you senator, and excuse me. It is one of my deficiencies that I cannot speak this beautiful French language, so I will speak in English. Had I the opportunity to live my life again, I would give higher priority to learning French and Spanish, if I could.

I believe you had Minister Kamal Nath here earlier; he would be a better person to direct that question to.

There are two reasons, one on each side. One is that India still is not such an easy country in which to do business, and that is where the World Bank indicators are very interesting. For example, it is not easy to start a business, nor is it easy to close a business, even if you are losing money. There are all sorts of rigidities in the labour market and all sorts of control over entry and exit of capital, even now. There is huge bureaucracy involved in terms of getting permissions. There are federal-provincial jurisdictional issues. There are major difficulties, and India is one of the more difficult countries still.

The reason it has nonetheless succeeded is the tenacity of the Indian entrepreneur domestically and the fact that there is a lot of capital available for investment and still growing. I think it has increased over the decade, so that investment is worth 40 per cent of GDP, with the private sector investment being 28 per cent of GDP.

That provides a clue to the second part, which is that it is still important for Canadian businesses to have Indian partners who know how the Indian scene operates and who have the necessary experience, knowledge and connections to be able to ease these things. Canadian businesses will be shocked initially at how low the profit margins are in India. It is a ferociously competitive consumer market, but the numbers are such that the total profit is still worth it.

I remember once speaking to the senior vice-president of Nokia, and he said the profit margin in Europe was 20 euros per phone. Their profit margin in India was 1 euro per phone, but with a consumer base of one billion strong, even $1 per phone is worth it, and I saw figures that show cell phone subscription is now half a billion in India, which is astonishing. The same applies to Canadian businesses. Finally, they will have to stay there for the long haul rather than expect to reap quick profits and then leave.

The Indian government would be very sensitive to foreign companies coming in, if I may put it this way, ripping off Indians and leaving quickly. These are long-term relationships that will have to be built; businesses will have to be started; and at the end of the day, because it is a private-sector-led thing, governments can provide the framework, the assurances and safety margins, but the risk has to be taken by the private entrepreneur, and the profits will come from the risk taking as well.

The Indian government has opened up more and more and will likely move still further in the direction of public- private partnerships and Indian-foreign partnerships. Therefore, understand the market, the constraints and the potential for long-term profit, and work with Indian partners and be there for the long haul.

[Traduction]

Senator Nolin: Good afternoon, Mr. Thakur. You wrote in Canada Among Nations 2009-2010 as others see us that it is very unlikely that relations between Canada and India will once again be as close as they once were. I would like to better understand what brought you to writing that.

[Français]

Mr. Thakur: I wrote that partly so that we do not have false expectations. If that is the measure of high expectations, if that is the benchmark, then we will be continually disappointed. That was an exceptional period in the immediate aftermath not so much after the Second World War but in the immediate years after India's independence, and there are personal factors in the relationship between India's founding prime minister and some of the political leaders of this country. The personal relationship between the high commissioner at the time, Mr. Escott Reid, and the prime minister, Jawaharlal Nehru, was such that Mr. Reid as high commissioner was able to phone any number of the innermost circle of advisers around the prime minister when he wanted to and have access to him. I will give you one specific example, an interesting one from our own history in Canada.

You will remember in 1956, following Mr. Pearson's initiatives with then UN Secretary-General Dag Hammarskjold, Canada was instrumental in finding a way out of the dilemma of the British-French-Israeli invasion in the Suez Canal, and after that we wanted to send a Canadian peacekeeping contingent to the peacekeeping force that was being set up. Then there were some political difficulties that Egypt raised. The overt explanation was that the Egyptians would have difficulty in distinguishing Canadians physically from the departing British and French troops. As part of that, the Prime Minister asked High Commissioner Reid to see if he could have a conversation with Mr. Nehru and have India use its good offices and relations with President Nasser to ease this difficulty on the Egyptian side. Mr. Reid contacted the prime minister's office and spoke directly to Prime Minister Nehru, if I remember rightly, and was told that it was all very well, and, in fact, Mr. Nehru had already spoken to President Nasser and told him exactly this. That is a good indication of how close the relationship used to be.

There are many more countries, four times as many countries today. I think we are less hung up on common sentimental lineage and ancestry from the British Commonwealth than we were in those days. Both countries are relatively more inclined to look to interest-based alongside values-based relationships, and I think that is for the better as well.

If we place our footing going forward on an accurate assessment of points of convergence in our respective interests and values and on understanding where we differ without letting the differences overshadow the points of commonality, I think we will restore the relationship to a reasonable level of comfort and understanding and productivity on both sides. However, if you say we want to go back to what was an extremely exceptional period in both countries' relations, then we are more likely to be disappointed rather than satisfied.

Senator Nolin: The latter part of your answer is a perfect introduction to my second question. You say the intellectual rapprochement between our two countries is very good. Can we do more — for instance, regarding universities? I have in mind the science and technology environment. Where can we be better partners?

Mr. Thakur: I think we can do a lot more. I think I have the figures in that article chapter you were quoting.

I should clarify that I have dual Australian and Canadian nationality. I have lived in Australia and taught at the Australian National University, so I am more familiar with the Australian educational system than having just a passing knowledge about it.

In 2008, there were 96,000 students from India in the tertiary sector across the board in Australia. In that year, there were 4,000 in Canada. Considering we are 50 per cent more in population and we have as good a university system, that to me is a scandalous comparison.

India was spending $10 billion per year on educating its students overseas. On one side, that is a comment on the inadequacies, both in quality and numbers, of the Indian higher educational market itself. You will have read, I imagine, a recent bill that the Indian government has introduced to permit foreign universities to set up campuses and offshoots in India; so they are waking up to that. On the other hand, it also is evidence of an insatiable demand among Indians, which the economic success makes it possible to satisfy by sending their students overseas.

If you think about China and India, there are so many ways in which you can compare them, and it is an interesting comparison. However, China as a government has made a strategic decision to send its students — the best and brightest — to the best universities, pay for them and then bring them back.

You will see much more of that than government scholarship-funded Indian students at the Oxfords, Cambridges, Harvards and Princetons; but if you look at the faculties there, you will find a great many more Indian professors than Chinese professors.

One consequence of that is that the comfort level of exchange and engagement and direction between India and any English-speaking Western country I can think of is much greater than is likely to be the case in the foreseeable future with China. It reflects the fact that India already has, at the government level and at the elite level, an internationalist mindset and world view.

The risk and the danger that I see, looking back over the past few decades of the bilateral relationship, is that both countries also have a tendency to go off on a moralizing tangent. Once both are convinced of the rectitude of their respective positions, they start finger pointing and finger wagging at each other, instead of saying this is where we differ, let us understand why and where we differ and build on the common points nonetheless.

The education university sector, I think, is one of those common points. Much more could be done, and there would be a much greater comfort level with students from India than with students from many other countries.

Senator Nolin: That is probably what we have done in the nuclear sector.

Mr. Thakur: Yes.

Senator Jaffer: Thank you for coming here today; it is a privilege to hear you.

My first question concerns the advantage India has of the English language compared to China. Can you tell us how great an advantage it is and how we in Canada can benefit from that?

Mr. Thakur: It is a great advantage, but I think it will be a diminishing one. Again, China as a government has made a strategic decision not just to invest in the education sector, including the higher education sector, but to invest in English- language competency. Therefore, over time that advantage will erode.

Nonetheless, English is a very common language; it is the language of business and of law. Certainly, as an English- speaking visitor in any part of India, it is impossible for me to imagine that within a couple of minutes there will not be someone who can speak functionally passable English in order to be able to communicate.

If you think in a slightly different tangent, if you think of literature, some of the most exciting writing in the English language over the past two decades has come from a number of Indian writers, including in our own country in Canada. Any average, informed, educated person could probably name half a dozen to a dozen Indian authors writing in English and who are very well known for that.

An advantage from that is being able to access the legal system, because so much of the legal tradition is also from the British heritage. So much of the law and the verdicts and opinions are available in the English language, which makes it much easier to do business.

It is much more difficult to imagine the circumstance of what has just happened, for example, with the conviction and sentencing of Australian businessman Stern Hu in China. It is much harder for me to imagine that sort of thing under these circumstances happening in India. That would be the combination of the language and the legal tradition, as well as the other factors.

Senator Jaffer: You mentioned Australia and another country — I forget which — where it is easier to go to study.

Mr. Thakur: Australia, the United Kingdom and the U.S. The United States now has 100,000 Indian students, and I believe that, as of last year, students from India are the largest cohort of any foreign cohort, outpacing even China.

Senator Jaffer: I know you have Australian experience, but if I may start with the U.S., what does the U.S. do that we do not do to make it easier for Indian students to come here? I understand the visa, but I imagine or hope that it is more than just the visa. What does it do to attract Indian students?

Mr. Thakur: This is a provincial responsibility, but certainly in the Ontario context — the context in which I am now working — it is not easy for universities to open up places to foreign students on an unlimited basis, even full-fee paying students. There are restrictions in place that are financial disincentives to doing that.

I assume the reason for that, or one possible explanation, may be that we have thought these are taxpayer-funded positions. After all, you are not going to get a full cost-recovery fee regime. These are taxpayer-funded positions, and we do not want to open them in an uncontrolled fashion to overseas students.

That is partly what I meant by saying I think we need to change our mindset to think of education as a major service export industry. It is the third-largest export industry in Australia now. We have not actually had that mindset in Canada, as far as I can tell.

Senator Finley: Welcome to our committee. Some 20 or 25 years ago I worked very closely with Indian commercial enterprises in the aerospace sector. One thing that drove us absolutely nuts, to be frank, was the bureaucracy. At one time I heard someone say that, on a per capita basis, India probably has the world's largest bureaucracy. I do not know whether that is true.

Could you give us a Coles Notes version of the state of the bureaucracy? Has it become worse or better in 25 years?

Second, you spoke about how difficult it is to close a business. Could you expand a little on that?

Could you also give a brief resumé about basic working conditions? Are there minimum wages, minimum work weeks, et cetera?

Finally, I do not recall from my experience in India whether there are labour unions. If there are, how strong are they?

Mr. Thakur: On a 25-year comparison basis, the problem with the bureaucracy would have eased by now rather than having stayed the same, let alone worsened, not in the least because there has been recognition of that at the highest levels. However, there is an element of inertia that affects large bureaucracies like that. For example, I forget the figures now of how many people the Indian railway employs, whether it is 4 million or 40 million, but it is a huge number like that.

One of the costs of doing business in India is the democratic compulsions, which include labour relations and workforce and ties of labour unions with different political parties. This is jumping to your last question in a sense, but there are several competing labour unions. Some of them are autonomous and do not have connections to any political party. Some do have connections to particular political parties, including the Communist Party. Remember that this is the one country in the world that has successively re-elected the Communist Party at the state level. In fact, the longest re-elected state government in India is the Communist Party in West Bengal.

The then finance minister, Mr. Chidambaram, who is an MIT-trained economist, made a point in a speech three or four years ago that markets promote efficiency, but we value democracy because it compels us as a government to take the people with us, not to get too far in advance of the people.

Democracy helps to provide the institutional means by which to make the necessary compromises between capital and labour, between efficiency and equity, between growth and equality; and part of that is the labour force there. It is actually much worse in the agricultural sector in India than it is in the manufacturing sector, and the agricultural sector still accounts for between one half and two thirds of the labour force yet provides only 20 per cent of the national income.

Politicians have tended to look, therefore, at the numbers as votes rather than as an economic problem that could be solved by efficiency. However, I think that for the foreseeable future the entire business sector, including the domestic business sector, will have to learn to live with that.

It is much more of a problem in the manufacturing and industrial sectors because of these rigid entry and exit regulations. As I said, if you are classified as a small business, you can get government help, and then, if your business starts losing money, you cannot shed labour; the government will give you subsidies to keep employees on. Of course that is all very nice, and it is nice to have the social conscience, but the opportunity costs are quite severe in a country that needs that extra money freed up for productive investments.

We have had the same thing in the financial sector with the legacy of the banking system, which was nationalized by Ms. Gandhi in the early 1970s. The banking system and the financial system have been used as a social policy instrument rather than as a financial instrument to channel available savings into productive investment, but then it absorbs the labour.

There are many problems still in the economy, and because we did not suffer as badly in the financial crisis and because the regulatory system that we have had, which is more prudential than the excesses that we witnessed south of the border, has achieved global recognition and acknowledgment, I think we are in a better position in Canada to try to have this conversation with counterparts in India about how to combine the social safety nets with strong pro-business, pro- market policies and frameworks that encourage and reward productive investment rather than subsidize inefficient industries. Also, as I said, we are more likely to be listened to because we will still have a certain degree of credibility, whereas that faith in the American model and, may I say, even in the model of the major European countries, has been, if not destroyed, certainly badly dented. That is true in both India and China. I think we can do those various things.

The working conditions reflect these factors as well. There is great sensitivity to what the loss of a job means in an Indian context where the government just does not have the capacity to provide social safety nets. I will give you one statistic that is not in any of the papers I have given but is very telling.

Every year the National Crime Records Bureau in India, which is a federal body, compiles the statistics on various crimes. Suicide is still part of the criminal code in India. From 1997 to 2008, over 12 years, the total number of farmer suicides is 199,000 and a few hundreds. That is 16,500 farmers committing suicide every year for 12 years non-stop. That is because, as the government has moved to open up the agriculture sector to World Trade Organization, WTO, regimes, which limits the ability to apply restrictions, farmers have been squeezed between liberalization and openness on the one side and the lack of social safety nets on the other. That is just one statistic that would, I think, be replicable in other sectors as well.

This is probably a good example of how we in Canada need to be sensitive to the imperatives and compulsions that the Indian government faces and to talk to them as well.

One good thing that has happened recently is the G20 forum where our Prime Minister will have the opportunity to sit directly with the Indian Prime Minister. They can have these sorts of conversations, which registers in a way that no other forum can register.

Senator Segal: Dr. Thakur, I want to talk about defence and corruption, but as separate issues. There is a mythology — and I am sure it is a mythology; at least, I would be interested in your helping us through that — that India is a much easier place for companies and others to bribe officials in support of their commercial goals than might be the reality here in Canada. Canada is a signatory to an anti-corruption code, as is the Government of India. I do not for one minute assume that a country that has made such tremendous strides in development and economic expansion and in building a huge middle class so quickly would have also had all the time necessary to refine some of the protections that countries that have been developed longer have been able to put in place with respect to those kinds of practices.

Is there any perspective you might want to share with us so we are dealing with an understanding on our part that is real in terms of the ground and fair and not jaundiced in some way? What advice would you give Canadian companies that may on occasion run into these sorts of challenges about how best to address them while both respecting the operative commercial culture of a potential partner in India and also trying to respect the basic agreements about corruption that we have all signed?

Mr. Thakur: The answer to that question will probably mix personal values and academic analysis in a way that I generally do not in most other contexts.

To grasp the levels the corruption in India, we can take the politically easy route and look at the rankings provided by Transparency International, where we do not have to encroach on the politically sensitive area of imposing our judgments on the basis of whatever criteria, because this is what Transparency International thinks. Certainly India has tended to be well towards the bottom or the undesirable end in those rankings. I think it is still in the bottom third internationally, along with other major countries like China and Indonesia.

Having said that and acknowledging that this is a pervasive problem, it is particularly felt at the lower end of government services and administration, which is precisely the point at which the average citizen comes into contact with the state, so there is a massive alienation of Indian citizens from the government, caused primarily by corruption. There are other factors also, but corruption is a big explanation for that. That then extends to the range of different state agencies, including the defence services.

However, as a personal statement — and I do not think you will necessarily find this in the Transparency International ranking, although you may — I believe that there are two institutions that are relatively less tainted by corruption of the various institutions in India. One is the judiciary, particularly at the higher levels, and the other is the defence forces on the uniformed side. I am not convinced that the Ministry of Defence will necessarily be out of line with the other public service wings and the higher levels of the federal public service. There again, we must recognize that the civil service maintains the tradition and the framework from the British Raj, and the highest levels of civil service, even for states, are recruited, trained and under the employ of the federal government, even though they are deployed on a lifetime basis to particular states, et cetera.

The Ministry of Defence at the highest levels would be part of the civil service as well. There are gradations of that, and the defence forces, and the Ministry of Defence also, would be relatively less affected by that. There have been corruption cases involving defence acquisition that brought down governments, including Mr. Gandhi's government in connection with the sale of howitzers from Sweden.

I say I am mixing a personal element in that, and this is from someone who was a UN official at the time we signed the global compact, the tenth principle of which is corruption. There is that international code. We tend to forget that corruption involves two parties, those who give bribes as well as those who take them. For reasons of state capacity, including bureaucratic capacity and technology, it is much easier to deal with that problem at our end in the developed countries. A major contribution to combating the gravity of corruption in the developing countries will be opening up the secrecy laws of the banking sector in Switzerland, for example. It is much more easily done than all the difficult tasks on the other side. I am not denying the reality on the other side, but in terms of dealing with that, it is much easier in some ways on our side. I would personally, as a citizen of Canada, be unhappy if any of our defence suppliers engaged in clearly corrupt practices that violate our laws as well as laws in the country concerned.

Having said that, the other problem I think the Indian government is looking at more seriously is that many of the laws are framed unrealistically, and they criminalize what is standard and unavoidable business practice in other contexts. That means that those things are still done, but they are forced under the table. It is again a conversation that must be had, where some things are standard business practice. If we have agents, for example, who facilitate contacts and permit deals to be struck, it should not necessarily be a criminal activity, and I think under Indian laws that would still be the case.

That is a long answer, but I was trying to mix personal and professional.

Senator Segal: I want to talk about defence cooperation generally as a matter of the two countries' foreign policies. It has been my experience that at the Canadian Forces staff college, for example, Royal Military College of Canada, not many Indian exchange officers come to do their "pre-colonel majors'' here, as we all call it in different parts of the world. You are beginning to see a very healthy number of our colleagues and friends from the Gulf States, and many of our friends are now sending officers from Eastern Europe, as we are to their places. You even begin to see now a modest uptake among Chinese officers. Is there some structural problem in your view? The Indian army has a huge and constructive reputation. There would be no peacekeeping capacity globally if it were not for the Indian army, to its credit. It has training levels which are seen to be superb, with high use of technology, cooperation with allies of ours, such as the Israelis and others. There does not appear to be any policy reason. Is there something we are missing? Is it some lack of generosity on our part in making positions available for Indian officers, or is there some anxiety in India with respect to other people's military colleges and defence cooperation generally?

Mr. Thakur: First, I will say I am surprised to hear this. I was not aware of it. I am surprised because I know that Indian officers go to other countries. I taught for eight years consecutively at the Joint Services Staff College, the major to lieutenant colonel level, and the single service staff college, which is the captain to major level, and also at the Australian Defence College Centre for Defence and Strategic Studies, which is the one star and up level. In all of those, Indian officers were present. This is when I was in Australia. I am surprised they have not been here. They certainly go to the U.S. as well. They have been going non-stop, as far as I know, to the Royal College of Defence Studies in the U.K. and to the staff colleges there as well. I would not think there would be a policy resistance as such. Perhaps this should be looked at, and I would be very happy to do that, if you are interested.

In addition to that, in recent years, the Indian military has been conducting, at varying levels of intensity and extensiveness, combined military exercises and manoeuvres with the forces of Australia, Japan and the U.S. that go quite far, including special-operations, for example. Again, I do not know whether there is anything with Canada.

I would think, for reasons that I outlined earlier, that the comfort level should be high rather than low. I really would not know where the problem has been. Peacekeeping is another obvious example you mentioned yourself. Now there is a peacekeeping training unit within the United Service Institution of India, based in Delhi, whose previous director is a graduate of the Joint Services Staff College in Queenscliff, Australia.

[Traduction]

Senator Robichaud: You told us that a large portion of labourers can be found in the rural areas, on farms. The minister who visited with us last week told us that these are in fact small farms and that these people earned very little money.

How do governments manage to maintain social peace? Because at some point in time these people will demand part of this national wealth. Are you seeing the formation of groups moving towards that?

[Français]

Mr. Thakur: Again, I have a two-tiered answer to your question. On the one side there is an armed, peasant-led movement in the countryside. Indians refer to it as a Maoist insurgency. The name has obvious connotations.

The calculations I have seen are that that has infected approximately one third of all the districts in the whole country. Prime Minister Singh is on record and the present home minister, Mr. Chidambaram, is on record as acknowledging that this is India's most serious internal security problem, much more serious than externally based terrorist attacks, for example. They have been very clear on that.

I saw a statement this week from the Indian home minister that he thinks it will take another two years to bring this down completely, in the sense of tolerable levels. I am not sure they will ever get rid of it completely. That factor is there and it taps into many of the existing dissatisfactions, disparities and arising inequalities that we have seen.

At the same time, under the impetus of India's economic success story for about 15 years now, every year approximately 1 per cent of Indians have been lifted out of the poverty line and absorbed into the growing labour force as well.

As I said, it is a two-tiered answer. The second tier is the political side of that. The political system has not been able to deliver solutions to match the demands and expectations. As a result, of all the genuinely representative democratic systems of government that I am aware of in the world, India has the highest turnover of parliamentarians of any country. There are elections and an anti-incumbency factor. It is to throw the present lot out and try the next lot. They turn out to be the same, so it goes in cycles as a result.

This is one explanation for why the Communist government in the state of West Bengal has been the longest consecutive re-elected state government. As you might guess from their ideology, they have a particular relationship with the countryside and the agricultural labour force there as well. I think that has been a problem and will remain a problem. I would not like to exaggerate it in the least, because the Indian government is trying to be sensitive to these issues.

If I may make one comment about India which I think is interesting, at any given time the country seems utterly chaotic. I do not know whether this committee has been to India, but when you go you will feel that. It seems volatile, unstable, in absolute chaos, but somehow through that chaos things actually work. Over time it is actually one of the most stable and resilient political regimes in the world. The political system is essentially that which was adopted in 1950 when independent India adopted its constitution. It works.

At the last general election, the results were a surprise even to the governing party. They thought they might lose or maybe come back in and still form a government with different coalition groups. In fact, their number of seats increased. Not surprisingly, other parties were even more surprised and more disappointed.

What was interesting was that no one, no political party at all that I can remember, made claims of electoral fraud. They all accepted the verdict and engaged in introspections — whether genuine or superficial does not matter for this purpose — and said, "We must try better next time.'' There is no expectation on any part that anyone would try to cheat the electoral verdict or that Mr. Singh would not be the first to be offered to form a government.

If you think of all the countries around India, that is not a small thing to say. It is an anchor and oasis of regime stability as well as now economic prosperity in a very volatile and unstable neighbourhood. I believe it has never gotten enough credit for that, if as I said you think of it in its neighbourhood.

[Traduction]

Senator Fortin-Duplessis: On Thursday, January 21, 2010, PricewaterhouseCoopers, the auditing firm, published a study that stated that the combined gross domestic product of the seven large emerging economies, having been baptised the "E7,'' would, as of 2020, overtake the gross domestic product of the G7 countries, which today are the richest in the world.

Still according to PricewaterhouseCoopers, in 2030, the largest global economies will be, in descending order, China, the United States, India, Japan, Brazil, Russia, Germany, Mexico, France, the United Kingdom, and so on.

It is therefore quite timely that the Organisation for Economic Co-Operation and Development's Development Centre plans on entitling its report on world economic development prospects, to be published in June, Switching Wealth (le basculement de la richesse).

In this context, emerging countries have shown that the balance of power has changed and that the international financial system should grant them a larger place.

How do you see the international financial system developing over the coming years?

[Français]

Mr. Thakur: You want a short answer to that question? Between AD 1000 and 1800, countries called developing countries of Asia, Africa and Latin America accounted for between 65 per cent to 75 per cent of world population and world income.

Then, from roughly 1870 to 1950, under the impact of colonialism, Asia's per capita income plummeted from roughly one half of West European levels in 1870 to one tenth by 1950. This is Asia overall. India's income growth from 1900 to 1950, the last 50 years of the British Raj, was exactly 0. The reason I give those figures is so we do not forget the larger sweep of history.

Historically, India and China have always been major players in world affairs. In that 800-year period, for large tracts of the time, these two countries by themselves accounted for half the world income. We are returning to the historical norm. It is the last two centuries that were the deviation. We need to get used to that.

As we return to the historical norm, not surprisingly, these countries will demand a greater say in writing the rules of the game. They will not be content to be the norm takers. They will want to be the norm writers, interpreters and enforcers as well. The G20 reflects that.

What was happening in terms of the E7-G7 you mentioned — or let us take the Heiligendamm process, the G8 plus the Outreach 5 — it was like the G8 countries had their luncheon banquet and they kept the likes of President Hu Jintao of China, Prime Minister Singh of India and President Lula of Brazil waiting in the antechamber. They finished the banquet and asked them to come in for dessert and coffee and then afterwards presented them with the bill for equal sharing. That will not work. They will have to be there. Their weight will have to be recognized. The G8 cannot do that. As much as I love the United Nations, I do not see the Security Council being reformed to reflect this, either. The G20 gives us that opportunity if we get it right, where people around the table reflect the real weight in the world outside and can make contributions to that.

My understanding is that when Mr. Singh was phoned by President Bush at the time and asked to come for the first G20 summit in November 2008 in Washington, his question was, "Will we get a chance to say something, or will we just listen to others?'' Only when reassured that they would be able to speak did they say they would come. He is probably the most erudite and learned world leader at the moment in terms of his credentials in this field, but that fact will remain.

That is something we will have to learn to live with. It is important for us to be ahead of the game and facilitate this so as to keep our goodwill but to recognize that at the time, as the transition takes place, we have legitimate interests as well, and we also have a legitimate voice to contribute to the ongoing debate.

Senator Jaffer: You said Canada had issues with places. Is that the same kind of situation with Australia? What does Australia do to attract Indians to Australia? What is different from here?

Mr. Thakur: There are three things. One, there is a mix of policies. They do not penalize institutions but instead reward them if they bring people in. Two, the universities caucus and work together, so the Australian Vice-Chancellors' Committee has set up a separate committee independently as a legal entity for the promotion and marketing of Australian education overseas, and they work with that. Three, they work with governments on that. The department of education has its own officials in overseas high commissions and embassies, and their mandate is to assist Australian universities in market promotion and market development activities. Those three things we could copy with profit.

Senator Jaffer: In your presentation, you spoke about the diaspora and about the large one we have here. Can you tell this committee how we can work with the Indian diaspora to increase trade between the two countries?

Mr. Thakur: The Indian diaspora can perform an educational function for Canadian businesses and also a facilitative function by introducing them to counterpoints in India and identifying the institutions or the individuals who might be able to do that.

I also like the idea of forming a bilateral eminent-persons group with a time-bound six-month, eighteen-month or maximum two-year mandate to identify avenues for business financial collaboration, partnerships and institutions, and perhaps commission a position paper jointly with them. There are many organizations in India, for example the Federation of Indian Chambers of Commerce & Industry and analysts, and Indian entrepreneurs are now visible and present on the world stage as well.

The first time that India and China together made an impact at the annual Davos forum was January 2006. What was interesting was that the Chinese delegation was almost entirely a state delegation, and the Indian delegation was half and half, and I believe Mr. Kamal Nath was there on that occasion as well. The international interest was much more on the private sector representatives because of the excitement of the private sector there.

Still, we have a symptom of the problems that still persist in India, the fact that so many of the successful Indian business tycoons have felt it necessary to go overseas to establish operations and bases and then become accepted in India.

There are those factors that can be done, and I will be very surprised if the Indo-Canadian community does not jump at the chance to help the relationship in this manner.

The Chair: We have run over our time. We very much appreciate that you came to speak to us here. The distance we talked about at the start has completely disappeared due to the information you have given us, your perspectives and the various takes you have given us from your personal background and your varied experiences. It has been extremely helpful for our study, and no doubt some of what you said will be echoed in our report, so you will be able to identify it.

We thank you for coming today. Your writings are extremely interesting and they have been circulated, but if can you think of anything else that might be of assistance as we continue to study India, or, for that matter, China, please bring it forward. Thank you for sharing with us today.

Senators, we have one piece of business. Normally, at the organizational meetings, we have to file the report of the expenses from the previous session, and that was not available, as I told you at that time. It is now available, and I am asking for the concurrence to accept it.

However, there is a typo. It is not the Thirty-ninth Parliament; it is the Fortieth Parliament. We will have to make that amendment on the printed form. The figures are not debatable. These are expenditures from the previous session, and it is a routine part of business.

Is there agreement to accept it?

Hon. Senators: Agreed.

The Chair: Thank you. This meeting is adjourned.

(The committee adjourned.)