Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 6 - Evidence - May 5, 2010
OTTAWA, Wednesday, May 5, 2010
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 4:15 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.
[English]
The Chair: Honourable senators, we have as a panel this afternoon, from the Canada-India Business Council, Mr. Rana Sarkar, President and Executive Director; and from Borden Ladner Gervais, Mr. Robert R. Shouldice, a partner with that law firm.
Welcome, gentlemen. You have extensive knowledge of the areas that we are studying. I understand Mr. Shouldice will go first.
Robert R. Shouldice, Partner, Borden Ladner Gervais LLP: I appreciate the invitation to be here today. I should say at the outset that my focus will be on India. It will not be on either Russia or China. Understandably, coming from a large law firm in Canada, my perspective on this is from the vantage point of a law firm that, from time to time, gets involved in transactions and projects involving Canadian and Indian companies. I personally have been involved quite extensively over the last few years in public infrastructure projects in India, advising Canadian companies involved in those projects, and in representing companies that are making investments into Indian-based companies.
As a large Canadian law firm, we represent, from time to time, a wide variety of clients that are involved in bilateral trade between Canada and India. We have a broad network of people with whom we work and compare notes in terms of what we observe in the legislative regulatory environment. My discussion today will be based on, in large part, much of the input we get from that network of people with whom we work.
I am not an expert on Indian law or Indian regulatory policy, but I do have some insights based on working relationships and the working network.
I anticipate that a number, if not all, of the points that I may be raising have been raised in the past. Perhaps I can underscore some of those or add a different perspective. Hopefully, I can leave you with a few points that might find their way into the ongoing dialogue between Canada and India in the area of bilateral trade and investment.
I have handed out a one-page outline of the points that I plan to address today. My opening remarks will be brief and at a very high level. I really want to highlight the nature of the point that I am raising. You can see that the topics on the list are somewhat selective. This is not in any way intended to be an exhaustive review of all legal and tax-related points or points that relate to bilateral trade and investment.
I want to highlight a few tax-related points, although I am not tax lawyer. I am a corporate commercial transaction-type lawyer, but I do work with tax lawyers quite a bit.
Being involved in these bilateral trading transaction opportunities, I want to highlight things that stem from a fairly recent introduction of proposed tax law changes in India, specifically to the direct tax code, the DTC. This led up to the budget introduced by the finance minister near the end of February or in early March in which, among other things, there was a proposal to adopt what is called the "later in time" doctrine which, as currently planned and written, may substantially undermine existing tax treaties between India and other countries.
The "later in time" doctrine is, as the wording suggests, very simply, the principle that if new domestic tax law is introduced subsequent to an existing treaty that conflicts or is inconsistent in some way with that existing treaty, the domestic tax law, because it is later in time, would override the treaty. Most observers in this area find that to be a somewhat aggressive, somewhat out-of-the-ordinary approach. It is somewhat controversial, which may not be surprising in India. It is getting a lot of commentary, input and discussion. As recently as about a month ago, the minister of finance, in a public address, reaffirmed the intentions to go forward with this measure.
In recent dialogue with some of our network I have learned that there is still some active lobbying, that discussions are continuing and the government is still listening, so perhaps there will be some relaxation of this objective.
The second point in the outline is the tax on foreign-sourced income. Also proposed among the changes to the direct tax code is taxing non-resident companies carrying on business in India on foreign-sourced income, that is, taxing non-resident companies on other than India-sourced income. That is also quite a departure from normal taxation principles and would potentially undermine a very common practice with foreign companies providing services to countries like India on large-scale projects.
As many of you may know, when doing large-scale construction or infrastructure projects, service companies will often split their contracts between onshore services, which are supplied by onshore or domestic companies, and offshore services, which are supplied by different companies, and they do that for tax purposes. Those sorts of structures, which are commonplace around the world, would, I think, be seriously challenged by the proposals currently on the table in India.
Those are the two developments in the taxation area that are of most concern to Canadian companies and Canadian investors thinking about doing business in India. Some others that are getting attention include the proposal to introduce a new capital tax. Perhaps there is an opportunity in the Canada-India dialogue for Canadian officials to share with Indian officials the Canadian experience, which has been to eliminate capital tax as much as possible over time. We have found that to be a regressive tax. It is sort of a disincentive to investment from companies abroad and domestically.
Also of interest is India's plan to introduce a new general anti-avoidance rule. As currently drafted, it is very broad. It would capture many investment structures that are used by Canadian and Indian companies. That, of course, is causing some apprehension and angst. Again, there may be lessons that we can share with our counterparts in terms of our GAAR experience. Perhaps there are things we can suggest in terms of how to manage that policy.
There are also plans to introduce a new branch tax. Canadian companies that are not planning to incorporate a domestic subsidiary in India will be interested in how that new branch tax might affect them.
I now want to talk about non-tax-related initiatives that relate more to the process that must be followed to complete a foreign investment in India. I also want to deal with the exchange control bureaucracy and approval process that apply to typical commercial structures that are set up to accommodate bilateral commercial arrangements.
On the foreign investment front, India is very comparable to Canada in that, as a general philosophy and policy, they very much encourage foreign investment. They try to streamline the process for those sectors that are open for business. They have what they call the "automatic process," which means that no prior approvals are required from government. There is also the other category of foreign investment that is subject to the approval process. However, those are fairly restricted industries, and there are similar parallels to the Canadian approach in that the sectors protected are those that are sensitive to the communities of India.
Our firm's general experience with Canadian companies doing business and making investments in India is that, while the high-level approval process has now been streamlined and is quite accommodating for foreign investment, there is still a very heavy administrative and bureaucratic process required in terms of follow-through once the investment is made. A lot of paperwork and red tape must be complied with to make even the most simple of investments. An investment in a private company at a minority level still triggers a lot of bureaucratic filing of reports and forms. Regrettably, this sometimes creates the opportunity for bribery or corruption among officials involved in that process.
The encouragement of a more streamlined process with the elimination of red tape, required filings and submissions of documents will be well received in the Canadian investment and Canadian business community.
Somewhat similarly, in the area of exchange controls, a lot of uncertainty is created by the exchange control legislation when it is applied to, among other things, international joint venture investment-type structures, such as where an Indian company comes together with a Canadian company for the purpose of jointly investing in, funding and managing a project that may be located in India. This presents some challenges because of a lot of uncertainty about when prior approvals are required from the federal reserve bank and what the triggers are for those prior approvals or, alternatively, what the triggers may be for later approvals in the process.
By way of example, I will use indemnities provided by an Indian company in a commercial agreement. The indemnity payments to be made under those indemnity contracts might require approval by the Reserve Bank of India when the payment is made. Of course, the counterparty that has entered into this agreement with the Indian company is left in a somewhat uncertain position as to whether it will be able to enforce the bargain that it made with its counterparty. Another example would be the case of a corporate guarantee that might be negotiated as part of the commercial transaction structure. In such a case, a possibility exists that the guarantee will be subject to prior approval by the Reserve Bank of India.
Similar kinds of approval processes usually do not apply in other industrialized countries when companies from two different countries join together in a common investment and make a commercial deal of this kind. To the extent that we can encourage the regulators in India to do away with some of these administrative and regulatory approval processes, the better it would be.
I have a few miscellaneous points, the first being the limited liability partnership, LLP, structure. India made some progress last year by adopting legislation to introduce the concept of limited liability partnerships. They are well behind many places in the world where limited liability partnerships have been recognized for many years. A limited liability partnership is a form of business entity that is popular in many transborder commercial transactions. It provides some advantages for international companies coming together for these kinds of joint venture transactions.
That is the good part of the story. The frustrating part of the story or the uncertainty we are left with is whether a foreign company's participation in a limited liability partnership structure will be caught in the category of foreign investment that might be subject to government approval. That does not seem to be a logical basis for triggering prior approval by the Indian government, but, apparently, that is still an open point surrounded by some uncertainty.
I have listed a few bilateral-style agreements that we understand are still on the table or in the works. The network of clients, counterparties and other professional advisers involved in cross-border business with India are supportive of these bilateral agreements and of finding a way to the finish line. I add my voice in support of that, including the Foreign Investment, Promotion and Protection Act; the Civil Nuclear Cooperation Agreement; and persuading India to become more than an observer in the WTO Agreement on Government Procurement. I will be glad to take your questions.
Rana Sarkar, President and Executive Director, Canada-India Business Council: Perhaps I can structure my presentation by dividing it into a few categories: First, a brief description of who we are as an organization; second, some of the key issues that we see before the file; and third, a prescriptive set of actions that we see as urgent and germane for the activities of this panel.
The Canada-India Business Council was founded in 1982 by the likes of Bombardier, Bata and Sun Life, with the work of corporate business council between the two countries, to engage the top tiers of business in the two countries to provide a common platform for dialogue.
As you can imagine from your previous deliberations, the dialogue was tepid for many years but, over the course of the last two to three years, has emerged as quite robust as India has become a strategic priority for Canadian businesses in particular. Currently, we represent about 130 members, mostly in Canada but also in India. For instance, some of our key stakeholders are sponsor member organizations such as Bombardier, Research In Motion, Atomic Energy of Canada Limited, Cameco and Sun Life. On the Indian side, we have Tata and ICICI Bank Limited. This growing caucus of companies represents the majority of large corporate interests between the two countries and provides a connectivity for business level discourse that complements the government and small and medium-sized enterprise collaborations taking place, as well as talent flow in both directions.
From that vantage point, we are involved in the promotion of a number of bilateral agreements and in facilitating incoming delegations of members of government and key business leaders. Equally, we support actively our many members who are involved in building their businesses in India. We are a national organization with our headquarters in Toronto.
I will preface my comments by bringing up a topic that you no doubt have heard about from previous witnesses. The urgency of India is fierce at the moment given that we are in the midst of a global economic realignment. This committee is no doubt familiar with that topic, and the striking of the committee no doubt reflects that sensibility.
However, it is worth reviewing the fact that India will be the third largest economy in the world by 2030, which is only 20 years away. At the same time, 20 years ago around this table, the discussion of Meech Lake was probably happening, which does not seem so long ago for some people here today. In 20 years' time, our children and our grandchildren will be participating in a world that will be completely transfigured by the rise of India, China and Brazil in a way that is perhaps difficult for many of us to fully imagine.
We see this as an exciting time to be in business and to be building a country. For that matter, we are presented with the idea of a fiercely urgent priority for us. India has an extremely young population. Currently, 50 per cent of the population is under the age of 25, which represents both a great challenge and a great opportunity from a demographic standpoint.
Also, India will be a participant in and perhaps a leader of some of the great economic revolutions that will take place over the next 20 to 30 years. Those include revolutions in clean technology, the way in which energy is produced and delivered, and the entire basis of economic competition around the world. A significant productivity innovation agenda will be forwarded largely by countries from the emerging world. More importantly, the entry into the global economy of the bottom billion — those who have been excluded to date — will create entrepreneurship in a way that has never been seen in the contemporary industrial era. This is exciting to us, largely because we see it as a reversion to the historical mean of the world in some ways. In global power terms, our next century will look more like the 12th century than the 19th century, which provides a series of challenges for countries like Canada and the companies within Canada, and with it of course a set of unparalleled opportunities.
With that said, we as a country and the companies within are presented with a great challenge of how to get the attention of countries like India that are on this extraordinary path to growth, that are extremely busy on that path and that have their own well-established and emerging geostrategic ambitions. At a granular level, how can we get companies and individuals to participate in that growth?
We would suggest focusing our attention as a country on a couple of key priorities. One of those priorities certainly needs to be, from our perspective at least, India. I will not preface that with further background because I think that some of the previous work of the committee might have covered that area already.
Our biggest challenge in India is getting attention in mind share. We see this all the time, and Canadian businesses see this all the time. Our companies are not well-known enough in India, and brand Canada has not been present enough in India. This is a fiercely urgent agenda right now in terms of how we can make this happen in the short term. We do not have a huge runway on this. Much of the business decisions being made in the next 24 to 36 months will set down a paradigm that will carry forward, and we need to ensure that Canadian companies and Canada itself are aggressive in being present on this shop-floor opportunity that is taking place in India.
We often liken it to the example that if someone were to ask people in 1900 whether they would like to buy an option in the United States, few would have said no to that option. It is difficult for us sitting around tables like this at Bay Street, Calgary and Montreal to get our heads around the scale of these opportunities and the kind of change heading in our direction. I think it is an exciting change, and we need to be prepared for it.
Therefore, designating India as a priority country from a foreign affairs perspective is an absolute symbolic marker that Indians in India as well as governments and businesses will start to understand and help us coalesce the resources we have already applied. We need a concerted public diplomacy campaign in India in a way we have not done in the past in many other countries. I understand from the Department of Foreign Affairs that we are beginning that process. However, the level of sophistication in that project and the level of resources we should apply to it in the short term are something in the order of magnitude beyond what we might be contemplating. From the business point of view, that is something we should be looking forward to.
Part of that promotion of brand Canada is this idea that there are probably 100,000 new actors — business, young people and opinion leaders — in India that we need to identify and track because they need to know Canada. That is part and parcel of creating this concerted outreach campaign.
When we do approach India, we should not approach it as a market that will be putting half a trillion dollars into infrastructure in the next five years and building 40,000 new colleges over the next decade or two. The market size is extraordinary, and often the numbers are mind-boggling, but that is not the frame of mind we should approach with. We should be approaching India in the frame of mind that we are there to learn alongside them as they become one of the great innovation entrants of the 21st century. We should be looking to fit the needs that they as a country and as business communities are looking for and that we could easily slot into.
As India grows its relationship with China, which will be one of the greatest transfiguring relationships of the 21st century, and as it grows its relationship with Brazil, which will be an enormous relationship for a variety of good reasons, we need to be alongside for the ride. We need to think about what they are seeing as their priorities and how we can fit in.
One of their key priorities is how to alleviate poverty and how to ensure all these young people going through the system come out as educated young people who are able to contribute and will not just cause problems in the future. We need to be there to help them think about how we can improve health and education indicators. Therefore, think about human development because it is a key component in India.
We also need to push forward symbolically and with great purpose the three big agreements we have between the two countries that have not been dealt with. One is the Comprehensive Economic Partnership Agreement, the FIPA agreement and the NCA. Let me say a word about the Comprehensive Economic Partnership Agreement first. It is an important agreement on a variety of symbolic levels. If we started going down this road right now as the first OECD country providing market access to NAFTA and therefore a template for how India thinks about its global trade arrangements, then we will have a front foot in the Indian business corridors and an opportunity to raise our mind share critically amongst some of the key players in India, which will pay dividends down the road. Therefore, we should use all our efforts to push that approach, including lobbying efforts.
Right now, we are doing it on the cheap. We need to look at what the French, Russians and Americans are doing in India and the amount of resources, both from public and private sectors, they are using and what sorts of organizations they are using. I am not saying this because I represent an organization, but it is organizations like ours that are able to put boots on the ground, keep efforts alive and do things that sometimes governments find challenging. We need to look at ways of incorporating this into a broad plan.
Finally, I will say something about education. Education is where we desperately need to lead, largely because it is one of the key issues on the Indian political agenda. Business leaders in India are absolutely consumed by the idea of how we can better educate, not just at traditional universities but also with respect to vocational and primary education. It is an area in which we have been strong and under-marketed. It is an area where Indians will see great value if we push it in a coordinated way, which represents a number of challenges in that it is not typical because of how our constitution works. The federal government does not necessarily push into that frame, but how we coordinate our activities is something we need to think about. Those 40,000 colleges will be built and millions of kids will be educated. Whose systems and whose partners will be doing that? Will they be Canada's? We need to ensure we are involved.
I will conclude on the point that one of the greatest dividends we will receive from India over the course of my lifetime and my children's lifetime will be the benefits of talent exchange. This is not just straight immigration; this is the circulation of talent globally. For us to avail ourselves of the real opportunities in India, we need to ensure our kids get there through exchange programs and so on. We need to ensure our political leaders get there and that this committee gets there. We need to ensure that our civil servants are doing more to get there as well as our CEOs. The more we do so through enhanced travel links such as having direct flights, through ensuring there are subsidies for school children to get there, that is how we reduce distance and how we will win in the future.
[Translation]
Senator Fortin-Duplessis: First of all, I want to welcome Mr. Shouldice and Mr. Sarkar. And I take this opportunity to congratulate Mr. Sarkar on his election as President of the Canada-India Business Council. I am very happy for you. You must be pleased with these results. My question is address to both of you and I thank you for your remarks.
You have talked about the relatively good relationship between India and Canada and about the trade we have with them.
Mr. Shouldice, you have no idea how shocked I was when you mentioned the tax laws in India, the tax on foreign companies' income and the new taxes on capital and on branches.
This derails my question, as it will prevent doing business over there, but let's put that aside for a moment. You are both valuable agents when it comes to helping liberalize trade between India and the rest of the world.
However, statistics show that Canada ranks 28th amongst the countries that buy products from India. Something is wrong. What are the impediments? What can Canadians do to improve business with India? What are the main challenges that Canadians must meet?
[English]
Mr. Sarkar: Let me begin with saying that there are significant obstacles to doing business in India from the Canadian vantage point, including bureaucracy and the sheer difficulty of doing transactions in the past. That has been the case for many decades, as people know.
However, the ease of doing business in India has changed significantly, particularly over the last two to three years and certainly over the past ten years. The current government in India has its second mandate, and you can see, as it continues to move through a series of reforms, that it is becoming easier for companies to set up and get involved in public-private partnerships, for instance. The process is becoming clearer for companies here.
That being said, there have been many great examples of Canadian companies doing business there. For example, Bombardier, has been involved in India for decades now and has, to an extent, learned the Indian system. As India evolves their commercial system to become completely commensurate with the global economy, that evolutionary process is somewhat hindered by their domestic politics and their political arrangements.
However, the broad direction of travel, in terms of the reduction of bureaucracy and the openness to global foreign direct investment are positive signs. That said, we need to get some of these agreements in place, and we also need better trade statistics.
One of the challenges with the India relationship, on which we have been doing some research and are looking to do more, is the undercounting of trade. A lot of the trade we do with India gets shipped through third countries, through the transhipment process. Often it is looked at as U.S. trade or it is done through a Mauritius sub-company that looks like it is trade with Mauritius. For instance, our gold and diamonds trade where the end destination is India, is completely undercounted and does not show up in our trade statistics. It is the old aphorism that if you do not measure what you care about, you end up caring about what you measure.
We need to really understand what we are doing with India now on the trade measurement file. That will give us more impetus and more of a bargaining position in India, to start to say here are some measures you may want to look at. For instance, with the caps on foreign direct investment, we can join other main countries at the table when it comes to negotiating with India on these issues.
Mr. Shouldice: I will add a couple of supplemental comments to underscore the main theme of the comments that my fellow witness has just made here. I agree with the observation that India is going in the right direction. We should recognize India has not been open for business and encouraging and accommodating foreign investment for all that long, much less time than Canada has been at it.
I agree with the comments about the tax initiative. That was the primary reason I wanted to raise those points today. That is why it is controversial in India among the business advisory groups and the various professional advisory groups and investment organizations. To illustrate, one of the leading tax advisory firms came out with their commentary on those proposals a couple of months ago under the title or banner "gain for locals, pain for globals." What they saw in the proposed tax initiatives was some progress for local, domestic taxpayers but pain for the global or foreign investor. The observations are consistent among those watching with interest.
To further underscore the general direction, there is progress in the foreign investment regulatory approval process. The new policies, the encouragement of foreign investment and splitting up the process between the automatic approval for most sectors and only requiring formal approval for protected industries or sectors, are welcomed. However, we are left with the administrative, bureaucratic red tape that is involved in implementing foreign investment.
On the foreign and direct investment policies that applied to the various sectors, one thing that is unique about India is that they carve up the different business sectors and the different types of foreign investment in quite a complex way. It takes a while to weave your way through and determine which category you fit it.
It used to be that you had to go through quite a maze of piecing together the various policies and regulations. However, just last month, the government of India and the ministry of commerce and industry published a consolidated FDI, a foreign and direct investment policy, where they have consolidated everything into one document. They have made a commitment to update that consolidated document every six months. It frees people like me and others who are doing business from going back and piecing together various policies and legislation.
I think they have the right objectives in mind, and they are demonstrating that they are implementing it in many areas. There are still some areas, though, where they need to be reminded about where they might be going off track.
[Translation]
Senator Fortin-Duplessis: Thank you both. I will have more questions for you later on.
[English]
Senator Smith: I have a question for Mr. Shouldice and I will ask Mr. Sarkar to comment on it too. Let me say at the outset, you come from a good firm; I articled there many years ago when it was Borden Elliott.
In any event, all of us on this committee are quite keen in improving Canadian-Indian relationships. These are the positive things we are talking about. They include the booming economy, which will be the third largest in 20 years, and the very strong Indian community we have here.
However, sometimes there are these other delicate issues that you have put down here, these tax complications. If you go down to 2.4(f), there is a word there that starts with a "C" that is sort of a delicate word, but you have it down in writing. As you know, we are looking at China and Russia as well. To be frank and candid, when we were in Russia, there was a fair bit of discussion about that word and the realities of it.
Minister Nath was here and encouraging us gung-ho to get in there. What was his line? Canada had woken up but we had not gotten out of bed insofar as dealing with India was concerned.
Sometimes when you have these mechanisms that represent bureaucratic, regulatory empires, there are opportunities for squeezing that you hate to hear about, but if they are there they are there. We did not raise that with him.
How blunt can you be? If we are meeting with officials in Delhi, maybe you do this more over a coffee or even a Kingfisher in some nice little restaurant. However, you have been upfront about it.
There are organizations that rate different countries on these sorts of problems. I am sure we have some of those graphs. I know that India is well down the list, regrettably. Are they getting it? What advice do you have on dealing with that matter and how blunt can you be? What is your reaction to what I am probing at? You know exactly what I am probing at.
Mr. Shouldice: I will start by saying that, first, I think they are getting it. I think improvements are being made. Some of you may have noticed that the front-page story in the business section of The Globe and Mail was about one of the most successful, wealthiest Indian businessmen around today. I have forgotten his name.
Senator Smith: I did see that, yes.
Mr. Shouldice: There was an interesting profile on him. That profile included a very direct discussion and question-and-answer session about corruption. His point was that you can just say no in India. In fact, it might very well be your best strategy for doing in business in India, right out of the gate when you start your business, to establish the practice and the policy and the ethic. He claims, and I think there is support for it, that that is his way of doing business and his company's way of doing business, so it can be done.
In my world, Canadian companies that do business in India address this challenge, if you want to call it that, by having local partners to do their business with. They will leave to the local partners the delicate process of doing business with various officials, if that is the way of doing business. Again, my impression from talking with these people over the years is that it is getting much better every year. My sense of things is that there is a momentum and a confidence level such that this is an issue that will be behind India in the not-too-distant future.
Senator Smith: Just before Mr. Sarkar comments, when we were in Russia, you would hear more about this in Moscow, which is more the older system. In Khanty-Mansiysk in Siberia, where all the oil and mineral development is going on — they have a very strong governor, but quite apart from that — it is a newer economy that is more globally connected, and they got it more so that one just did not go down that road; whereas in some of the older parts of the country it was almost a tradition.
Mr. Sarkar, do you have any comments on this delicate issue?
Mr. Sarkar: Senator Smith, you have hit on the solution. These things are both profoundly generational. In terms of the generation of Indian business that is coming of age now, that is globally active, that sees its future in doing business of a certain scale and certainly along global lines, you are seeing a lot less corruption, quite frankly. It is very different across regions in India, and regions that are not as well developed or have much more traditional reliance on government or more traditional ways of doing things will probably have more of it.
The other key factor is that, as the middle class in India starts to engage in politics and governance, and gets out into the world, sees who their partners are and what bar they are looking for in terms of what they want to reach, they see the value in setting new standards. This is happening in real-time. It has been happening over the course of the last few years and maybe the last decade. You are getting a very different response now from business operators, not just at the level of the large operators that deal extensively with government but also at the regional and smaller businesses, particularly the technology businesses.
One of the great contributors to this change is the growth of the technology revolution in India. With the growth of Bangalore, Hyderabad and these places that became great global hubs for technology, a standard was set in terms of how great Indian companies should be managed and operated and how confident they could be about addressing the world. It is more chalk and cheese now than it was maybe even a generation ago. Again, the influence of travel is positive.
That is not to belittle the challenges. The challenges are many. They are organizational, structural and governance related, but, broadly speaking, from where Canadian companies can access, these issues can be managed.
[Translation]
Senator Rivard: I would like to ask a couple of questions about the nuclear sector. Have you any idea of what percentage of the electricity produced in India comes from nuclear energy? Is it very important?
[English]
Mr. Sarkar: It differs regionally. I do not have the statistic in front of me, but it is a fairly significant investment in the past.
As you know, India is in an extreme power deficit as a country. This is an issue that occupies them significantly. They are looking at putting in 34 new nuclear reactors over the course of the next decade, which is a significant build-out, obviously. That is an industry where we as Canadians, given our historic relationship and the familiarity with the CANDU technology, have a strong opportunity to participate. We look forward to the completion of the nuclear cooperation agreement to finally kick this off in earnest.
[Translation]
Senator Rivard: This is precisely my point. Has Atomic Energy Canada Limited already given presentations? Currently, there are no Canadian reactors in India.
[English]
Mr. Sarkar: AECL is very interested. They are one of our patron sponsors as well. I do not speak on their behalf, but my understanding is that they have been active in India of late and are putting in more efforts to be active in India both on the reactor sales and the support side. We look to them as the opening card in some ways in terms of the broadening of the nuclear supply relationship that is possible between the two countries.
On the other side, we have Cameco as well, which is quite active. India is a key market for them in the future. If we have those two cards in our arsenal in terms of our ability to address the growing nuclear opportunity in India, then I think we are on good footing.
Mr. Shouldice: I might just point out that both the U.S.A. and France, and I think others, have entered into bilateral agreements with India in the sector of nuclear power. As I pointed out earlier, that is where Canada may be falling behind. While we have negotiated one and have a framework for one, we have not yet got to the point of being able to sign one. We may be missing an opportunity.
[Translation]
Senator Rivard: Let us come back to the tax system. I understand that it's a bill. You explained that if a foreign company, let us say Bombardier, operates in India, whatever profits it could make or is making presently in India, if it has earnings somewhere else in the world, India would tax those. Conversely, if an auto maker, GM or Chrysler for example, that has lost money over the last few years, were to build a plant in India and that, because of the labour costs and the domestic market, they make tons of money in India but show deficits in the rest of the world, could they deduct these losses? Does the bill apply only to earnings or does it include possible losses abroad?
[English]
Mr. Shouldice: Some of what I talked about is only in the bill stage. You are correct. This is proposed legislation. I may not have mentioned that the target date for proclaiming into law is April 2011. I mentioned that rigorous debate is continuing. How the taxation issue ends up remains to be seen.
I will avoid responding directly about how Bombardier might be taxed because I am not exactly sure of their structures. How any Canadian or foreign company structures their investments will vary from investment to investment. Those companies may or may not establish a domestic company to become a domestic taxpayer. Mr. Sarkar alluded earlier to companies that may support their investment structure with some treaty arrangement with Mauritius, Cyprus or some other tax-friendly jurisdiction.
I think, senator, that you are suggesting what I suggested earlier. If some of these new initiatives are followed through, a foreign company conducting business, earning revenue in India and earning related revenue elsewhere may become subject to a greater Indian tax than before. I think that is something that deserves close attention.
[Translation]
Senator Rivard: To conclude, if I may ask you as an advisor to numerous clients that start operations in other countries, is there any other industrialized country, maybe not as important as India with its 1.2 billion inhabitants, but is there another country with such a tax measure, or is it specific to India?
[English]
Mr. Shouldice: That is a good and fair question. I am unsure I have the answer as I am not a tax lawyer. I suspect there are other countries with a similar tax system. I am not sure any would be in the same category as India in terms of its size, industrialized state and its anticipated future. Any other country that might have in place the kinds of initiatives I described would likely be in a much different situation — less industrialized and less "progressive."
Senator Jaffer: Mr. Shouldice works for a large law firm, which I imagine has offices in India. Do you build exchange programs with the Indian diaspora in Canada? Is your firm building relationships to enhance further work for, not only your firm, but generally?
Mr. Shouldice: We do not have offices in India. Under the current law society rules and the enabling legislation for the law society in India, foreign firms are not allow to practice in a direct fashion, to set up a law office. The relaxation of those rules has been anticipated for some time.
Significant U.K. law firms — the so-called London circle firms — have had for some time what I would call an informal partnership with local Indian firms.
We have been approached a few times by Indian firms about an arrangement like that. We have not done it yet. Notwithstanding many good things happening between Canada and India and Canadian companies carrying on extensive business in India, Canada is still at an infant stage in the grand scheme of things. We are not the same kind of player in India as the U.K., the U.S. or others. Accordingly, Canadian law firms do not have the same kind of presence. We have relationships with a number of the Indian law firms and do business based on those relationships as well as following our clients working in India.
Senator Jaffer: Mr. Sarkar, your counsel is well known across the country for the work you do.
You mentioned some big firms like Bombardier and RIM. Do you also work with the Indian diaspora businesses in Canada that work in India? How do you encourage the Indian diaspora to get involved in India?
Mr. Sarkar: As you know, the Indian diaspora needs no encouragement to get involved in anything. They are involved.
A number of organizations represent the Indian diaspora commercially. As an organization, we have carved out our own space in India as not being that of a diaspora representative organization. Our organization is more for the run-of-the-mill Canadian corporation looking to build business in India and for Indian corporations looking to build business in Canada.
Of course, we have many leading members of the Indian diaspora who happen to represent companies involved in our organization. Canada, as a developed country, has the largest Indian diaspora proportionally of any country in the world. If you think about that as a secular fact alone, it means we are already seeing the ancillary benefits just in terms of people travelling.
For example, Azim Premji, the chairman of Wipro, which is one of the world's largest IT outsourcing companies, was in Canada yesterday. When asked about what his connection is to Canada, he said that they have a relatively small operation in Canada that they are looking to grow. It is not comparable to the operations they have in the United States, the U.K. and elsewhere in the world. Mr. Premji said he regrets this; it was an oversight on their part. They should put more attention into the Canadian market, which they will do. When asked what other connection he has, he said his sister lives in Halifax and is a doctor associated with Dalhousie University, so he is in Halifax once in a while.
You start to see from those stories the strength of Canada's location in the growing global Indian diaspora as they become much stronger economic actors in the world. That will become a more important component of the story.
We need to do all of these things. We need to encourage mainstream Canadian businesses to look at India and Indian businesses to look at Canada. We also need to actively promote the diaspora interchange as well. There is a lot of hidden trade there. Many people have businesses in both countries and are going back and forth. There is a real opportunity to encourage that relationship in the future.
Senator Jaffer: Both of you have spoken about Canada being at an infant stage. I will not ask about the U.K. because it has a different relationship with India. Are middle-sized countries such as Germany or Australia doing things differently than us? What should we be doing to become more active and have a greater presence in India for trade purposes?
Mr. Sarkar: To go back, it is an issue of focus. It is not that we do not have the stories to tell in India, but we need to sort of coalesce our stories and tell them in a concerted fashion. We need to really work on this brand Canada issue. We start where we are strong already, where we have stories that will be immediately taken up in India: our resource story, what we are doing in the west, our access point into the NAFTA markets and the fact that the Toronto Stock Exchange is the world's largest resource exchange in the world. When India looks at Brazil and says, "We need to start building business in Brazil," who will they look to? Where will those deals come from? Where will they be financed? They should be financed out of Toronto. We have a number of great stories that we can tell in India, but we need to start telling them in a concerted fashion.
As well, we need to get these agreements off the ground. If we do not have the agreements off the ground, we do not have the entry point. It is a ticket that we need to punch to get going.
There is a much longer answer to that, but if we start with that focus, saying India will be our great priority, and also get these agreements off the ground, then we will be in a much different place 36 months from now.
Mr. Shouldice: To supplement that, and this was alluded to earlier, we need regular visits amongst our leading politicians and corporate executives. That symbolism means much more to people in India than it might to people in Canada. It is a different cultural dynamic, and it does mean a lot.
Mr. Sarkar touched on this earlier, the foreign student exchange program or participation. We have a great opportunity to substantially step up the exchange of students between the two countries. As Mr. Sarkar mentioned earlier, Indians are prepared to invest a lot of money in their children's education, and that includes the secondary level. Canada has a great ability to offer a high-quality, post-secondary education.
That touches on some of the other things we talked about today. It starts to meld our cultures, including maybe business ethics. It starts to bring us that much closer. Just as important, it starts to create relationships and goodwill amongst people who will become the future leaders and the future industry executives. Small initiatives like those, in a cumulative way, will have a meaningful impact.
Senator Stollery: I will not get into the corruption business, but I remember that we bought a lot of cloth in India from 1955-56 up until 1966-67. The family firm replaced its vialla with the Cotswold from Madras. We bought the cloth ourselves and had it cut. We were quite big in that business. I do not recall any great difficulty. It was a hugely successful business, although probably not by today's standards, but it would be the cloth for 500 dozen shirts a year.
These conversations are pretty amazing. Senator Finley reminded us at the last meeting, if I am not mistaken, that they are in the market for 700 airplanes of the type that Bombardier makes, mostly in Toronto. This is huge business. Yet, we find also in these hearings that we do less trade with India than Chile. It is just unbelievable. We have let this go. In the mid 1950s, we had a lot of Indian students in Toronto. I am from Bloor and Yonge, right at the centre of all this stuff. What happened? Somewhere, we missed the boat.
Senator Smith: Their great grandchildren are now coming over.
Senator Stollery: It is amazing. We do have, after all, the British connection with India. There is a long history with India. I do not want to go on about it, because we have had such impressive testimony here at the committee. Germany is the second-largest exporter in the world, and in some years may even be close to China, maybe a little more, depending on the year, and they were zero in 1955. What have they done right that we have done wrong?
Mr. Sarkar: In 1997-98, I worked for a German management consulting firm that was based in India, just starting out. It was a global consulting company called Roland Berger, and I was helping set up their India operations, along with a team. It gave me great insight into what the Germans are doing. Frankly, they were concentrating on what they do well, engineering and manufacturing, particularly in sectors that are not particularly sexy. I will give you one example. Siemens has been working in India for over 100 years. Essentially, it is an Indian company right now. They focus on equipment, such as the automotive sector. The Germans have been big players. Daimler Chrysler has been in India tied in with the Tata organization in Puna, which is a great automotive manufacturing centre. It is about starting with what you are great at globally and really pushing forward with that agenda. We could certainly have been where Germany is, and we have all the possibility, given all of these other areas we have talked about, including the diaspora network and resources, which India needs right now, not in incremental terms but in exponential terms. However, it will take a concerted effort from us, and it will have to come from us. It will not come from India. It is a busy line in front of the door for any significant CEO or government minister in India right now. We need to put that effort in ourselves. It is of great urgency.
Senator Di Nino: Mr. Sarkar, you just said we need to put the effort in ourselves. What do you mean by that?
Mr. Sarkar: Let me give two examples. First, we, as a business community, business leaders at all levels across the country, particularly as the top levels of management, need to really think about this. It is up to every individual business manager and executive to determine their global priorities. Few strategic plans for organizations of a certain scale do not include India. At this stage, given how competitive it is in India right now, we need to start to lubricate the lines of travel here and the connections between the top leaders of our businesses here and the top leaders in businesses in India. That is how we can start to really shake the trees on trade.
Second, government has to get involved. There has to be leadership at government. There is a raging political consensus in this country that we have to get going on India. It is not a partisan issue. What we really need is an action plan that might have a deadline on it. Maybe we say that, by December 31, we will have a concerted action plan that says what we will do, what monies we will invest and how we will go about moving forward in India at an exponential level rather than an incremental level.
That is a short answer to that question that might have gone on a little longer.
Senator Di Nino: There is probably more ignorance than lack of will in Canada about the opportunities in India. However, I may be wrong. I will ask you the question on that basis. The first time I went there was in the late 1980s. I was having dinner with some personal friends. One of my friend's relatives, a medium-sized business person, was there. He made a comment that blew me way. He said, "It is too bad that our country has only about 20 per cent of its population in the middle class." I did a quick calculation and I said, "That is a bigger market than U.S." This was 20 years or more ago.
Is that part of the problem, namely, that Canada does not really understand the opportunities in India, business and government?
Mr. Sarkar: I think so. It is not Canada's secular problem. That is, there is nothing wrong with our wiring on this issue, because other countries are having the same problems. It is the function of a number of things, including the pace at which the world is changing. The idea that India could be a market of such extraordinary scale; the idea that China could have transformed itself while we were preoccupied and build cities upon cities, are difficult for any of us to contemplate. There is a catch-up process involved here. As individuals, we need to update our software at both the government and the business level. To solve it, we have to travel, be there and see these places with our own eyes. If you do not see it, then it is difficult to grasp the real gravity, not only of the opportunity but also of how we have to prepare ourselves for it. We need to ensure that we resolve this issue in short order, because we need to ensure that our kids are availed of these opportunities.
Senator Di Nino: From your answer to me, I gather that you think that the Canadian government has neither the willingness nor the resources at the present time. Did I read that correctly?
Mr. Sarkar: No. All governments in the country, including the federal government and the various provincial governments, have been getting religion on India in a significant way over the last couple of years. I do not think it is an issue of political will. I think it is an issue of following through on a political will at all levels of government and ensuring that it is instantiated. That is a governance problem. We need to keep pouring attention to it. Senators like yourselves and Parliament play a strong role in that, but so does bureaucracy. Broadly speaking, I am hopeful and laudatory of the direction all governments in this country, provinces and cities included, are taking in this issue.
Mr. Shouldice: It may be that Canada has been overly focused on China in the last 15 to 20 years. A number of initiatives have been pursued by the federal government and some provincial governments, particularly British Columbia working in close cooperation with Canada to develop strategies and initiatives.
My more recent experience with India has made me observe what I think a lot of you are observing, namely, an intriguing development dynamic. I think we have a lot more in common with India than we do with China because of the commonwealth relationship and history, and on many other fronts. We should be paying more attention to them. Opportunities are enormous, and the ability to do business in an efficient, productive way with India will likely be easier over time than it is with China.
Senator Di Nino: Mr. Gary Comerford expressed the same opinion last week when he was before us.
Mr. Shouldice, you talked about the agreements and said that we need to get them off the ground. My understanding is that Canada has them off the ground and that they are in the hands of the Indians. Do you know something that we do not know?
Mr. Shouldice: I may have used that comment, but I meant get it off the table and to the finish line.
With the bilateral trade agreement, we have come to a standstill because of the Indian government's indications that they have some challenges with the text of the agreement. As I understand it, they are not articulating any serious differences on principle, but are alluding to some challenges with the text. I do not think those challenges or those issues over text are public knowledge. I am not aware of what the specifics are, so I do not know anything more than you. Those who support the improvement in bilateral trade are encouraging the government to find a way to get this off the table and to the finish line.
Senator Downe: Following up on the question of Senator Di Nino, I am concerned that the government, with the exception of the European Union, which will be a massive agreement, does not have the focus that you said is required. Canada just finished an agreement with Peru. They are negotiating with Jordan, the Ukraine, Panama, and the Dominican Republic. Those countries, collectively, would be minor trading opportunities for Canada. However, the government has limited resources. I think the message I am hearing from you is focus on our priorities. One of the priorities you are recommending is India. We will explore that with other witnesses.
We heard from a previous witness that Canada has roughly 2,800 students from India attending universities and colleges and Australia has 28,000. Do you know what the Australians are doing in that area that we are not?
Mr. Sarkar: I have heard a few numbers on that point. The latest tally of the number of students that we might have in Canada is 7,000. That is a drop in the ocean, as you know.
Australia was recruiting students aggressively in India, through various subsidies and a brand Australia marketing program. They saw that as a great money maker for many Australian institutions. The success of that effort demonstrates the growing desire amongst Indians of all social backgrounds to study abroad. They see the value in that. That number will only grow exponentially as India becomes wealthier. The demand for Canadian education in India will grow, regardless of what we do. However, there is an opportunity here to aggressively market not only the big universities but also a whole set of other institutions across this country.
A number of months ago I was in Halifax, speaking to a number of people involved in the sector there. It is an extraordinary place. I grew up in Halifax, Nova Scotia, so I am slightly partial here. It is a great university town that could be marketed — in fact, that entire region could be marketed — to Indians and do precisely what we need them to do; namely, bring over students of a certain calibre. We want to ensure that we do not get the lesser lights, as it were, but some good stars who will come here to learn about and understand Canada in all of its facets and regions.
We need to play out a regional strategy as well. If we were to learn a lesson from the Australians, it is market yourself well. They ran afoul with the challenges that they have with some Indian students being assaulted in Australia and the consequent backlash in India towards Australia. I do not think we will get that because we are recruiting a different pool. Some of the pools that the Australians were recruiting from were not the best, shall we say. We are going after a different calibre of student. Our carrying card in India that sells Canada there is that, other than India, we are the great multi-ethnic diverse state that is setting a template for the world on how to do this stuff. If we can properly market that as the DNA of brand Canada, we are off to a good place in India.
The Chair: You are saying that the emphasis should be on India. Some of the senators here who have been at the table for quite some time have heard variously that it should be Latin America, it should be China, it should be India. Then each province has a different perspective, depending upon which coast they are closer to.
How can Canada put together a workable plan that is not the flavour of the month? We all get excited and do it, and then six months later we are faulted for not paying attention to the real emerging market. It seems to me that we should have readiness here, at both the provincial and federal level, to market internationally, which will give an array of support systems to companies wherever they want to do business.
I come from Saskatchewan. For each part of Canada there are places in the world where they feel they could do business and some to which they should not go. We must have in place the tools, the right attitude and the political involvement, rather than telling businesses to concentrate on a particular country.
Mr. Sarkar: Coming from the great province of Saskatchewan, which is the largest trading partner, at the provincial level, with India, that is quite a statement.
I prefaced my earlier comment with focus versus our intention as a country and where opportunity is. I will leave Russia out of the equation although I know that some of you spent some time there recently. Brazil, India and China will transform the world. They will be great growth engines for the 21st century. We have to be in China. Regardless of what we do in India, we have to be in China. Having said that, we can walk and chew gum at the same time. However, there are windows of time, moments of opportunity, when we need to act. Currently there is a moment with India. We need to keep up the good momentum that has been building and infuse it as well. Hopefully a moment like that will come up with China as well.
The Chair: You are saying that it is a time factor, that we must do it now?
Mr. Sarkar: We have to be aware of the global currents and push forward.
[Translation]
Senator Robichaud: If you were to develop a strategy — we often hear comments about the lack of strategy —, would you start by discussing it with the government or with the business community? How would you proceed?
[English]
Mr. Sarkar: This must be led by government. There has already been a start. I know that you have heard from Mr. Sunquist, Mr. Macartney and others from the Department of Foreign Affairs whom I know are thinking hard about these issues. You need political leadership to push it forward. You will get on this file, and it must start with the government showing its intention. Business needs to be brought along, and there is a partnership there in terms of strategic development. Only when government leads and business is brought along will you get the required focus in the right time frame that will facilitate official Indian interest on one side and business on the other.
Mr. Shouldice: As you alluded to, Madam Chair, the strategy must be coordinated. It must be led by government, but the business sector needs to be involved and coordination is required at all levels. That is a huge challenge in a country like ours, as we have seen time and again, but I think we are up to that challenge. If we can meet that challenge, there are some wonderful opportunities for us.
Mr. Sarkar: I recently returned from India. I was there with the Honourable Roy MacLaren, our chairman; the Honourable John Manley from the Canadian Council of Chief Executives; Peter Sutherland, who was a high commissioner to India; and a few others. It was a small delegation to promote the agreements that we are trying to get in place and to get Indian business on side.
The more we put forward organizations that represent business and get government to help support these initiatives, and the more we work together on these agendas, the sooner we will arrive at a concerted strategy. The idea of concerted strategy is vital.
[Translation]
Senator Fortin-Duplessis: What impact has the global economic crisis had on the Indian government's short and long term plans and priorities, and particularly on its growing business relations?
[English]
Mr. Shouldice: I saw the Indian government respond to the financial crisis that hit the entire world in what I thought was a pro-active, constructive way. For example, when firms were going into India to participate in and lead major infrastructure projects, the Indian government developed policies and initiatives that responded to the financial crisis by finding new ways to structure the financing of these projects. For that they should be complimented and recognized. In other countries where we have seen similar dynamics, governments were somewhat slower to respond to the financial crisis. The Indian government should get some credit for responding well.
Mr. Sarkar: I agree that the Indian government has done an exemplary job of managing through the crisis. As in Canada, there was great cooperation at the central bank level and through global forums. The Indian reaction at the official level and the business level coming out of the realignment has been one of greater confidence. For generations the world has told them they should be opening up their economy, allowing their currency to float and doing other fundamental market things, and they have been resisting. Much as our banks do, they feel that they have been vindicated by the governance approaches they have taken. Now they are looking to go back to 9 per cent and 10 per cent levels of growth. If anything, the global crisis has lifted their confidence.
Senator Di Nino: The G20 conference is coming up quickly. Are there opportunities, and is the Canada-India Business Council involved in trying to create opportunities? If so, are you meeting any resistance that we can help you break down?
Mr. Sarkar: I do not have an access pass into the security corridor, and that might be a bit of an impediment.
The key thing with India is that we pursue and get a bilateral agreement between the prime ministers. In those bilateral discussions, we hope we can push for conclusions to the three agreements that we discussed. We would love an opportunity for a broader Indian delegation to come and be hosted by business leaders.
The challenge is the timing issue, and the security constraints at the G20 conference do not help. A number of other Indian officials are coming through over the course of this month in preparation for the G20 with whom we are meeting along with many of our members. I think it is great to see them getting more familiar with Canada.
Senator Di Nino: It is the latter I was referring to because I am sure it would be difficult to bring people to the perimeter of the secured area. However, I do think there will be side meetings and opportunities. I was wondering if you were taking advantage of them and if there is a role that we could play.
Mr. Sarkar: We would love to have that discussion offline. We are in constant conversation with our friends in the Indian consulate and high commission.
Senator Di Nino: With DFAIT, as well.
Mr. Sarkar: Yes, we are in close contact with DFAIT, as well.
The Chair: Mr. Shouldice, Mr. Sarkar, thank you for coming. You have fleshed out many of the areas we have been discussing and you have given us some different perspectives. You have said that there are some concepts coming forward that may be of assistance. We will track those to see if their legislation can pass as quickly as you think it can, bearing in mind the difficulties we have in passing legislation here.
Mr. Sarkar, thank you for your council work as well as coming to testify here.
Honourable senators, we have another session tomorrow.
(The committee adjourned.)