The foundation of India-Canada economic relation rests on the economic assistance given by Canada to India in 1951 through the Canadian International Development Agency (CIDA). India was at one time the largest recipient of aid from Canada. However, aid figures have progressively gone down over the years as the India-Canada relationship has transformed into one based on trade, rather than assistance.
With the beginning of economic reform by India in July 1991, Canada began to expand its economic presence in markets other than in the USA. The financial crisis in South East Asian countries in 1997 also contributed to Canada's change in focus from South East Asia to south Asia and it identified India as the largest market in the South Asian region with enormous scope for business collaboration.
Following India's nuclear tests of May 1998 and Canada's opposition to it, the two countries relations were put on hold for sometime. Notwithstanding this political confrontation, trade continued to grow between the two countries. In the last two years there have been a record number of bilateral visits at the political as well as the official levels.
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According to the recent figures on India's foreign trade partners,
Canada accounts for 1.2% of India's total exports and 0.9% of imports. Indian exports to Canada have increased from C$ 280 million in 1992 to C$ 1326 million in 2003 (January to November): a five-fold increase. Canadian exports to India have marginally increased from C$ 529 million in 1992 to C$ 658 million in 2003 (January to November). Bilateral trade between the two countries accelerated to C$2.45 billion in 2004. The trade balance has been in India's favour ever since 1993. In Rupee terms, India's total exports to Canada were Rs 3507 crore ($1,423 million) in 2003 and imports from Canada amounted to Rs 3336 crore.
India exports readymade garments, textiles, cotton yarn, carpets, floor spreads, gem & jewellery & precious stones, organic chemicals, coffee, spices, light engineering goods, iron & steel articles, footwear and leather products, rice, cereals, processed foods and marine products to Canada. India's major items of import from Canada include newsprint, wood pulp, asbestos, potash, peas, iron scrap, copper, minerals and industrial chemicals.
India is Canada's largest trading partner in South Asia, but is ranked as Canada's 18th largest export market There is a room for improvement in the trade between the two countries as India's share in Canada's imports is not even 0.5%.
With the removal of the overseas investment ceiling of US $100 million,
rapid increase in FDI in Canada by Indian software manufacturers has been seen. Since 2001, Indian flagship companies have expanded their operations in Canada with several setting up software development centres.
Though, Canadian companies are enjoying increasing success in the Indian market, Canada has a modest presence in India in terms of investment. Their major thrust is in five areas: power & energy, equipment & services; oil and gas; environment products & services; telecommunications & information technology; and the financial sector, including insurance.
Growth of service sector sales reflect Canadian strength in traditional areas such as consulting and engineering, as well as a growing Canadian presence in fields such as education, software development, and financial services.
In line with India's market liberalization, Canadian FDI in India reached Cdn $144 million in 2002, while Indian FDI in Canada increased from Cdn $18 million in 1999 to Cdn $29 million in 2002.
Recently, Canadian Prime Minister Paul Martin came on a two-day visit to India. The Prime Ministers of India and Canada reviewed bilateral relations and discussed important international and regional issues. They agreed on initiatives that strengthen the India-Canada partnership and contribute to addressing global challenges more effectively.
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The two sides also agreed to enhance people to people links through improved visa and consular services; strengthen health research co-operation.
The Asia-Pacific Foundation of Canada (APFC) has completed several major trade studies and is fostering new ways to deepen commercial and economic relationship between India and Canada. Several bilateral business organizations, such as the Canada-India Business Council and the Indo-Canada Chamber of Commerce are also working towards boosting economic and trade ties between the two nations.
In his recent visit to Chennai in India on April 8, 2005, Canadian International Trade Minister Jim Peterson officially opened the new Canadian consulate there. This is expected to provide fillip to trade between Canada and southern India.