Insights 2016

Kasi Rao: The context of India's rise and implications for Canada

I. The Broad Context

This week marks the third consecutive week in which I have the pleasure of interacting with some aspect of the Canada-India file. In some ways it speaks to the rising salience of what India can and could mean for Canada. Two weeks ago I was in Mumbai where Professor Meric Gertler, President of the University of Toronto and a leading global urban theorist, was a featured participant at the BRICS (Brazil, Russia, India, China and South Africa) conference on sustainable urban development.

Interestingly, Professor Gertler was one of the select non-BRICS speakers at the gathering. As you may know, India has plans to build one hundred ‘smart cities’ and it is a positive development that leading Canadian figures are sought for their knowledge and expertise.

Just last week I was involved with the Canada-India Foundation (CIF) annual gala dinner at which the CIF honoured a leading Indian corporate figure and philanthropist, Dr. Subhash Chandra. Dr. Chandra revolutionized the Indian television industry when he introduced satellite broadcasting twenty five years ago. To a country that until then relied solely on the official broadcaster, this was a cosmic move. Today India has in excess of 500 private satellite television stations and the number is even higher when you include regional and linguistic channels. But the honour bestowed on Dr. Chandra was for his philanthropic contributions as well, namely his leadership in providing basic education in 52,000 villages across India. The sizeable CIF cash prize is directed to a charity of the recipient’s choice. The Indo-Canadian community is playing an important role as a bridge-builder connecting important figures in both countries.

Modern India’s ascent began with its domestic liberalization in the early 1980s and then with a broader set of reforms in the early 1990s when the country was facing a balance of payments crisis. As the world grappled with problems such as Y2K, corporate leaders such as Jack Welch turned to India for solutions. Today in Bengaluru (formerly Bangalore), the John F. Welch Technology Centre is one of GE’s key global research and development hubs. In many ways this Centre symbolizes India’s own ongoing transition from outsourcing to higher end value chains.

In the last fifteen years India has gathered conspicuous profile: the Dreaming with the BRICs report (2003) by Goldman Sachs and New York Times columnist Thomas Friedman’s best seller The World is Flat (2005) popularized India’s ascent to wider audiences. In 2006, The Economist in a cover story (June 3-9) noted “The question is no longer whether India can fly, but how high.” Even during the global financial crisis of 2008-2009, India dodged the worst of it, as did Canada.

India’s rise is of course part of a wider tectonic economic shift from the Atlantic to the Indo-Pacific, a shift that continues to be led by China. In the summer of 2005, Businessweek (August 22-29) stated, “Never has the world seen the simultaneous, sustained takeoffs of two nations that together account for one-third of the planet’s population.” This pace has only intensified in the rest of Asia and by 2030 the majority of the global middle class and GDP will emanate from that part of the world.

In the case of India, a number of characteristics are often cited on why deeper and broader relations are warranted, including democracy, the rule of law, widespread use of English, geopolitical location and the economic opportunities that go with a population of a billion plus. All of these reasons, while profoundly valid, in of themselves provide an incomplete perspective. The fascination with India is not new. Permit me to cite two quotations – one from Mark Twain (1897) when he was in India and another one by Raja Mohan (2006) one of India’s noted foreign policy observers.

“India is the cradle of the human race, the birthplace of human speech, the mother of history, the grandmother of legend and the great grandmother of tradition.” (Mark Twain) 

“India is arriving on the world stage as the first large, economically powerful, culturally vibrant, multiethnic, multireligious democracy outside of the geographic west.” (Raja Mohan)

II. The India-China Relationship

While the world pays attention to China and to India separately, one of the key aspects to watch is the evolution of the India-China relationship. The United States National Intelligence Council’s Mapping the Global Future (2004) stated the two countries are competitors and collaborators at one and the same time. The relationship is complex, textured and nuanced, and it is historical. China and India are, as The Guardian noted “non-identical conjoined twins, joined at the Himalayas” (September 30, 2005). Yet, they have different political systems.

Consider the contrast in the coverage of the deaths of two important political figures – India’s Narasimha Rao and China’s Zhao Ziyang – which The Economist noted at the time of their passing in December 2004. In the case of former Prime Minister Rao, there was a rich debate on his legacy and whether he deserved a state funeral. Zhao Ziyang, a leading figure in the Chinese Communist Party, who had backed the students during the Tiananmen protests in 1989, passed away in obscurity.

In an essay in the New Statesman in January 2006, Ed Luce, who now writes for The Financial Times observed “India is like a lorry with twelve wheels. If one tire punctures, the lorry does not go off the road. China, meanwhile, has fewer wheels and so it can go faster, but people rightly fear what might happen if one of the wheels flew off.”

However, their differing political systems mask the rich interplay between these two ancient civilizations. In Dr. Amartya Sen’s highly readable The Argumentative Indian the Nobel Laureate reminds us that Yi Jing, a noted Chinese scholar and scientist in the seventh century, spent a decade at India’s, and perhaps Asia’s, oldest seat of higher learning, Nalanda University, studying the ‘science of life.’

When he left India he remarked, “Is there anyone in any part of India who does not admire China?”

Similarly, Sen observes that in the eighth century, the president of the Official Board of Astronomy in China was an Indian scientist Gautama Siddhartha (Qutan Xida was his Chinese name). Then there is the fact that India exported Buddhism to China.

While this relationship stretches over centuries, October 1962 became a defining moment of the modern era. In our part of the world we remember it for the Cuban missile crisis. That same month China and India were at war. The conflict ended swiftly and decisively in China’s favour and left an indelible imprint on Indian strategic thinking. Similarly, China’s current infrastructure plans in the region (building of the port facilities in Gwadar, Pakistan and Hambantota in Sri Lanka) along with a stronger naval presence elicit circumspection in India. On the other hand, trade relations between the two countries are rapidly growing, from US$3 billion in 2000 to over US$70 billion in 2014. Prime Minister

Modi made a point to visit China in May 2015, one year after assuming power.

III. Canada-India Relations

Almost seventy years ago, Canada and India were at the dawn of a special relationship. Canada was an emerging power coming out of World War II and India had shed its colonial yoke in 1947. Canada exercised its global influence with dexterity, within and through NATO on one hand and in its close relationship with the developing world on the other. Leaders like Louis St. Laurent, Lester Pearson and Escott Reid (Canada’s High Commissioner to India, 1952-57) enjoyed a warm relationship with their Indian counterparts. Reid stated, that Indian Prime Minister Nehru “helped Canada break out of the confines of Canadian isolationism, North American isolationism, North Atlantic isolationism.”

The relationship has had its ebbs and flows over the last 50 years. India’s nuclear testing with Canadian technology in 1974 and 1998 and the terrorist bombing of Air India flight in 1985 cast a dark shadow. The turnaround began during John Manley’s time as Foreign Affairs Minister when he observed President Clinton rekindling the U.S.-India bilateral relationship. Canada began to do as well.

It progressed during the brief leadership of Prime Minister Paul Martin and then intensified under Prime Minister Stephen Harper’s decade in power. Prime Minister Harper led two missions to India, including the signing of the civilian nuclear co-operation agreement and the start of economic partnership negotiations. Prime Minister Modi’s visit to Canada in the spring of 2015 was the first bilateral one in over four decades. As well, in the last decade several sub-national level visits have taken place, including the most recent one by Ontario Premier Wynne in February of this year.

Prime Minister Justin Trudeau has prioritized China and India and with his expected visits to both countries in the coming year, this augurs well. Nevertheless, our two way trade relationship, while growing, is at a modest $8 billion. The current Canada-India economic relationship speaks to the potential that beckons, not the reality that exists. More recently, the significant presence of Canada’s institutional investor community in India is an important affirmative signal of long-term business confidence.

IV. What Do We Need to Do?

I know we have considerable time for discussion. Permit me to make ten observations.

1. Attitudinal shift – There is a secular shift in economic power from the Atlantic to the Indo-Pacific and we must come to recognize this with alacrity. The U.S. market quite rightly is of paramount importance but trade diversification has never been more critical, especially as our share of the U.S. market continues to decline. Furthermore, there are profound economic changes taking place within Asia. In its recently released Building Blocks for a Canada-Asia Strategy, the Asia Pacific Foundation of Canada notes that “M-Commerce, or e-commerce conducted on mobile phones, is also becoming increasingly popular … India will be one of the fastest growers … and, by 2021, its market will amount to US$90 billion.”

In a similar vein, BCG over a decade ago issued its report entitled The New Global Challengers. In its inaugural report, which assessed the leading 100 companies from rapidly developing economies that were transforming markets around the world, 44 companies came from China and 21 from India. The Indian companies represented primarily the tech, outsourcing and automotive sectors. In its 2014 listing, Redefining Global Competitive Dynamics, less than half were from China and India with more companies from other parts of Asia making their presence on the global scene. Of the 17 Indian companies listed in 2014, a broader range of sectors were represented.

2. Majority Government in India – For the first time in over a quarter century, a majority government leads India with a focus on economic reform. Notably for Canada, Prime Minister Modi put Canada high on his agenda, coming here in the first year of his five-year mandate. As well, he has had significant contact with Canadian leaders at the national and provincial level even before he set foot on Canadian soil. Most recently he met with Prime Minister Trudeau in March 2016, setting the stage for a path-breaking relationship.

3. The Federal Dimension - India, like Canada is a federal country and increasingly there is much activity on trade and investment at the sub-national level. The creation of The National Institution for Transforming India (NITI) marks an explicit recognition of devolution of power from the centre to the states in India. It will unleash the twin forces of co-operative and competitive federalism in India. Canadian companies and provinces will be able to make material progress at the sub-national level.

4. Paradigm shifts – Just as India leap-frogged the telephone revolution and moved from being the most expensive place in the world to make cell phone calls to the least expensive in a decade, the rise of e-commerce and m-commerce will become deeply important in accessing that market, especially for our SMEs. India’s identification card project, Unique Identification Authority of India (UIDAI), currently has an enrolment of 750 million people and is on pace to have the entire citizenry enrolled by the end of this decade. Such initiatives combined with the opening of 200 million bank accounts at the ‘bottom of the pyramid’ are having a tangible impact on reducing corruption. Transfers (such as subsidies) are going directly to individuals. Frugal innovation (minimizing cost, maximizing value, aptness of the product for the consumer) will increasingly reshape global business models.

5. Creation of brain-knowledge chains – Canadian universities are in the midst of carving important successes on major issues relevant to India in areas such as crop research, sustainable urban development, public health and clean technologies. These relationships, such as the ones that exist right here at McMaster University, should be intensified to create ‘brain chains’ and mobility of talent.

6. Skills Agenda – For India to increase its share of manufacturing as a share of its economy (currently at one-sixth) it must develop a pathway for employment, an important component of Prime Minister Modi’s economic development program under the ‘Make in India’ banner. About 540 million people – roughly half of the country’s population – is under the age of 25. And the majority of this demographic dividend is occurring in the poorest parts of India. Almost 100 million jobs need to be created over the next decade. Canadian colleges (such as Mohawk College) are playing an important role in India’s skilling agenda.

7. Active civil society – There are almost 3 million NGOs in India, and many that have global links. Some notable Canadian organizations with active partnerships in the country include the National Youth Orchestra of Canada (which has run music exchanges); World Wildlife Fund Canada (which worked on saving the Bengal tiger); Hospital for Sick Children (which has administered mid-career fellowships for pediatricians). These collaborations will help transform individual relationships into institutional ones.

8. Focused diaspora strategies – For too long the Indian diaspora’s strength has been measured in numeric terms. The number is impressive with the largest per-capita diaspora in the G-7. Over 1 million people in Canada trace their roots to India. However, the next frontier should be centered on knowledge. When the Indian Institutes of Technology Alumni Association (IITAC) held their alumni meeting in Toronto in June 2014 it was a conspicuous gathering of patent-related wealth on Canadian soil. Not surprisingly several Canadian university presidents (including Patrick Deane of McMaster University), leading Canadian CEOs and the Governor General of Canada participated in this week end event.

9. Investing disproportionately – Many countries are vying for India’s attention. To jump the queue we should front-end our efforts. In the context of Asia’s ongoing rise, it behooves us to understand the region better – its culture and history, geopolitical issues, business practices and languages. We need to build our ‘Asia competence,’ in this case our India competence.

10. Patience is a virtue – You may have heard this line from the 2011 film The Best Exotic Marigold Hotel: “Everything will be alright in the end. If it’s not all right, it is not yet the end.”

Thank you again and I look forward to the discussion.

Remarks delivered by Kasi Rao, Vice President & Director (Toronto Office), Asia Pacific Foundation of Canada Hamilton Third Age Learning Hamilton, Ontario, Canada April 29, 2016 

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