South Asian tiger has economic claws

India will feature prominently in Stephen Harper's five-day, four-country tour of Asia.

It will be Harper's first official trip to the country in his more than three years as prime minister.

"The South Asian tiger has awoken and the world is standing in awe," he told gathered business leaders.

"We're trying to re-engage, with India in particular, in a serious way that hasn't been done since the 1970s," Harper said.

Relations between Canada and India cooled after India conducted its first nuclear weapons test on July 18, 1974. Twenty years earlier, Canada had sold India some of its nuclear technology. The Canadian-made Candu reactor was India's first nuclear reactor and like many developed nations, Canada was outraged that the upstart nation had gone beyond using nuclear power as an energy source and started dabbling in dangerous weapons technology.

Canada stopped selling Candu reactors to India, but undeterred, India pursued its nuclear ambitions anyway, duplicating the original Candu technology a total of 17 times.

"This has damaged the Canadian-Indian relationship, not just in nuclear matters but in every other economic, political, security matter since," said Duane Bratt, a policy expert from Mount Royal University in Calgary.

'The market opportunity is enormous.'—Hugh MacDiarmid, AECL CEO

Harper's trip could be the first major attempt to rectify that damaged relationship.

On Tuesday, the prime minister is scheduled to meet with Indian leaders in New Delhi for a round of talks on nuclear co-operation.

Beyond political collaboration, the pact has vast economic potential. A deal is all but sealed that could herald a better relationship between the two countries and breathe new life into Canada's nuclear industry.

"The market opportunity is enormous," said Hugh MacDiarmid, CEO of Atomic Energy of Canada Ltd., which makes the CANDU reactors. "Somewhere between 40 and 60 nuclear reactors will be constructed [in India] in the next 30 to 40 years."

In the midst of an economic boom, India is constantly short on power, and nuclear plants could help meet the demand, experts say.

Canada also has the uranium India needs to fuel the plants. That's where Saskatoon-based Cameco Corp. hopes to step in. It has already opened an office in India.

"It's been a little bit frustrating that it's taking so long, but there's a lot of obstacles to overcome," said Jerry Grandey, Cameco's CEO.

Outside the nuclear space, Canada has opened three new trade offices in India during the past year, Harper noted on Monday. The combined GDP of the two countries is on its way to $4 trillion, and yet two-way trade between India and Canada is just $5 billion

That represents a lot of untapped business potential, Harper said.

Economic superpower

Economically speaking, India is impossible to ignore. It had $262 billion US in foreign currency reserves as of the start of November. That compares with Canada's reserves of roughly $58 billion US at the time.

Earlier this month, the Reserve Bank of India bought 200 tonnes of gold bullion from the International Monetary Fund to beef up its reserves.

The latest estimates project India's economy will grow at a rate of 5.9 per cent this year. That's under the rates of seven to 10 per cent it has posted since 2006 but still a figure that much of the rest of the world looks at with envy.

The latest census in April counted a population of 1.154 billion, of which 27.5 per cent live below the government's admittedly low "poverty line." Despite a largely agricultural economy, India's benchmark stock exchange has a value of $645.5 billion.

With 523.5 million workers, India boasts the second-largest labour force in the world and is the fifth-largest consumer of oil in the world, guzzling 2.94 million barrels a day.

India also has the advantage of being a nation of savers.

"Most Indians typically spend their entire lives saving for a house, even if it takes them 20 years to do that," says Murtaza Haider, a business professor at Toronto's Ryerson University. "Seldom do they take loans [just] to finance their lifestyle. So by default, India is much more prepared to deal with this [economic] crisis."

Having a citizenry with plenty of cash on hand makes India a powerful ally for an export-driven economy such as Canada's, as domestic demand is likely to remain strong.

On the other hand, the country's public finances are in bad shape. Budget deficits are running nearly one and half times higher than predicted, and tax collection is expected to sag badly as the global crisis cuts into private-sector finances.

Perhaps surprisingly, India has a trade deficit of more than $100 billion — despite exporting $168.7 billion worth of goods in the 2009 fiscal year, which ended in April.

Ultimately, with India's massive and motivated labour force, Canada might need India a lot more than India needs Canada. Regardless, investors in both countries will be watching closely to see whether the seeds planted on this trip will bear economic fruit down the line.