Foreign Direct Investment:
A Comparative Analysis of Canada and India


Mr. Prashant Amin
Gujarat University

Global Finance is a coalition of development, human rights, labor, environmental, and religious organizations dedicated to the reform of the global financial architecture in order to stabilize the world economy, reduce poverty and inequality, uphold fundamental rights, and protect the environment.

This study attempts a comparative analysis of Foreign Direct Investment (FDI) in Canada and Indian economic development. One of the reasons to attract FDI and invite MNCs is that they induce competition beside the expected knowledge in the form of technology transfer and improving the productivity of domestic firms.

India is a small part of Canada's destinations for FDI, registering less than half a percent of Canada's total FDI outflows. In 2005, Canadian FDI in India was some $204 million, but it was 46th in terms of country rankings and only some 0.04% of total Canadian FDI abroad. Key Canadian players with investments in the India market include SNC Lavalin, Nortel, RIM, McCain Foods, CGI, CAE, Sun Life, MDS Nordion, Scotiabank, Bombardier etc. Indian FDI into Canada has increased to $145 million by 2005 total is only 0.03% of total FDI in Canada. India is the 30th largest investor in Canada. Indian companies with substantial operations include Tata, Satyam Computer Services, Wipro, Infosys and Aditya Birla Group. Videsh Sanchar Nigam Ltd purchased Teleglobe and Hindalco has acquired Novelis in year 2007. There are prominent exceptions in the investments noted above; the key point is that India does not figure as significantly as it should in the business plans of many Canadian companies.


Foreign direct investment: main concepts

Direct investment is a category of cross-border investment made by a resident entity in one economy (the "direct investor") with the objective of establishing a "lasting interest" in an enterprise resident in an economy other than that of the investor (the "direct investment enterprise"). The lasting interest is evidenced when the direct investor owns 10 per cent of the voting power of the direct investment enterprise.

A foreign direct investor is an entity that has a direct investment enterprise operating in a country other than the economy of residence of the foreign direct investor. A direct investor could be: an individual (or a group of related individuals; an incorporated or unincorporated enterprise; public or private enterprise (or a group of related enterprises); a government; estates, or trusts or other organisations that own enterprises.

A direct investment enterprise is as an incorporated or unincorporated enterprise (including a branch) in which a non-resident investor owns 10 per cent or more of the voting power of an incorporated enterprise or the equivalent of an unincorporated enterprise. Direct investment is composed of: equity capital, reinvested earning and other capital. Equity capital comprises: (i) equity in branches; (ii) all shares in subsidiaries and associates (except non-participating, preferred shares that are treated as debt securities and included under direct investment, other capital); and (iii) other capital contributions.

Reinvested earnings of a direct investment enterprise reflect earnings on equity accruing to direct investors less distributed earnings; they are income to the direct investor. However, reinvested earnings are not actually distributed to the direct investor but rather increase direct investor's investment in its affiliate. Other capital (or inter-company debt transactions) is defined as borrowing and lending of funds between direct investors and subsidiaries, associates and branches.

Definition of Foreign Direct Investment

FDI is the process whereby residents of one country (the home country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country).

IMF Definition

According to the BPM5, foreign direct investment is the category of international investment that reflects the objective of obtaining a lasting interest by a resident entity in one economy in an enterprise resident in another economy. The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence by the investor on the management of the enterprise.

UNCTAD Definition

The WIR02 defines FDI as 'an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the FDI enterprise, affiliate enterprise or foreign affiliate. FDI implies that the investor exerts a significant degree of influence on the management of the enterprise resident in the other economy. Such investment involves both the initial transaction between the two entities and all subsequent transactions between them and among foreign affiliates, both incorporated and unincorporated. Individuals as well as business entities may undertake FDI.

Flows of FDI comprise capital provided (either directly or through other related enterprises) by a foreign direct investor to an FDI enterprise, or capital received from an FDI enterprise by a foreign direct investor. FDI has three components, viz., equity capital,reinvested earnings and intra-company loans.

* Equity capital is the foreign direct investor's purchase of share of an enterprise in a country other than its own.

* Reinvested earnings comprise the direct investors' share (in proportion to direct equity participation) of earnings not distributed as dividends by affiliates, or earnings not remitted to the direct investor. Such retained profits by affiliates are reinvested.

* Intra-company loans or intra-company debt transactions refer to short- or longterm borrowing and lending of funds between direct investors (parent enterprises) and affiliate enterprises.

OECD Benchmark Definition of Foreign Direct Investment (Third Edition)

FDI reflects the objective of obtaining a lasting interest by a resident entity in one economy (direct investor) in an entity resident in an economy other than that of the investor (direct investment enterprise). The lasting interest implies the existence of a long-term relationship between the direct investor and the enterprise and a significant degree of influence on the management of the enterprise. Direct investment involves both the initial transaction between the two entities and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated. As is evident from the above definitions, there is a large degree of commonality between the IMF, UNCTAD and OECD definitions of FDI. Since the IMF definition is followed internationally, the Committee is in favour of following the IMF definition.

Trends in Global Foreign Direct Investment

Flow of Foreign Direct Investment has grown faster over recent past. Higher flow of Foreign Direct Investment over the world always reflect a better economic environment in the presence of economic reforms and investment-oriented policies .Global flow of foreign direct investment reached at a record level of $ 1,306 billions in the year 2006. Increase in FDI was largely fuelled by cross boarder mergers and acquisitions (M&As). FDI in 2006 increased by 38 % than the previous year.

Most of the developing and least developed countries worldwide equally participated in the process of direct investment activities.

* FDI inflows to Latin American and Caribbean region increased by 11 percent on an average in comparison to previous year.

* In African region FDI inflows made a record in the year 2006.

* Flow of FDI to South, East and South East Asia and Oceania maintained an upward trend.

* Both Turkey and oil rich Gulf States continued to attract maximum FDI inflows.

* United States Economy, being world's largest economy also attracted larger FDI inflows from Euro Zone and Japan.

A higher inflow of FDI to a country largely generates employment in the nation. FDI in manufacturing sector creates more employment opportunities than to any other sectors.

For the year 2006, countries such as Luxembourg, Hong Kong China, Suriname, Iceland and Singapore ranked in the top of Inward performance Index Ranking of the UNCTAD.

Over recent years most of the countries over the world have made their business environment investment friendly for absorbing global opportunities by attracting more investable funds to the country.



Remarkable trends of FDI in selected countries

The United States continues to occupy a dominant position as foreign investor and as recipient of direct investment US inflows in 2006 were USD 184 billion, returning the country to the top of the league table after being briefly eclipsed by the United Kingdom in 2005. The United States' outflows in 2006 were USD 249 billion – more than twice the next country (France) in the league table. FDI into the United Kingdom dropped by 28 per cent in 2006, but the country nevertheless was the world's second-largest recipient of direct investment with inflows totalling USD 140 billion. The United Kingdom is one of the OECD countries whose inflows were to the largest extent influenced by cross-border mergers and acquisitions. The outward direct investments of UK companies dropped by around 5 per cent to USD 80 billion, placing the United Kingdom behind not only the United States but also Spain, Luxembourg and Switzerland. The large outward direct investments of France in 2006, following even higher outflows the year before, to some extent reflect a high level of activity in foreign acquisitions. The fact that inward investment flows to France remained unchanged in 2006 at USD 81 billion is not easily attributable to any one factor. Outward direct investment from Germany, at USD 80 billion in 2006, rose to its highest level since the 1990s. Canada's direct investment inflows reached USD 67 billion in 2006 – twice the amount of transactions of the preceding year and at par with the previous record during the investment boom in 2000.In 2006, outward direct investment from Japan – traditionally a major net capital exporter – rose to its highest level since 1990 (

Strength of the Canadian economy

First and foremost, Canadians are experiencing the second longest period of economic expansion in Canadian history1. A strong economy enables Canada to reduce its debt at a record rate. In fact, Canada is on the best financial footing of any country in the G7 and the only country with ongoing budget surpluses plus a falling debt burden. The rise of the dollar has been driven by Canada's robust economic fundamentals and demand for its natural resources. Canada has the lowest unemployment rate in over 30 years, low inflation, continuing budget surpluses and an economic expansion that is now in its 15th straight year. To put this into an international context, Canada ranked first among G7 countries for both employment growth and GDP growth over the last decade. A strong economy makes Canada an attractive place to invest because it offers the potential for solid economic returns. The stock of foreign direct investment (FDI) in Canada rose by 10.1% ($41.3 billion) in 2006 to reach $448.9 billion, the highest percentage gain since 2000 and twice the 5.0% average growth rate posted over the previous five years. FDI stocks in the manufacturing sector expanded by a remarkable 16.6% in 2006 (


The explanation of the magnitude and timing of the IDP cycle in Canada encounters unsurmountable difficulties in measuring the presumably important causative variables. During most of its history Canada has welcomed foreign investment, which was indeed attracted by the country's abundant natural resources and highly protected market. We reviewed the arguments that FIRA and the NEP did not have significant impacts on inward FDI, which contradicts some of our own recollections of those events. Reductions in tariffs and other aspects of globalization may easily have been more important in stimulating both inward and outward FDI after the mid-1980s. The relative decline in inward FDI preceded by a decade or two the increase in outward FDI, suggesting–but not requiring–that the two phenomena in fact responded to different causes. The importance of OFDI in finance re-enforced that belief. Although many commentators accept that Canada's technological and entrepreneurial levels have improved relative to other OECD countries, which would justify an interpretation of the changed IDP position as responding to improvements in the country's organizational advantages, our own efforts at substantiating that hypothesis empirically were not successfull (

Policy Implications:

Global FDI has risen much more rapidly than global trade or domestic production over recent decades: whereas trade flows doubled over the past two decades, FDI flows have increased by a factor of ten (United Nations (2000)). Despite some qualifications about the effects of FDI and of a large MNE presence, governments have generally fostered a more welcoming attitude towards them since the 1970s. The object of this study has been to explain why Canada's share of such investment has fallen on the inward side, while the country's share on the outward side has been constant. In explaining Canada's trade and FDI relationship with 29 countries over the 1970 to 1998 period, two literatures have been brought together. The empirical trade literature has made extensive use of the gravity model to explain bilateral trade patterns. Such studies, however, ignore patterns of FDI as a determinant of trade. In the international business literature, the gravity model has been used extensively to explain bilateral FDI patterns. Although the latter studies generally do include bilateral trade patterns as a determinant of FDI, the interactions between trade and FDI are ignored. Using a standard gravity model for trade and an augmented gravity model for FDI, we estimate the determinants of trade and FDI simultaneously. The augmentation takes into account elements of the Heckscher-Ohlin theory, new growth theories, policy, and institutions. Our evidence shows that each of these theories has some role to play in explaining Canada's FDI patterns with the world. We confirm the overall value of the gravity approach, while providing additional insights on the link between distance and FDI. We provide new or different results as they relate to the impact on FDI of exchange rate movements and exchange rate volatility, financial market liquidity, R&D performance, institutional development, as well as policies directed towards FDI(


Foreign direct investment (FDI) has traditionally played,  and continues to play, a significant and positive role in Canada's economic development. The operations of foreign affiliates – through direct investments that they undertake – impact directly and indirectly on the economic performance of many knowledge-based industries in the Canadian economy. Research studies have shown that FDI  in Canada stimulates innovation, assists human capital  formation, contributes to productivity-enhancing investment in machinery and equipment, strengthens international trade integration, helps create a more competitive business environment and enhances enterprise development. All of these contribute to higher economic growth and better productivity performance – the key to sustaining and improving Canada's standard of living.

Beyond the strictly economic benefits, FDI can also support other social goals. By raising living standards and raising wealth of Canadians, FDI provides the wherewithal to pursue other socially desirable objectives that Canadians value. Faster economic growth and improved productivity performance from more FDI generates resources that can be channelled to improving health care and to raising the quality of education for Canadians. FDI may also help improve environmental conditions in Canada, accelerating the use of "cleaner-technologies" and leading to more socially responsible corporate policies.

Importance of Foreign Affiliates to the Canadian Economy

While FDI data indicate the magnitude of financial flows between firms related through foreign investment, they are not typically classified according to type of investment activity (Box 1). Indicators on the activity of foreign affiliates are thus complement information on FDI flows and stocks since they provide the means of analyzing the performance of these firms and their contribution to the economy of the host country.

Foreign affiliates make a significant contribution to key areas of economic activity in Canada. Because foreign multinationals in Canada tend to have a global outlook and often have a broader focus than the domestic markets in which they operate, their inward FDI works to build export growth by shaping domestic operations into their worldwide operations. From this perspective, majority owned foreign affiliates are dominant players in Canada's trade, accounting for nearly one-half of Canadian manufactured exports .

Box 1
Inward FDI lessens the scarcity of venture capital and risk capital in Canada by facilitating access to expanded financial base of parent companies, including greater access to funding for research and development (R&D) and its commercialization. In this context, foreign subsidiaries in Canada represent an important source of total R&D funding – a key input for innovation and technological progress. Ten of the top twenty corporate R&D spenders in Canada are foreign-controlled. Furthermore, between 1998 and 2000, foreign controlled firms, on average, were responsible for nearly a third of R&D spending in Canada.

FDI and Foreign Control

Foreign direct investment (FDI) is a category of international investment in which an investor resident in one country obtains a lasting interest in, and a significant degree of influence and voice in the management of, an entity resident in another country. A lasting interest implies the existence of a long-term relationship between the direct investor and the direct investment enterprise. An ownership criterion of only 10% of the voting shares of the direct investment enterprise is used to establish a direct investment relationship. Any investment  amounting to less than 10% of ordinary shares is posted as portfolio investment unless it can be shown that the foreign investor has an effective voice in the management of the company even though the investor owns less that 10% of the voting shares. FDI does not necessarily imply control of the enterprise, as only a 10% ownership is required to establish a direct investment relationship. Control implies the ability to shape an enterprise's activities such as production, consumption and investment. Thus, from an operational viewpoint, a foreign-controlled enterprise or firm entails the ownership of a majority of ordinary shares (more than 50%) or voting power on the board of directors. Variable such as sales, number of employees, exports, assets, R&D investment and investment in productive capital (structures and machinery & equipment) are attributed in full to the investor that controls the company. In practice, a large proportion of FDI capital involves majority-owned subsidiaries and branches. For instance, Statistics Canada reports that majority owned subsidiaries and branches accounted for over 90% of Canada's inward and outward FDI stock in 2001.

Foreign affiliates in Canada are also a vital source of productive capital. Increases in physical capital intensity, in particular machinery and equipment (M&E), are generally regarded as major drivers of labour productivity because such investments normally embody the latest technologies and thus provide a channel for the diffusion of technology, particularly in the manufacturing sector. Between 2000 and 2002, on average, foreign-controlled firms were responsible for about a third of total M&E investment in Canada. More importantly, they dominated M&E investments in high-productivity growth and innovative sectors such as manufacturing (48%), finance and insurance (62%) and professional, scientific and technical services (70%). Foreign affiliates also have a sizable stake in the revenues derived from the sales of goods and services by businesses incorporated in Canada. For instance, in 2000, foreigncontrolled firms accounted for 30% of total revenues generated by Canadian corporations, while holding about 22% of Canadian corporate assets.

International Comparisons

Analyses of the activities of foreign multinationals in Canada and other industrialized countries suggest that they play a relatively more important role in the Canadian economy than in most advanced economies. One measure of the impact of foreign corporate presence relative to the  share of the domestic economy is indicated by the ratio of  inward FDI stock to GDP. Measured this way, Canada is second only to the U.K among the G7 countries. While this indicator suggests a comparatively high "openness" to foreign investment in Canada, it is worth noting that FDI-orientation grew at a relatively much faster pace in other G7 countries than in Canada in the last decade. These trends imply that considerable investment "catch-up" is taking place and that FDI is furthering international integration of our major competitors at a relatively faster pace. Second, foreign affiliates have a substantial presence in Canada's economic landscape than most of our competitors: Almost 30% of all manufacturing enterprises in Canada are foreign-controlled, suggesting a stronger concentration of foreign operators in comparison to that our competitors, most notably the U.K. (23%), France (13%), Germany (4%), Netherlands and Sweden (2%). Consistent with a high FDI orientation and strong foreign presence, foreign affiliates are also major contributors to industrial activity in Canada, more so than in most advanced economies. Foreign affiliates in Canadian manufacturing account for a larger share of overall R&D investment and productivity-enhancing investment in structures and M&E. Furthermore, they play a far more important role in exporting manufactured goods and in generating sales in Canada than in other industrialized countries.

FDI in Canada and Effects on Labour Markets

Foreign affiliates, like domestic enterprises may have beneficial impacts on labour markets in Canada. Beyond creating jobs, other benefits can be measured in terms of the wages and benefits offered workers, and the relative stability of employment over the economic cycle. Evidence linking the impact of foreign affiliate operations on jobs and job creation in Canada is somewhat limited due to the paucity of foreign employment data. The evidence from other countries, however, is generally favourable. In absolute terms, between 1990 and 1998, the share of employment held by foreign-controlled firms increased considerably in 13 OECD countries except Germany (source). However, these trends do not imply new job creation in all countries but rather a change of ownership possibly due to acquisition of  existing firms by foreign investors.

From a Canadian perspective, one in ten jobs in Canada is attributed to FDI, more than twice as many as in the U.S. Germany and Sweden. In 2000, foreignaffiliates of U.S. multinationals in Canada alone were responsible for 8% of the total employed workforce in Canada, while the employment-share was particularly high in manufacturing (23%) followed by wholesale and retail trade (12%) and finance and insurance industries (8%). A recent study in particular demonstrates the positive impact that inward FDI can have on economic growth and jobs1. The study concludes that additional FDI, when amplified by the spillovers that occur in trade and domestic investment sectors of the economy, results in a substantial increase in economic growth at the margin, and when using more conservative assumptions, leads to the creation of a substantial number of new jobs. Studies of wage differentials of foreign affiliates versus domestic firms in Canada indicate that foreign-owned establishments generally pay higher wages to production workers, which are consistent with studies conducted in other countries2. These higher wages are due to the larger scale and capital intensity of foreign affiliates and the competitive advantages that stem from their size, technical and marketing proficiency and superior management. These findings support the view that foreign direct investment improves income levels in Canada.  Foreign establishments in the manufacturing sector are also found to either create or eliminate fewer jobs in response to output changes than their Canadian counterparts3. That is, increases in output among foreign-owned establishments generally create fewer jobs compared with similar output gains among domestic firms, and vice versa. These findings suggest that restructuring is less of an important strategy for productivity growth among foreign-controlled firms than for Canadian-owned enterprises.

FDI in Canada and Impacts on Productivity

FDI brings with it increased competitiveness, through exposing local management to international standards and best practices, and through technological benefits associated with the establishment of new businesses, or the modernization of old ones. Accordingly, the economy emerges better able to provide high-productivity, well paid jobs into the future. A preponderance of Canadian-based studies show the positive impact of FDI on Canada's productivity performance, and thus its positive role in improving our economic welfare and living standards.

Found to be 13% less productive than their foreigncontrolled counterparts4. It is primarily in resource-based industries that Canadian-controlled firms are more productive. And more importantly, the traditional reasons attributed to these differences – such as firm size, industrial structure, labour quality, firm vintage, unionization, and export orientation – were not identified as causes for the differences.  A study using longitudinal micro -level data of plant turnover and productivity growth shows that whereas foreign-controlled continuing plants were 70% more productive than domestically-controlled continuing ones in 1988, they were 110% more productive by 1997, suggesting that the productivity gap had widened in favour of foreign affiliates.5 The research also found that the differences in productivity is particularly marked for foreign-controlled entrants. Relative productivity of foreign-controlled entrants was 1.6 times that of domestic entrants in the 1970s, a magnitude that increased to 2.6 times by the 1990s. More generally, foreign-controlled firms are also found to use their assets more productively than Canadian-controlled firms. Ratios respecting sales to assets and profits to sales have been consistently higher for foreign affiliates during the 1990s than for Canadian-controlled firms. For instance, in 2000, foreign-controlled firms generated 87 cents in sales for every dollar of assets they held, up from 70 cents in 1991 (Chart 5). In contrast the sales to asset ratio for Canadian-controlled firms remained flat around 50% throughout the 1990s. More interestingly, the relative "productivity" gap in sales to asset ratio of foreign versus Canadian-controlled firms doubled from 18 cents to the dollar to 36 cents in the 1990s.

FDI in Canada and Impact on Innovation Activities

The fact that productivity and competitiveness is typically higher among foreign-owned operations should not be construed that Canadian companies are lacking in some fundamental way. Foreign affiliates in Canada have greater exposure to international markets and competition compared with their domestic counterparts. It is this type of exposure which forces these multinational companies to be more innovative and to adopt cost-saving procedures – activities which enhance productivity and competitiveness.  Far from being passively dependant on R&D from their parents, foreign-owned firms in Canada are found to be more active in R&D than the population of Canadian-owned firms. Innovation rates of foreign-controlled firms are relatively higher than either Canadian controlled firms with or without an international orientation. The purely domestic firms generally innovate less than both types of multinationals – again, a reflection that domestic companies are generally less exposed to international competition and therefore facing less pressure to become more innovative and productive. The survey found that foreign firms tend to introduce more original innovations in all sectors and are also more often involved in R&D collaboration projects both abroad and in Canada, even after controlling for firm size. Furthermore, foreign affiliates' collaborative R&D agreements are found to be most frequent in R&D –intensive "core" sectors (chemical, mechanical, instruments and electronics which are highly innovative, but they collaborate more frequently than domestically-controlled firms in other sectors too. Beyond these direct benefits to the Canadian economy, foreign-owned firms also contribute through the development of a cadre of skilled technical and managerial personnel and spillovers that accrue to domestic firms.

FDI is often associated with not only providing finance for the acquisition of new plant and equipment, but also in the transfer of superior technology and organizational forms from foreign affiliates. FDI can impact on the efficiency of Canadian firms through the broad range of 'spillover'effects, such as competition (entry of foreign affiliate can create or intensity competitive pressures on local firms to use existing technology and resources more efficiently, or imitation (local firms can copy or imitate the products sold by foreign affiliates or the technology it uses), or through appropriations of training or other investment in human capital (transferred by scientists and engineers formerly working in foreign affiliates who either start up their own companies or join a domestically -owned company). In this context, Canadian studies indicate that R&D spillovers from the United States exert a greater influence on Canadian industries than do domestic spillovers, and that they are a major contributor to total factor productivity growth rates in Canada7. These findings imply that Canadian firms could potentially benefit from spillover benefits even if R&D is undertaken in the multinational headquarters in the U.S. rather than its Canadian subsidiary. However, other studies have demonstrated a complementary relationship between domestic R&D and international R&D spillovers, implying that domestic firms must invest in R&D to capture the benefits of R&D spillovers from abroad.

FDI in Canada and Impact and International Trade

International trade is the framework on which Canadian prosperity has rested upon in particular in the 1990s. Not surprisingly, the forces driving the growth of FDI are also leading to increased trade, partly due to the trade and investment-induced North American economic integration envisaged by NAFTA. A number of studies have underscored the strong and positive complementarity between Canadian FDI and international trade, implying that the two activities go hand in hand. In other words, FDI has not served as a substitute for trade with trade liberalization, as perhaps was the case in the past when it was viewed as a means to jump high tariff walls and establish a presence in a closely protected Canadian market.The existing evidence shows that foreign-controlled firms in Canada appear to have a much stronger trade-orientation than their domestic counterparts. For instance, foreigncontrolled firms have an export to sales ratio of 20%, more than double that for Canadian controlled firms. Similarly, the import to sales ratio is about 22%, almost three times greater than for Canadian-controlled firms. A recent study also found that foreign-owned manufacturing plants responded more to trade liberalization than domestic-owned plants, with a greater increase in product specialization. Most importantly, a substantial part of Canada's merchandise trade with the U.S. – our largest trading partner with whom more than 80% of goods trade takes place – is conducted between U.S. affiliates in Canada and their parent groups. In 1998, intra-corporate trade accounted for about 40% of Canada-U.S. trade and was found to be heavily concentrated in the transportation sector, which alone made up one-half of total trade among related parties. Intrafirm trade between Canada and the U.S. thus represents the interface two distinct modes of North American integration: trade in goods across the Canada-U.S. border and the international coordination of production through the U.S. affiliates in Canada and their parents.

The Toronto Stock Exchange is the largest stock exchange in the world, the largest in Canada and the third largest in the world.

Evolution of the Toronto Stock Exchange

The Toronto Stock Exchange was formed out of the " Association of Brokers " in 1861. Initially it was started by 24 men who gathered at the Masonic Hall . It assumed a formal look with the incorporation of the Legislative Assembly of Ontario in 1878. Since then the Toronto Stock Exchange has shown continuous expansion except for the years that were the victims of the First World War. The Toronto Stock Exchange merged with the Standard Stock and Mining Exchange in 1934 although the name Toronto Stock Exchange was retained. In 1977, the Toronto Stock Exchange started the Computer Assisted Trading System that was used for the quotation of the less liquid entities. Soon the Toronto Stock Exchange became the sole trading ground for senior equities. In 2001 the Toronto Stock Exchange acquired the Canada Venture Exchange and it was renamed the TSX Venture Exchange in 2002.

Products and Services Offered by the Toronto Stock Exchange

Attribution Choices

The market participant has the choice either to reveal or to conceal his identity while trading. He can reveal his identity by advertising on an order-by-order basis.

Compliance Alerts Reporting System

The Toronto Stock Exchange produces daily reports which functions as an alert on a post trade basis.

Cross facilities

The Toronto Stock Exchange produces reports on the internally matched trades and integrates them in the overall share market reports. With the help of such printing materials the market participants can satisfy the varying needs of the clients.

Iceberg Orders

The Iceberg Orders serve as a protection against the large limit orders. It slices off the reserves in the market that are unexposed. The order is also shielded against the trade troughs. In this way the Iceberg Orders impart additional to the Toronto Stock Exchange.

Market Maker System

The following are the different functions of the Market maker of the Toronto Stock Exchange

* Calling a two sided market and providing market continuity within a pre-specified range.
* Enhancing the market liquidity and depth.
* Maintaining the activity in the market.
* Assisting in opening and helping in inquiries and anomalies.

Market on Close

This facility enhances the liquidity, elective anonymity and confidentiality at the closing price. This creates an ideal situation for both the index players who are seeking closing prices.



India is experiencing a tremendous structural transformation. Although still an emerging market, India's demographic and economic growth prospects are very favorable; the country is expected to become one of the world's five largest economies within 20 years. India's shift to a service-based society supported by its promising growth profile is generating long-term demand across all major investment sectors in its many markets. However, foreign investors trying to capitalize on growth opportunities and diversification benefits face typical mergingmarket risks, such as low liquidity and a lack of transparency. Investors need patience and a long-term strategic approach backed by local partners to enter this key global economy and to take advantage of the increasing institutionalization of India's real estate market.

Accelerated Economic Growth

With a GDP of US$803 billion in 2005, India is the third largest economy in Asia, after Japan and China. Worldwide,the Indian economy ranks 10th on a nominal basis, according to a July 2005 World Bank report (it is the fourth largest economy on a purchasing power parity basis), generating about 2% of global GDP. Between 1947 (when India gained independence) and 1990, a system of elaborate regulations known as the "License Raj," which was dismantled in the early '90s, stifled private-sector growth. During the early '90s, the government also decided to shift toward greater integration with the world economy. Since then, India has gradually opened its market by reducing government controls on foreign trade and investment. Economic liberalization and structural reforms provided the foundation for strong economic growth, averaging 5.9% per year. As reforms progressed, the GDP growth rate rose from 3.5% in the '50s and '60s to about 6% in the '90s. In 2005, the growth rate was 8.5%, and 1Q06 saw an even higher rate of 9.3%. Social indicators also reflect a matching improvement. According to World Bank reports, the percentage of India's population living below the poverty line fell from more than 50% in the 1950s to about one-quarter of the population today. Despite ongoing reforms and progress in liberalizing foreign direct investment (FDI), India remains a relatively closed economy. On the IMF's trade restrictiveness index, India scores seven out of 10, suggesting that the country is still not as open to foreign goods and services and, more importantly, knowledge as it could be. This is partly reflected by a relatively low historic GDP correlation with the major economies

* A Snapshot of India

* Land area: 2, 973,190 square km
* Population: 1.095 billion (2005)
* Median age: 24.3 years
* Population 15 to 64 years: 64.3%
* Population growth rate: 1.38%
* Capital: New Delhi
* GDP: US$803 billion (2005)
* GDP growth rate: 8.5%
* Unemployment rate: 9.9%
* Inflation: 4.2% (2005)
* Currency: Indian rupee
* Languages: English, Hindi
* Exchange rate (Rs/US$): 46.08 as of June 30, 2006
* Industries: Textiles, chemicals, food processing, steel, transportation

* equipment, cement, mining, petroleum, machinery, software

* Sources: CIA World Factbook; World Bank; United Nations

Report on Indian Economy

Overall Economy

The released by CSO shows that Indian economy grew by 9.4% during 2006-07. In absolute terms the GDP of the country at constant prices stood at Rs 2848157 crores for 2006-07 showing an annual rise of 9.4% over the previous year. The revised annual rise in GDP was slightly higher than the 9.2% (for 2006-07) estimated in February 2007. In 2006-07 GDP growth was mainly fueled by Industry and services that grew at 10.9% and 11.0% respectively contributed 26.6% and 54.9 % to the total GDP growth. However, during the year 2006-07 agriculture and allied services failed to maintain the growth momentum of 2005-07.

Industrial Growth

Indian industry achieved an impressive growth in the last fiscal 2006-07. The overall industrial production grew at 11.3% in 2006-07 as against the growth of 8.2% in the previous fiscal. The growth was more manufacturing sector led, which grew by 12.3% in 2006-07 as compared to 9.1% a year ago. Mining and electricity sectors too pushed the overall industrial growth posting a high growth of 5.1% and 7.2% in 2006-07 respectively as against the 1.0% and 5.3% growth respectively in 2005-06. Data as per the use-based classification shows that basic and capital goods – a proxy for investment demand have clocked growths of 10.2% and 17.7% respectively in 2006-07 in contrast to 6.7% and 15.8% registered during the previous fiscal. However, the consumer durables saw a slight slowdown in 2006-07 on account of lower growths in both the consumer durables and non-durables. During the last fiscal production of consumer goods grew at 10 % as against the 12% growth in the previous fiscal. In 2006-07, among the 16 industry sectors, 12 industry sectors swept past the growths recorded in the previous fiscal. Production growth slid for 2 industry sectors and remained low for the remaining sectors. The sectors that improved their performance were basic metals, transport equipment, cotton textiles, machinery and equipment, wood, non metallic mineral products, rubber, metal products and parts, manmade textiles, basic chemicals, paper and food products.

Six core infrastructure industries

During the year 2006-07 the six core infrastructure industries grew at a high of 8.6% as compared to the 6.2% increase a year before. This growth arrived on account of better production numbers across the six core industries. The four infrastructure industries, crude petroleum, petroleum refinery, power and coal posted growths of 5.6%, 12.6%, 7.3% and 5.9% respectively exceeding the growths recorded in the previous fiscal, maintaining the overall infrastructure growth.

However growth in the production of finished steel and cement slowed during the fiscal 2006-07. Production of finished steel was observed to speed-up in the last two months of 2006-07 compared to the orresponding months of 2005-06.


Telephone connections in the country crossed the 200 million mark and an addition of about 67 million phones was made during the year 2006-07. Today the total telephone connections in the country stand at 206.8 million, of which 139.8 million come from mobile phones and the remaining 40.7 million connections from the landline connections. March 2007 saw mobile phones making lowest ever addition during the year; additions of just 3.53 million phone connections due to insistence by the Government to ensure verification of subscribers Tele density went up by 43% touching 18.31 in March 2007 against the density recorded in March 2006.

Stock Market Trends

The mood of the market is such that negative news triggers the adverse index movements while the positives leave markets unchanged..We have seen that the attempt of the central bank's monetary tightening measures, hike in the CRR and the lending rates to curb inflation rose concerns among the investor community. The fall in both the indices BSE and NSE seen in the middle of March through April 2007 was in response to the growing concern over the expensive funds. The BSE index plunged by 4.7 percentage points during March end 2007over the previous month's close and NSE too slipped by 4.9 percentage points. However the stock markets have shown resilience in May 2007 and the host of corrective measures by the Central Bank resulted into bringing inflation to desired levels.

Inflation Trends

The overall WPI based inflation for 2006-07, averaged at 5.4% as against the 4.4% in the 2005-06. The upper limit of the targeted inflation for 2006-07 was breached in the last quarter of 2006-07, primarily on account of rising prices of primary articles and manufactured items. However, inflation was found to average below the set range of 5-5.5% for 2006-07. For the current fiscal (2007-08) RBI has kept the target inflation rate around 4.5%. The recent counter -inflation steps taken by the government helped in cooling the inflation rate that was soaring above 6%.

Past weeks saw YoY, WPI based inflation gradually setting closer to 5%. The measures applied by the RBI have checked the prices of some items falling under the broad categories - primary articles and manufactured products, further helping in bringing down the inflation rate. The RBI employed monetary tightening measures to absorb the excess liquidity in the market impacting the prices of the manufactured items. The government has regulated exports of some identified commodities addressing the supply crunch in various primary articles. Monsoon would also help in easing the pressures on the supply side of some primary articles.

Monetary Indicators

The Broad money growth for the last fiscal 2006-07 stood at 20.7% and was slightly lower  than the growth of M3 during the same period a year ago. Bank credit to the government rose substantially during the year-end 2007 compared to the same period of last year. We observed slowdown in the bank credit to the commercial sector. However, the net foreign exchange assets of the banks spiked by 28.9% as against 11.1% in the same period a year ago. Scale up in investments on government securities by 10% was also seen during the year. Impact of the hike in the rates of long term deposits was reflected in the numbers on aggregate deposits that went up by 23% in 2006-07 compared to 18% in the corresponding period of the previous year. Credit off take decelerated during the year compared to last year.

Fiscal Management

Gross tax revenue collections grew at a rate much higher in 2006-07 than the previous year. Data up to March 2007 shows gross collections increased at 29.3% as against the 20% increase in the previous year. Corporation tax and Income tax both contributed 45% to the total tax collected and grew at 41% and 35.4% respectively and this was much higher than the increase in the tax collected a year ago. Among the indirect taxes we saw collections from customs maintain the rise, growing at 32.7%, although collections from the central excise was not as much as in the same period of previous year. In 2006-07 the Government was seen to achieve the targeted fiscal deficit. It touched a level of Rs 146348 crore representing 100.10% of the targeted. Comparing the numbers of 2006-07 with that of the previous year's, we see numbers of 2006-07 close to the targeted figure.

Foreign Trade

Indian trade numbers available for the year 2006-07 shows Indian exports growing at 20.9% as against the high growth of 24% in 2005-06 in US dollar terms. Quarterly trends in trade shows Indian exports strongly growing in the first two quarters of 2006-07, however exports took a hit from the middle of quarter three. Indian merchandise exports was able to achieve the targeted , USD 125 billion for 2006-07. Indian exports were reeling under pressure since the third quarter of 2006-07 due to rising prices of raw materials and later due to appreciating Indian Rupee hitting the Indian business community in quick succession. However we saw that Indian imports soared at 26.4% during the year, further widening the trade deficit. The strong Indian Rupee against the green back came as a breather for the importer, reducing the import bill, whereas the appreciating Rupee took exporters in its grip.

Capital Flows

Capital Inflows for the period April-February 2006-07 have swept past the inflows received during the entire 2005-06. Direct investment contributed USD 17.1 billion during April-February period of 2006-07; this was much higher than USD 7.7 billion received in the entire 2005-06. Portfolio investments however remained lower in 2006-07 than the investments in the previous year. During the year 2006-07, the amount raised by the Indian corporates through GDR and ADR route has been much higher ( USD 3.7 billion) than that was raised in the previous year (USD 2.5 billion ).

Foreign exchange reserves

Foreign exchange reserves crossed the USD 200 billion mark in the first week of April 2007. Forex reserves stood at USD 180 billion in December 2006 and since then a surge in the Forex was observed. The main constituent of the Forex, Foreign Currency Assets touched USD 195.8 billion in the second week of April 2007. Gold , SDRs and reserve position in IMF however did not show much movement. The increase in the foreign currency assets was largely due to the effect of appreciation in the non – US currencies held in reserves ( Euro, Yen and Sterling). The piling up of reserves is a strain for the central bank, as it is seen that interest on securities exceeds the rate of return on reserves and therefore some steps need to be taken to ease the pressure due to forex buildup.

Trends in Exchange rate

Appreciation in Indian Rupee against the greenback started in March 2007. This rise in Rupee value was on account of an inflow in the foreign capital, in the form of FDI, ECB and Portfolio investments. To maintain the exchange rate within a range the central bank has been buying dollars from the market but due to inflationary pressures, RBI slightly distanced itself from the forex market. RBI's adoption of passive approach has made Rupee appreciate to levels that are pro imports. Indian Rupee began to appreciate since the middle of March 2007, it continued to slide below Rs 44.00 and slip to an alarming below-forty one level towards the end of April 2007, It has been found that Indian Rupee against the Euro too behaved similar to its movement vis-à-vis USD, Indian Rupee attained a level of Rs 55-54 in June 2007 from 58-57 in March 2007, appreciating by 6.5% . Indian Rupee against the Euro averaged at Rs 55.11 in May 2007 up from an average of Rs 57.00 in the previous month.

Year (April-March)

Amount of FDI inflows (In US$ million)

1991-1992 (Aug-March)




























2005-2006 (Upto March 2006)


            Source: RBI Bulletin


India-Canada Trade and Economic Alliance

India now represents about 0.5 percent of Canadian exports and less than one percent of Canadian imports. Canadian foreign direct investment (FDI) in India is similarly at low levels. India is currently the destination for less than half of one percent of Canada's total FDI outflows.

Goods: Total bilateral trade in goods reached a record C$3.6 billion last year. Canada's exports to India are dominated by pulp and paper, newsprint, metals, and agricultural products. India is also a purchaser of Canadian aerospace products, telecommunications equipment and instruments. India's exports to Canada include textiles and clothing, jewellery, diamonds, and chemicals, as well as a variety of manufactured items. Total two-way trade in the nine months from January to September of 2006 was 24 percent higher than in the same period in 2005. Nevertheless, Canada's bilateral trade with India is still running at about 10 percent of Canada's total trade with China. Volatility in our trade flows remains an ongoing concern. One problem that requires attention is the under-reporting of Canada-India trade and FDI flows. It is believed that about 15 percent of Canadian exports to India arrive in that country from other ports. The Asia-Pacific foundation of Canada says that Canadian sales of services in India may be 2.5 times greater than official estimates and that Canadian investment in India may be more than twice as high as official estimates. The fact that Indian exports to anada are frequently trans-shipped through Hong Kong or Singapore also contributes to the under-reporting of our two-way trade.

Services: This sector offers great growth potential for both countries given their strong global presence in a number of areas.Canadian services exports to India are today mainly in financial services (31percent of total services exports to India), energy (28 percent), and information and communications technology (13 percent).

Investment: Our bilateral investment potential remains largely untapped but there are indications this may change dramatically. India is the 33rd largest source of foreign direct investment in Canada. Recently, FDI in Canada by Indian software companies has increased rapidly. Indian companies in the areas of lifesciences and financial services are also investing in Canada to serve the North Americanmarket.

Canada has a modest presence in India, with total cumulative investment of $204 million. (Canada's total investment abroad stood at $510 billion in 2005.) India is the 42nd largest recipient of Canadian direct investment worldwide. The largest single source of Canadian investment in India is the consulting services sector, followed by financial services and oil and gas.

India-Canada CEO Roundtable participants recommend the establishment of ambitious targets for enhanced bilateral trade –$10 billion (U.S.) annually in goods and $10 billion (U.S.) annually in services within five years. The two countries should also work to achieve $5 billion (U.S.) a year in bilateral

Investment flows by 2012.

Areas for Cooperation

The private sectors of both Canada and India must become more engaged in order to take advantage of important bilateral opportunities. Participants in this first India-Canada CEO Roundtable agreed that work should begin immediately to identify specific sectors where there is potential for significant growth.

Among the potential areas for greater bilateral engagement are:

* Aerospace
* Power (equipment and services)
* Oil and gas
* Environmental products and services
* Information and telecommunications technology
* Financial services
* Infrastructure development
* Environmental technology
* Education, civil society and cultural sectors
* Tourism
* Agriculture, agri-food, food processing and technology transfer
* Health services and bio-sciences
* Textiles and clothing
* Automobile manufacturing
* Advanced manufacturing and design

Recommendation: Each of these sectors offers tremendous potential for growth. Canada and India should work together to identify ways to increase bilateral flows in trade and investment in these sectors by 20 percent annually.Building the Enabling Environment

Roundtable participants agreed that a series of actions should be identified to catalyze the potential for greater growth in our bilateral relationship. These actions could form the basis of a future economic partnership framework or cooperation agreement. It was agreed that such actions would be identified in time to be discussed at the next India-Canada CEO Roundtable. Roundtable participants are committed to maintaining an active dialogue. The support and input of other representative business organizations will be sought to build on the success of this first Roundtable. Both business groups support ongoing discussions by their respective governments to reduce and remove barriers to trade and investment in each other's markets either multilaterally or bilaterally. The private sector could play a more constructive future role in ongoing dialogues such as the annual Secretary/Deputy Minister trade policy consultations. Indian business leaders identified the following barriers to doing business in and with Canada: high and peak tariffs that are imposed on products of export interest to India; technical barriers that impact market access opportunities; investment limits and other barriers in the service sector that limit access to markets. Canadian business leaders identified a number of factors that hamper market access to India, including: high tariff and non-tariff barriers; public sector red tape; inconsistent interpretation of rules; investment barriers; infrastructure challenges; outdated laws and standards; and a complex tax system.

Challenges faced by Indian Industry in Canada

Tariff peaks

In certain product categories, the Canadian government imposes tariffs that are high enough to constitute "tariff peaks". Affected products include: textiles and clothing; vegetables; flowers; cigarettes; certain leather products (e.g. gloves other than those used for cricket or other sports); and certain footwear.

Tariff escalation

The WTO defines "tariff escalation" as a situation in which an importing country protects its processing or manufacturing industry by setting lower duties on imports of raw materials and components, and higher duties on finished products. In Canada, tariff escalation applies to some imported food, beverage, tobacco,

textile and leather products. This limits the export of value-added products from India to Canada.

Barriers to trade in services

The Canadian government imposes restrictions on market access to certain service sectors based on national interest and concerns for political, economic and/or cultural sovereignty. All three of these areas need immediate attention. Indian industry looks forward to a resolution of these issues so as to improve market access for Indian goods and services.

Challenges faced by Canadian Industry in India

Canadian companies face a number of obstacles in doing business in India. These Include

* Bureaucratic red tape and inconsistent interpretation of rules across national and state levels (including rules affecting intellectual property);
* Restrictive import regulations and internal policies;
* Infrastructure shortcomings, including problems in distribution and transportation;
* A complex tax system and lack of transparency across government processes;
* A highly interpretive tax system.



For Canada:

Increase awareness of Canadian goods and services in India (build a Stronger "Canada brand").

* Launch a sustained campaign to attract Indian investment to Canada, backed by a proactive and welcoming investment policy.

* Maximize Canada-India people to people linkages through better leverage of the Indo-Canadian community.

* Explore partnerships with Indian companies to address third-party markets.

* Promote India as a major investment destination in collaboration with industry associations and provincial governments.

* Expand the Canadian government's trade network in India.

* Strengthen Canada-India educational linkages and encourage more Indian students to study in Canada.

For India:

Increase awareness of Indian goods and services in Canada (build a Stronger "India brand").

* Step up efforts to attract Canadian investors in infrastructure areas such as roads, ports and energy.

* Improve trade facilitation at ports.

* Increase awareness of steps India has taken voluntarily to reduce trade barriers ("autonomous liberalization"), especially in the area of applied tariffs on industrial goods.

* Consider providing greater access to Canadian firms in select services sectors.

For Both Countries:

Promote Canada as a key entry point to North America, and India as a key  Entry point to South Asia and the ASEAN countries.

* Improve awareness of bilateral agreements and Memoranda of Understanding (MOUs) in areas such as science and technology, and ensure that those agreements are designed to maximize the commercial benefits to both countries.

* Study the feasibility of a preferential trade agreement covering goods, services and investment.

* Where it makes sense, integrate existing supply chain linkages to partner more successfully in third countries.

For the Private Sectors:

Agree that the first-ever India-Canada CEO Roundtable represents the beginning of a more robust high-level engagement between the private sectors of India and Canada.

* Acknowledge the need for greater dialogue between the public and private sectors of both India and Canada, and identify ways to foster the development of stronger commercial ties.

* Encourage our governments to work with their respective private sectors to increase trade and investment and promote collaboration in third countries.

* Communicate the results of an enhanced commercial dialogue to our respective public sectors through an annual meeting between government and business leaders.


  • (
  • Gera, S. Gu, Wulong and Lee, F.C. "Foreign Direct Investment and Productivity Growth: The Canadian host-Country Experience". Industry Canada, Working paper #30, 1999. Ottawa. Industry Canada
  • Rao, S. M. Legault and Ahmad, A. "Canadian-Based Multinationals: An Analysis of Activities and Performance." Industry Canada Working Paper #2, Industry Canada, 1994. Ottawa, Industry Canada
  • Cameron, Richard A. "Intrafirm Trade of Canadian-Based Foreign Transnational Companies. Industry Canada Working paper # 26, Decmber
  • 1998. Ottawa, Industry Canada.
  • Baldwin, J., & Hanel, P., Multinationals and the Canadian Innovation Process, Statistics Canada, #151, June 2000.

Mr. Prashant Amin
Gujarat University

Source: E-mail May 20, 2008


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