Assessing Export Opportunities for Canada in India

Abstract

India has recently attracted considerable new interest as a trade partner both as part of increased focus on the Indo-Pacific as a region and as a diversification play for global value chain sourcing and production and is being actively courted by many of Canada’s trading partners, including the United States, the United Kingdom, the European Union, and Australia. For its part, India is seeking to diversify its markets; after taking a hiatus from trade liberalization for the better part of the last decade, it is getting back in the game, with several trade deals back on a fast track and a new foreign trade policy about to be unveiled in 2022. This study provides an updated perspective on Canada-India trade and its unfulfilled potential. It develops a gravity model to identify unexploited trade potential and analyzes the potential impact of an FTA on the basis of computable general equilibrium model simulations that take into account realistic scenarios for commitments by Canada and India. The analysis suggests that an FTA would lead to palpable increases in trade and real GDP and generate solid gains in Canadian household incomes, all without significant disruption to industry in Canada. The same would be true for India. This would be a win-win policy initiative that would put some genuinely constructive “Indo” into the new Indo-Pacific strategy that Canadian officials have been tasked with developing.

Keywords: Canada, India, free trade agreement, gravity model, CGE model, Indo-Pacific

JEL Classification: F13