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The Growing Potential of India

We at FPAC are lucky to be part of a workplace with people with a wide variety of backgrounds and knowledge. Some colleagues have worked in government, others come from industry. Some are relatively new to the forest products industry and others have spent their whole career in the forest industry. We have engineers, foresters, public relations specialists and more. This allows us to get different perspectives on many issues and just like in nature, where the biodiversity of the forest makes the ecosystem stronger, a diverse workplace is a stronger workplace.

Nancy Tupper, our Economic Analyst is a graduate of Mount Alison University and the University of Ottawa [and is passionate about rugby]. In this week's Blog, Nancy shares some of her findings about the opportunities for Canadian forest products in the growing markets of India.

-- David Lindsay, CEO and President, FPAC

by Nancy Tupper, Economic Analyst, FPAC

India is undergoing a remarkable transformation. As an economic analyst, I am struck by the potential for India to change the dynamics of trade for the Canadian forest products sector. The question is how to penetrate this rapidly emerging market, and understand the realities that are making up the modern face of India.

The key factors behind India’s growth have included a young and rapidly growing working-age population; growth in the manufacturing sector because of rising education and skill levels; and the continuous growth of the consumer market. The Indian economy is the world’s tenth-largest by GDP and it is one of the fastest-growing major economies. Within a generation the country will become a nation characterized by an upwardly mobile middle class, consuming goods of all kinds from luxury cars to designer clothing. By 2030 India will be the most populated nation on earth, with the largest middle class of any nation.

What is not often discussed is how this growth is reshaping the lifestyle of Indian families. Companies that fail to understand the unique desires and tastes of the new Indian consumer will miss out on one of the most important growth opportunities of the next two decades.

India has done a remarkable job of moving people out of poverty. As recently as 1985, 93 per cent of Indians lived on less than a dollar a day. Today, the number of underprivileged Indians has fallen to 54 per cent of the population, as 103 million people moved out of desperate poverty and many millions more were born into more promising circumstances. It’s expected that more than 290 million more people will move out of poverty in the next 20 years.

The middle class currently numbers around 50 million people, but by 2025 will have expanded dramatically to 583 million people – some 41 per cent of the population. India has more than doubled its hourly wage rates during the first decade of the 21st century. A rapidly emerging upper-middle class is coming to full expression as young graduates from India’s top universities with big salaries, show tastes that are indistinguishable from those of young prosperous Westerners ? high-end luxury cars, designer clothing, and regular vacations abroad. By 2025, there will be 9.5 million Indians in this class and their spending power will hit 14.1 trillion rupees – 20 per cent of total Indian consumption. According to a 2011 PricewaterhouseCoopers report, India's GDP at purchasing power parity could overtake that of the United States by 2045.

As incomes increase, so does consumption: in particular consumer products such as paper towels, toilet paper, tissues, baby diapers and packaging – all important to the forest products industry. The trends indicate that per capita consumption of paper is expected to grow 3% per year for the foreseeable future.

Currently, literacy stands at around 62% of those over the age of 15, and a child’s school life expectancy is currently 12 years. However, India’s government has made education compulsory and free as of 2009 which will result in an additional 175 million children attending school each year, driving demand for more books, publications, and newspapers. In fact, India is Canada’s second largest importer of newsprint. The Indian economy consumes about 2.91 million metric tonnes of newsprint per year, more than half of which is imported from abroad, and demand is expected to exceed 5.6 million metric tonnes by 2025. In total, forest products make up Canada’s second largest export to India, worth $373 million in 2013. Exports to India are up this year, including a 33.7% increase in paper products.

However there are challenges for Canada. For example Canada is at a disadvantage because of the distance to India, making transportation a significant cost. In fact, China, Russia, Indonesia and South Africa are all expanding their forestry operations and production capacity to meet the growing needs of India, and they have the geographic advantage over Canada in terms of shipping costs. Still, Canada has among the most sustainable forest management practices in the world, including the most certified forest products.

FPAC would like to see India reduce tariff and non-tariff barriers to ensure that Canada can continue to compete in this growing market place. That would include an end to the 10% tariff on paper including newsprint; elimination of duties that make wood products less affordable including anti-dumping duties; and the removal of graduated tariffs ranging from 5.1% to 34.4% that are higher on value-added products and therefore encourage imports of unprocessed fibre. Another problem is the requirement for a certificate stating that all softwood from Canada undergo both heat and fumigation treatments, which also decreases Canada’s cost competitiveness.

Ideally Canada and India would move to free trade. Considering India’s bright future and growing middle class, this would ensure a closer trade relationship and exciting opportunities resulting in more prosperity and jobs for the forest products industry here at home.

  Source: President's Blog / The Forest Products Association of Canada (FPAC)

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