Download the complete version of the speech (PDF 138 kB)
Thank you to the members of the Federation. And it is a special honour to share the stage with the Chairman of the Securities and Exchange Board of India.
It is a strange feeling to come to a country so vivid, so vibrant and full of colour – to talk about a global economy that is thoroughly, stubbornly grey.
But that’s the palette of much of our world today. All across the OECD and the G-7: different hues of grey. Different shades of an ongoing malaise.
Growth is slow. Business investment is weak. The prospect of deflation hangs over Europe.
Productivity growth is low. Confidence is fragile – and threatened further by the rise of populist politicians. Those who exploit economic insecurity to incite a backlash against globalization.
Almost a decade after the financial crisis, the return to robust growth seems like a mirage – visible in the distance, but always out of reach.
So what to do?
We won’t find the answer in monetary policy alone. Not any more.
Central banks played a critical role in thawing the credit markets at the height of the financial crisis. And they rightly launched non-traditional policies that have helped boost markets and support modest growth.
But in the face of chronic demand deficiency in most of the world, monetary policy on its own is simply no longer enough.
The more we use it exclusively, the more we are simply pushing on a string.
The best thing that western central banks can do now is simply to keep rates low. That sets the conditions necessary for governments to inject life into our grey economies through stimulus of another kind: fiscal policy, creative fiscal policy.
It just makes sense. Borrowing costs have never been lower – indeed, according to the Bank of England, they haven’t been this low in 5,000 years. So why not borrow to invest massively to rebuild crumbling infrastructure?
That’s what’s needed in the west. Along with investments in post-secondary education, entrepreneurship, innovation – the things that build productivity and strengthen a nation’s capacity to grow sustainably.
Western governments should have done this years ago. Finally, some are beginning to move. Finally beginning to leave behind a misguided focus on austerity.
The question is this: Will this expansionary policy be big enough – and bold enough – to help countries break free from the low-growth trap?
For now, skepticism is warranted. We believe that annual growth in the west will stay low – certainly below 2 per cent. Standards of living will continue to be slow to improve.
In other words: much of our world will remain a dull shade of grey.
Against this muted backdrop, there is India. India stands out – and clearly.
Since 2008, growth here has averaged between 7 and 8 per cent.
That’s not just better than the countries of the OECD.
It’s far better than emerging market commodity exporters like Brazil. After shrinking this year, Brazil’s economy is expected to grow at only 1 per cent in 2017.
India’s growth is also better than other emerging market commodity importers like South Korea and Thailand. Their economies are expanding today at less than 4 per cent – and are unlikely to surpass that in the foreseeable future.
So India is a bright spot, a splash of colour – of opportunity – on a subdued economic landscape.
From our perspective, of course, India’s story is ultimately not just about growth rates. It’s about India’s potential. And potential rests on economic fundamentals.
In India, three are much discussed.
First, the labour force. It’s one of the most attractive in the world – young and growing. And growing at a remarkable rate.
Over ten million new entrants a year expected over the next decade. A challenge, to be sure – but also a huge advantage.
Second, India’s governance. No doubt, there is a new "tone at the top" on this issue. And progress is being made. That said, India needs more transparency and sound governance both in the public and private sectors.
A stable and principled system of public and corporate governance is a prerequisite for investor confidence and for long-term, sustainable growth.
Third, India’s structural reforms. Piece by piece, changes are being made. Changes that will make India a more competitive player in the global economy. And better equip it for future growth.
New bankruptcy laws. Financial system reforms. New efforts to have India’s banks address weaknesses in their balance sheets. And perhaps most importantly, the recently approved GST.
Each of these represents an important step forward for India. Each sends a signal to the world’s investors.
A signal that India is focused on long-term growth and stability.
And on becoming an easier place to invest and do business.
Structural reforms of this sort are never easy. They take time. They demand patience from foreign investors.
That said, as your President remarked in August: “A sense of immediacy and some impatience is a necessary virtue.”
If the story stopped with these economic fundamentals, India would be one among a group of promising countries in the world.
In our minds, what sets India apart are three even more compelling advantages. Advantages that could make India one of the next great engines of global economic growth.
First: a growing middle class. Of course, that’s obvious. It’s true in many places.
What separates India – what makes it unique – is the sheer scale of the transformation. The size of the raw numbers. They are astonishing.
Today, India’s middle class includes some 260 million people. Within a decade, it is expected to grow to 550 million.
That’s almost 300 million people – close to the population of the United States – entering into the middle class in this country in just 10 years. Staggering.
It’s part of what the World Bank says will be our planet’s largest urban migration of this century. Ten million people each year moving into India’s cities and towns.
This fundamental shift will bring new pressures and challenges – but it also brings opportunity.
Cities are where labour meets technology. And that drives productivity and growth. Cities are where innovation takes hold.
While India’s cities require massive new investment, it is the unique chemistry of growth in cities that will help to power India’s continuing rise.
Second: the revolution in information and communications technologies.
ICT is one of the fastest growing parts of India’s economy. The largest private employer in the country.
Over the next five years, it is estimated that at least 33 per cent more citizens will gain access to the Internet. The number of smartphone users will grow at an even quicker rate – to 700 million or more by 2025, from 200 million last year.
All of this opening the door to a world of connectivity, knowledge and opportunity.
But here’s what really matters. India has a long history of entrepreneurship and innovation. Today India ranks as the second most important ICT start-up hub in the world. And as we all know, ICT is remaking the global economy, disrupting businesses and business models every day.
And that means India stands near the forefront of an industry with the power to drive change, create jobs and shape the future of business here and around the world.
The third advantage that will power the Indian economy: the expansion and growing sophistication of financial services.
Over the last 25 years, India has witnessed massive changes in its financial services and capital markets.
Equity and government debt markets have broadened and deepened. They now rank among the largest in the world.
There are more insurance options, more pension options, more mutual funds.
The corporate debt market has lagged. But in light of recent reforms, it is coming to life.
Bank financing is still dominant. But diverse sources of financing are playing an increasing role. This includes off-shore financing. Businesses now have more options and more opportunities.
These changes are vital – because financial markets are the circulatory system of an economy. They allow money, credit and capital to flow freely.
India’s growing sophistication in financial services opens another intriguing opportunity. Increasingly, India will be able to draw on its strengths in ICT to pursue opportunities in fintech – another innovation that is driving disruption globally.
Fintech is reshaping the landscape of financial services – how they’re delivered and who delivers them. India is well positioned to become a leader in this transformation.
All of these changes help explain why and how India – in one year alone – has stepped up 16 places in the World Economic Forum’s Global Competitiveness Index.
From a global perspective, China is – and will remain – an economic powerhouse. That’s clear. But the forces of growth across our world continue to shift.
We think they’re shifting toward India. We believe that over the next number of years, India has the potential to emerge as a leading engine of global growth.
But potential is never a promise.
What India requires today – and will for years to come – is massive amounts of new investment. Investment that’s committed. That creates an essential foundation on which the economy can continue to grow.
Portfolio investment is always going to be drawn to areas of growth. It plays an important role in augmenting personal savings and making capital markets broader and deeper.
But as we all know, portfolio investment doesn’t put down roots. It tends to be mobile.
India needs investors who are in it for the long haul. Investors who bring the mindset of a business owner.
Investors who focus on fundamental value and deep economic trends.
In other words, India needs builders.
Not investors seeking to profit from short-term financial arbitrage. Not financial engineers who confuse mathematics with sustainable value creation.
It needs patient capital – provided by investors who look beyond quarterly results. Who have the patience to see through ambitious projects over many years.
Investors who understand that companies are not commodities. That they are not interchangeable, abstract things to be invested in one day, and abandoned the next.
They are much more: vital contributors to innovation, jobs and productivity. To improving standard of living and quality of life.
Infrastructure and real estate, in particular, can be the foundations of long-term economic development.
As I say: India needs builders.
And that is exactly the mindset we bring when we invest at home in Canada and in countries around the world.
We manage CAD$250 billion in assets.
Our goal is to build and own great businesses and great projects. Together with great partners. For the long term.
Thinking like a business owner is the very core of our investment philosophy.
We are selective about where we put down roots. We commit to the countries we invest in.
And we invest in the real economy. In real things that people use everyday.
We strive to make the real economy work better for people in their daily lives. Because we’re convinced that this is what will deliver the steady, long-term returns we’re looking for wherever we go in the world.
Ultimately, that’s what we bring to India. A specific approach to investing.
A commitment to contribute to building this economy.
I hope that you can see some of that commitment reflected in two recent investments we have made here.
The first: Resurgent Power Ventures. This is a partnership with Tata and ICICI. Its focus is bringing stranded power assets online – and developing renewable energy for the future.
There are thousands of villages in remote locations that remain off the grid. When communities are connected to a reliable source of electricity, they are connected to opportunity. Power is the path to improved living conditions and sustained growth.
The second: Edelweiss Financial Group. This is a rising star in financial services, founded right here in Mumbai – an alternative to traditional bank financing.
We want to help grow a company that is actively engaging in asset reconstruction – and providing much-needed access to credit for medium-sized businesses.
I spoke earlier about the importance of India’s entrepreneurial spirit. It’s critical that smaller and younger companies have access to financing – because they are the ones building the engines of tomorrow’s growth.
Taken together, these projects will increase CDPQ’s investment in India to approximately CAD$3 billion. Still small, I know. A fraction of what it can be. What it should be. And ultimately what it will be.
Thinking long term, thinking like a business owner, we are already working on opportunities to build a presence in at least three other areas:
In renewable energy. Because India will need more power – and has the opportunity to develop it in a way that keeps its cities livable and potentially provide a competitive advantage.
In real estate. Because we see enormous opportunities in the expansion and development of India’s cities.
And in transportation and logistics. Because a common market – what the GST is all about – is just an idea until you create and build the transportation logistics capabilities required to move goods efficiently.
As we progress in building our business in India, we will be guided by a simple plan. By three principles.
One: The investments we make here will be designed to help advance the trends driving India’s economic development. Why? Because the closer we can get to the trends driving India’s growth, the better our investments will perform and the faster we will grow.
Two: We will work with the best local partners we can find. Why? Because India is a richly complex country that no foreign investor can presume to understand alone. We’re smart enough to know what we don’t know. We don’t come here pretending to have all the answers.
Our job is to listen to and learn from our partners. And in turn, we will share the expertise that we’ve built over half a century of investing.
And three: We will be guided by the fundamental principle behind "Make in India." Why? Because investing isn’t global, it’s local. Success always depends on designing investments to suit the local context.
To put these principles to work, we’ve opened an office here. We are hiring professionals who understand the country. Its history and its direction, its strengths and its needs.
They are here to build new relationships. And establish new partnerships. Relationships that strengthen over the years. Partnerships that grow into investment platforms for future growth.
The first leader of an independent India described this country as “ancient, eternal and ever-new.” Always changing and reinventing itself.
Over the past year, India has been rising on a number of important rankings: ease of doing business, investment attractiveness, global competitiveness. A bright spot in our dull, otherwise grey world.
The groundwork is being laid here for change that can transform this country’s potential into prosperity – into more shared opportunity. That, it seems to us, is the task. Transform India by building for the long term.
And in so doing, make India stand out all the more.