Trade negotiations between India and Canada may face challenges in the wake of recent allegations made by Canadian Prime Minister Justin Trudeau. Trudeau asserted the existence of "credible allegations" linking the Indian government to the murder of Hardeep Singh Nijjar, a Khalistani terrorist who was killed last year. Canada's response to these allegations included the expulsion of a senior Indian diplomat.
In response, the Indian government has dismissed these allegations as "absurd" and has urged Canada to take action against anti-India elements operating within its borders. The Ministry of External Affairs (MEA) summoned the Canadian High Commissioner, Cameron MacKay, to convey India's decision to expel the Canadian diplomat stationed in India.
These escalating tensions have exacerbated the existing strain in diplomatic relations between the two nations, raising concerns within the business community regarding potential repercussions for trade and investment connections. The implications for both countries are as follows:
Recently, Canada suspended discussions on a proposed treaty with India, just three months after both nations expressed their intention to finalize an initial agreement in the same year.
According to industry estimates, the Comprehensive Economic Partnership Agreement (CEPA) between Canada and India could potentially boost bilateral trade by up to $6.5 billion, leading to an estimated GDP increase of $3.8 billion to $5.9 billion for Canada by 2035.
The consistent growth in trade has propelled the value of goods exchanged between the two countries to reach $8 billion in 2022. During this period, India's exports to Canada amounted to $4 billion, while imports from Canada also totalled $4 billion.
Canada's agricultural sector, particularly its lentil producers, has benefited significantly from India's increasing demand for imported lentils. Simultaneously, Indian pharmaceutical and software companies have expanded their presence in the Canadian market.
Noteworthy imports from Canada include energy-related products like coal, coke, and briquettes, as well as fertilizers.
In contrast, India primarily exports consumer goods, clothing items, engineering products such as auto components and aircraft equipment, and various electronic items to Canada.
Canada ranks as the 17th largest foreign investor in India, with investments exceeding $3.6 billion since 2000.
Canadian portfolio investors have also allocated substantial funds to Indian stock and debt markets, amounting to billions of dollars. Notably, the Canadian Pension Plan (CPP) has significantly expanded its investments in India, reaching approximately $15 billion by the end of the last fiscal year in March 2023. These investments span various sectors, including real estate, renewable energy, and the financial industry.
India is home to over 600 Canadian companies, with prominent names such as Bombardier and SNC Lavalin among them.
Conversely, more than 30 major Indian companies, including tech giants like TCS, Infosys, and Wipro, have made substantial investments in Canada's economy. These investments have collectively created thousands of job opportunities in both countries.
India has been the leading source of international students for Canada since 2018. In 2022, the number of Indian students studying in Canada reached nearly 320,000, marking a 47 per cent increase and constituting approximately 40 per cent of all overseas students, according to the Canadian Bureau of International Education. This influx of Indian students has also enabled Canadian universities and colleges to offer subsidized education to domestic students.
However, rising tensions between the two nations could potentially impact the number of Indian students choosing Canada for education.
Moreover, the deteriorating relations between India and Canada could potentially affect the economic interests of numerous Sikh families residing in India. Many of these families have relatives in Canada who send substantial remittances back home, contributing millions of dollars to the Indian economy.
Canada's 2021 census reveals that the Sikh population in the country has more than doubled over the past two decades, now constituting 2.1 per cent of the total population. This increase is attributed to the significant migration of Sikhs from India to Canada in pursuit of higher education and employment opportunities.
