Diplomatic tensions between India and Canada have reached new heights, with serious repercussions for their long-standing economic ties. The recent exchange of diplomatic measures, including expulsions and visa suspensions, has cast a shadow over the bilateral trade relationship, the Free Trade Agreement (FTA) negotiations, Canadian pension fund investments in India, and even Canadian brands operating in India are caught in the cross-fire facing social boycott.
All this started when Canadian Prime Minister Justin Trudeau accused India of killing Canadian Sikh leader Hardeep Singh Nijjar. The Canadian government went to an extent of expelling an Indian official from the country. Soon after, India retaliated and asked a Canadian diplomat to leave.
Here are the economic ramifications of the escalating tensions between India and Canada.
Bilateral Trade
The bilateral trade between India and Canada has grown significantly in recent years, reaching $8.16 billion in 2022-23. India exports $ 4.1 billion worth of products that include pharmaceuticals, gems and jewellery, textiles, and machinery, while Canada’s exports to India ($4.06 billion) include pulses, timber, pulp and paper, and mining products. Last year, Canada exported $11.6 billion worth of goods and services to India. According to Statistics Canada, this was less than third of the exports to China.
Also Read: UK stays firm on trade talks with India amidst allegations from Canada
Vivek Dehejia, an Economics Professor at Ottawa's Carleton University told Bloomberg that the feud between the two countries might not affect the trade much but might have chilling effects on investment flow. As per Statistics Canada data, the investments between the two nations rose to $26.8 billion in 2022.
Free Trade Agreement
The Free Trade Agreement that began between the two countries after over a decade has come to a halt now. An Indian senior government official has told Mint that the negotiations will resume once the diplomatic tensions are resolved.
“India has shown its resentment against certain political developments in Canada and, therefore, for the time being, till these political issues are settled, we have paused negotiations," the official told Mint. “The moment the political issues are sorted out, the talks will resume. So, it is only a pause."
As part of the negotiation process over half a dozen rounds of talks have already been held between the countries. In March 2022, the two countries re-launched negotiations for an interim agreement—Early Progress Trade Agreement (EPTA). In such agreements, two countries significantly reduce or eliminate duties on the maximum number of goods traded between them. Norms are also liberalized to promote trade in services to attract investments.
Canadian Pension Funds
Several of Canada's largest pension funds invest largely in India. The funds have increased their focus on India recently to diversify their Asia exposure amid rising geopolitical tensions with China.
Canadian Pension Funds had invested over $ 45 billion in India by the end of 2022, making it the fourth-largest recipient of Canadian FDI in the world. Tens of billions of dollars are pushed into Indian companies and projects that include renewable energy, infrastructure and banks.
Concerns have been growing that the fresh tensions in the India-Canada relationship will see some outflow as Canada Pension Plan Investment Board, the largest pension manager in Canada, has significant holdings in some of the Indian companies.
Canada Pension Plan Investment Board that had $575-billion fund has invested more than $21 billion in India as of last September. This fund holds investments in Indian companies including banking, transportation logistics, e-commerce and other sectors; invests in the country through private equity funds; and owns stakes in office and industrial real estate. The Canada Pension Plan Investment Board also has an office in Mumbai
Similarly, Ontario Teachers’ Pension Plan also opened an office in Mumbai in a push to get access to more investment opportunities and build long-term relationships in the country a year ago.
Meanwhile, the shares of companies with investments from Canada pension funds fell in morning trade on September 21. Canada Pension Plan Investment Board's portfolio stocks including Kotak Mahindra Bank, Zomato, Nykaa and Indus Towers fell as much as 1.32% during the intraday trade on Thursday.
Brands face the Heat
Major Canadian brands and celebrities are facing the heat as the feud flares. Canada-based companies who have a presence in India, such as McCain, which makes ready-to-cook frozen foods, and cafe chain Tim Hortons are getting trolled and facing boycott calls on social media.
Meanwhile, BookMyShow has cancelled Canada-based singer and rapper Shubhneet Singh's tour on Wednesday. The online booking company has said that the refund will be reflected within 7-10 business days.
"Singer Shubhneet Singh's Still Rollin Tour for India stands cancelled. To that end, BookMyShow has initiated a complete refund of the ticket amount for all consumers. The refund will be reflected within 7-10 working days in the customer's source account of the original transaction", the company posted in X.
Education Sector ties
Apart from the trade partnership, India also plays a huge role in Canada's education sector. India by far is the largest source of foreign students attending Canada’s colleges and universities.
There are over 200 educational partnerships between Indian and Canadian institutions. In addition, over 3,19,000 Indian students are enrolled in Canadian institutions, making them the largest international student cohort in Canada, according to GTRI. According to the Canadian Bureau for International Education (CBIE), Indian students contributed $ 4.9 billion to the Canadian economy in 2021.
India Suspends Visa
India has now suspended Visa for all Canadian citizens. BLS International, the vendor that runs the visa application centres in Canada posted on their website that services have been suspended from September 21 due to operational reasons till further notice.
Global Response
Unlike previous instances where Canada received immediate support from Western countries during geopolitical tensions, the current situation, involving India, has seen a lack of a receptive audience among these nations. They now view India as a crucial counterbalance to China's geopolitical influence.
