Trade Tensions: India’s Clash with Canada Raises Concerns for Economic Relations
Written by Sanjay Kumar
Tensions between Canada and India have escalated in recent weeks following accusations by Canadian Prime Minister Justin Trudeau that India was involved in the assassination of a Sikh separatist leader in British Columbia. As diplomatic relations sour, the rift now threatens to have significant economic consequences for both countries.
Trade Deal in Jeopardy: A proposed early-stage trade deal between Canada and India hangs in the balance due to the deteriorating diplomatic relations. This uncertainty could undermine India’s ambitions to establish itself as a Western supply-chain alternative to China. Furthermore, India’s access to Canadian potash, a vital crop nutrient, may be jeopardized.
Impact on Higher Education: India has issued a safety advisory to its students regarding “anti-India” activities in Canada, which may deter Indian students from pursuing higher education there. This sector is a significant revenue source for Canada, contributing approximately C$22 billion ($16.3 billion) annually.
Diplomatic Expulsions and Visa Restrictions: Both countries have expelled senior diplomats as part of a tit-for-tat escalation. Canada is planning to reduce embassy staff in India due to rising security threats, while New Delhi has stopped issuing visas to Canadian citizens.
Key Insights:
Immigration:
Indians constitute nearly a fifth of all immigrants to Canada, the highest share from a single place of birth since 1971.
However, remittances from Canada to India are relatively low due to many immigrants settling permanently in Canada.
Higher Education:
Indian students make up a significant portion of international students in Canada, accounting for over 28% in 2022.
The higher education sector contributes more than 15% to Canada’s services exports annually.
Trade:
Bilateral trade between Canada and India amounted to $8.16 billion in 2022-23, with India heavily reliant on Canadian potash imports.
Canada’s supplies have become crucial as sanctions disrupted trade with Russia and Belarus.
Foreign Investment:
India received foreign direct investment equity inflows of $3.60 billion from Canada between April 2000 and June 2023, albeit a relatively small portion of total FDI.
Analysts express concerns about a potential “chilling effect” on investments due to the ongoing dispute.
Notable investments from Canada in India include Sun Life Financial Inc.’s joint venture with Aditya Birla Group and CPP Investment Board’s substantial investments, such as a stake in Kotak Mahindra Bank Ltd. In July, commitments from Canada for foreign portfolio investments in India rose to 1.72 trillion rupees, indicating continued interest despite the diplomatic strain.
The situation remains fluid, and both countries face economic uncertainties as the rift persists.
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