India-Canada Diplomatic Row Threatens Trade and Investment Ties

AFP

Islamabad: A diplomatic dispute between India and Canada, stemming from allegations of Indian involvement in the murder of Canadian Sikh activist Hardeep Singh Nijjar, is casting a shadow over the growing trade and investment relationship between the two nations.

This tension escalated after Canadian Prime Minister Justin Trudeau accused India of being behind Nijjar’s killing, which occurred in June 2023 near Vancouver. In response, India temporarily restricted visas for Canadians and prompted the withdrawal of several diplomats.

Despite initial improvements in relations, both countries recently expelled each other’s top diplomats following India’s claim that its ambassador was identified as a “person of interest” in the ongoing murder investigation.

With neither side willing to concede—Trudeau describing India’s actions as “unacceptable” and New Delhi labeling the allegations as “ludicrous”—the diplomatic impasse could have implications for economic ties.

Ajay Srivastava of the Global Trade Research Initiative in New Delhi noted that both nations must navigate the dispute carefully to avoid significant economic repercussions.

While India’s trade with Canada, which grew from $6.36 billion to $8.27 billion between 2019 and 2023, remains relatively small compared to its larger trading partners, it has shown resilience.

The bilateral merchandise trade has marginally increased to $8.4 billion in the 2024 fiscal year, with India’s major exports to Canada including pharmaceuticals, steel, iron products, and electrical machinery.

Srivastava emphasized that unless either country imposes trade bans, immediate impacts on trade seem unlikely. However, the ongoing diplomatic friction could hinder negotiations for a proposed free-trade agreement, which had already been suspended prior to the recent escalation.

In terms of investment, India, the world’s fastest-growing major economy, and Canada, ranked 17th for foreign direct investment in India, have established strong financial ties. Canadian pension funds have invested around $55 billion in India, with significant stakes in companies like Zomato and Kotak Mahindra Bank.

Conversely, Indian firms, including IT giants TCS and Infosys, have made substantial investments in Canada, creating thousands of jobs. Notable Canadian companies, such as Bombardier, also maintain a strong presence in India, with potential partnerships discussed by Indian billionaire Gautam Adani in September.

The student sector is another area of impact, as more than 40 percent of international students in Canada are from India, contributing approximately $7 billion to the Canadian education system.

However, the diplomatic row may affect this trend, as Indian applications for Canadian study permits dropped by about 15 percent last year amid the growing tensions.

Contributing factors include a challenging job market and stricter regulations on living costs for international students.