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The India-Canada rift has begun to widen now after Canadian Prime Minister Justin Trudeau blamed the Indian government for the killing of a Canada-based Sikh separatist leader. This escalating standoff has cast a shadow on the trade relations between the two countries.
This includes the Free Trade Agreement negotiations that were scheduled for October but were called off last week. Due to the political developments in Canada, the negotiations have been paused indefinitely.
Following the development, Anand Mahindra, the Chairman of the Indian auto-giant Mahindra and Mahindra, passed a resolution to cease the operations of the company’s subsidiary, Resson Aerospace Corporation, in Canada.
The news sent jitters across the Indian corporate sector, as per analysts. They estimate that the closure of Resson could lead to a loss of over Rs 7,200 crores ($865.20 mn) for the company.
Free trade, FDI, and remittances at stake?
According to experts, the indefinite suspension of the trade talks can lead to a potential loss of over $8 bn for India as the India-Canada bilateral trade stood at $8.16 bn in the financial year ended March 2023.
Trade between India and Canada is evenly balanced. During the financial year 2022-23, India’s exports to Canada stood at $4.1 bn, while imports were valued at $4.06 bn. India majorly imports mining products like coal, coke, fertilisers, timber, pulp, and paper from Canada. On the other hand, Canada’s imports from India include consumer goods, garments, electronic items, auto parts, and gems and jewellery.
The India-Canada rift could also threaten Canadian investments in the Indian capital markets. The country is the 18th largest foreign investor in India and made a cumulative investment of $3.3 bn from April 2000 to March 2023. The Canadian Pension Plan Investment Board (CPPIB) has made investments in several top Indian companies, including Paytm, Zomato, Kotak Mahindra Bank Nykaa, Delhivery, Wipro, Infosys, and ICICI Bank.
However, several analysts feel that the strained relationship between the two nations will not impact FDI. “Pension funds, known for their long-term investment perspective, typically do not react hastily to such geopolitical events. They maintain a strategic outlook and are likely to wait for developments before making any major adjustments,” says Parth Nyati, Founder of Tradingo, an online investment platform.
“However, should the tension escalate further, a thorough analysis of the situation will be warranted,” he adds.
The bitter relations between India and Canada could potentially impact the economic interests of thousands of families in the northern state of Punjab who remit millions of dollars back home. Canada is one of the main destinations that Indians eye for permanent residency. In remittances from abroad, Canada figures among the top 10 source countries for India. In 2021, India received $3.8 bn in remittances from Canada.
However, some experts argue that the current India-Canada rift is unlikely to have any drastic impact on the deep-rooted people-to-people connections between the two countries.
No major impact expected in the long-term
Experts also do not expect any major long-term implications on trade and investments between India and Canada stemming from their bitter diplomatic relations. Besides, both countries trade in complementary and not similar products. Global Trade Research Initiative (GTRI) Co-Founder Ajay Srivastava said, “Hence, the trade relationship will continue to grow and not be affected by day-to-day events.”
Also, the EEPC (Engineering Export Promotion Council of India) Chairman, Arun Kumar Garodia, echoed the same. “We do not believe that the stand-off with Canada will have a material impact on our exports and trade, given our long-standing relationship. We expect the current stand-off to be temporary and to be resolved.”
On investments, Srivastava stated that Canadian pension funds will also continue investing in India due to its large market and good returns on money invested.
