Deteriorating diplomatic relations between India and Canada are threatening to cloud trade and investment ties between both nations, but analysts see no long-term fallout from the row.
Analysts expect the tensions to last only a few weeks, as strong trade and people-to-people ties are likely to bring the two countries back to cooperative terms soon.
“Bilateral relationship is rooted in mutual benefits, complementarity in trade and deep people-to-people connect, so there is unlikely to be a medium- or long-term impact,” economic think tank Global Trade Research Initiative founder Ajay Srivastava wrote on LinkedIn.
Prashanth Tapse, senior vice president of research at broker Mehta Equities Ltd, echoed Srivatava’s sentiment.
“Tensions between India and Canada are unlikely to impact Canadian investments in India. We think if tensions escalate, more Canadian pension funds may consider reviewing and withdrawing some investments. They have a good amount of exposure in sectors like real estate, renewables, and the financial sector, which would remain in focus,” Tapse said.
India-Canada trade snapshot
Canada is the 18th largest foreign investor in India, with a cumulative investment of $3.31 billion between April 2000 and March 2023, according to Invest India data.
Canadian investments comprised about 0.5% of all foreign direct investment (FDI) into India, with services and infrastructure dominating about 41% of FDI from Canada into India.
Canadian foreign portfolio investments in India were to the tune of ₹1.78 trillion ($21.33 billion) at the end of August, NSDL data showed.
India’s exports to Canada stood at $4.11 billion in FY23, or about 0.9% of India’s total export basket of $450 billion in the past fiscal year, data available with the ministry of commerce showed.
On the other hand, India’s imports from Canada were at $4.05 billion, nearly 0.6% of overall imports of $714 billion for the year, data showed.
On the remittances front, India received nearly $859.83 million from Canada, according to World Bank data.
Pension funds dig in
Some prominent Canadian pension funds, including Canada Pension Plan Investment Board (CPPIB) and the Ontario Teachers’ Pension Plan (OTPP), have significant investments in India.
Last month, CPPIB said it invested an additional Canadian $537 million in its Indian toll roads portfolio firm IndInfravit Trust, taking its stake to 60.8%, while also committing $160 million to Multiples Private Equity Fund IV, which targets mid-market growth companies in India.
OTPP last year opened an office in Mumbai in a move aimed at expanding its existing portfolio and building long-term partnerships. The pension fund has invested or committed more than Canadian $4.5 billion in the region across asset classes. About half of that has been in infrastructure, including renewable energy firm Mahindra Susten, a road platform with KKR & Co, and the Sustainable Energy Infrastructure Trust, a renewables-focused investment trust.
The Nijjar case
The row between New Delhi and Ottawa broke out on Monday after Canadian Prime Minister Justin Trudeau alleged in his parliament that there were “credible allegations” regarding the “involvement of agents of the Indian government” in the killing of Hardeep Singh Nijjar, a Canadian citizen.
Nijjar, an Indian immigrant who New Delhi designated as a terrorist under its Unlawful Activities Prevention Act, was shot dead outside a gurdwara in a parking lot in Surrey, British Columbia, on 18 June.
India rejected Trudeau’s allegations, warning Ottawa that such allegations divert attention from the activities of the pro-Khalistan operatives living in Canada, and called for effective action against them.
In tit-for-tat action ever since the row erupted, both nations have expelled diplomats and issued travel advisories. On Thursday, India suspended visa services for Canadian citizens. Visa service provider BLS announced the change but then briefly removed the announcement before putting it back up.
Meanwhile, the tussle with India puts Canada’s Western allies in a spot as Ottawa is also part of the “Five Eyes” intelligence alliance that includes the US, the UK, Australia, and New Zealand.
Trudeau reportedly instructed his intelligence chief to share evidence with these counterparts and seek a joint finding and announcement. However, the US and others declined, as they did not want to upset India.
Trudeau’s political dilemma
“Canada’s global ambitions today seem to be a prisoner of its domestic politics as there is a danger that the entire edifice of its Indo-Pacific strategy might be falling apart,” Harsh V. Pant, a professor in international relations at King’s College London, wrote in The Economic Times.
“For India, rising extremism within Canada’s more than 770,000 Sikh diaspora has long been a major source of concern and the same has been regularly flagged with Ottawa,” Pant wrote.
Trudeau’s Liberal Party of Canada won by a slender margin in the 2021 election and has had to rely on the pro-Khalistan Jagmeet Singh’ Jimmy’ Dhaliwal-headed New Democratic Party to hold on to power.
From farmers’ protests in India to police action against pro-Khalistani activist Amritpal Singh, statements from Trudeau and Singh had been vitiating India-Canada ties, Pant wrote, adding that for New Delhi, a turnaround in unlikely until Trudeau is in office; that is until October 2025, when polls are due in Canada.
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