Tense diplomatic relations may not impact trade, investment ties between India, Canada: Experts

India and Canada trade in complementary products and do not compete on similar products

New Delhi: The tense diplomatic relations between India and Canada are unlikely to impact trade and investments between the two countries as economic ties are driven by commercial considerations, according to experts.

India and Canada trade in complementary products and do not compete on similar products.

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“Hence, the trade relationship will continue to grow and not be affected by day-to-day events,” Global Trade Research Initiative (GTRI) Co-Founder Ajay Srivastava said.

Certain political developments have led to a pause in negotiations for a free trade agreement between the two countries.

On September 10, Prime Minister Narendra Modi conveyed to his Canadian counterpart Justin Trudeau India’s strong concerns about the continuing anti-India activities of extremist elements in Canada that were promoting secessionism, inciting violence against its diplomats and threatening the Indian community there.

India on Tuesday announced the expulsion of a Canadian diplomat hours after Canada asked an Indian official to leave that country, citing a “potential” Indian link to the killing of a Khalistani separatist leader in June.

Srivastava said these recent events are unlikely to affect the deep-rooted people-to-people connections, trade, and economic ties between the two nations.

Divakar Vijayasarathy, founder and CEO, DVS Advisors, however, said given the new development, the FTA will not happen anytime soon.

In terms of investments from Canada, it ranks seventh in terms of the number of FPIs, with nearly 817 FPIs registered there. It is the 17th largest foreign direct investor in India, with USD 3.64 billion investment from April 2000 to June 2023.

He said that it is to be noted that the Canadian Pension Plan Investment Board has made some significant investments in some of the unlisted entities in infra and renewable energy.

“Though the relationship is under strain, the government may not immediately put complete prohibition of trade, but certain action in terms of increase in duties on import of certain products on both sides can be expected,” Vijayasarathy said, adding it would be too early to expect the entire investments from Canada being moved to approval route in case of FDI.

Bilateral trade between India and Canada has grown significantly in recent years, reaching USD 8.16 billion in 2022-23.

India’s exports (USD 4.1 billion) to Canada include pharmaceuticals, gems and jewellery, textiles, and machinery, while Canada’s exports to India (USD 4.06 billion) include pulses, timber, pulp and paper, and mining products.

On investments, he said that Canadian pension funds will continue investing in India on grounds of India’s large market and good return on money invested.

Canadian pension funds, by the end of 2022, had invested over USD 45 billion in India, making it the fourth-largest recipient of Canadian FDI in the world.

The top sectors for Canadian pension fund investment in India include infrastructure, renewable energy, technology, and financial services.

Mumbai-based exporter and Chairman of Technocraft Industries Sharad Kumar Saraf said the present frosty relations between India and Canada are certainly a cause for concern.

“However, the bilateral trade is entirely driven by commercial considerations. Political turmoil is of a temporary nature and should not be a reason to affect trade relations,” Saraf said.

He added that even with China, India has acrimonious relations, but bilateral trade continues to remain healthy.

“In fact, bilateral trade is an effective tool to improve political relations. India must make special efforts to increase our bilateral trade with Canada,” Saraf said.

India and Canada have a strong education partnership. 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 USD 4.9 billion to the Canadian economy in 2021.

Indian students are the largest international student group in Canada, accounting for 20 per cent of all international students in 2021.

The benefits of educational partnerships are mutual and hence the current situation may have no impact on the relationship, Srivastava said.