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A diplomatic spat between India and Canada over allegations that New Delhi was behind the murder of a Sikh activist in Canada threatens to overshadow the increasingly close trade and investment ties between the two countries.
Last year, Canadian Prime Minister Justin Trudeau publicly denounced involvement in the murder of Hardeep Singh Nijjar, a separatist wanted in New Delhi and shot dead near his home in Vancouver in June 2023. India reacted angrily to this.
Indian authorities temporarily restricted visas for Canadians and withdrew several diplomats from Ottawa.
Relations have gradually improved, but the two countries this week announced that their ambassadors were among the “persons of interest” named in the murder investigation, and that the two countries have confirmed that they have not been able to confirm their relationship with the other country’s top envoys or others. diplomats were expelled.
Neither side appears willing to back down, with Prime Minister Trudeau on Monday condemning India’s actions as “unacceptable” and New Delhi’s government calling the allegations “ridiculous.” A prolonged diplomatic rift could ultimately affect economic relations.
“As this conflict drags on, both countries will need to carefully manage their actions to avoid full-blown economic fallout,” said Ajay Srivastava of the New Delhi-based World Trade Research Initiative.
India’s trade with Canada is small compared to some of New Delhi’s largest trading partners, but is growing steadily.
According to India’s Ministry of Commerce, bilateral merchandise trade increased from USD 6.36 billion to USD 8.27 billion between fiscal year 2019 and fiscal year 2023.
And so far, it appears to have weathered the storm and will increase slightly again in 2024, reaching USD 8.4 billion.
India’s largest exports to Canada include pharmaceuticals, steel and iron products, and electrical machinery.
New Delhi, on the other hand, relies on Canadian fertilizers.
“We do not expect any immediate significant impact on trade,” Srivastava told AFP.
“Companies in both countries import and export based on their own needs. Bilateral trade is unlikely to be negatively impacted unless either India or Canada chooses to ban trade in some areas.”
However, this diplomatic dispute is unlikely to help the countries’ efforts towards a free trade agreement.
Talks on the proposed deal were put on hold last year before the unrest broke out, but are unlikely to resume unless political issues are resolved.
India is the world’s fastest growing major economy and Canada ranks 17th in foreign direct investment into the country.
In June, New Delhi’s Ministry of Foreign Affairs announced that Canadian pension funds have cumulatively invested about $55 billion in India.
The Canada Pension Plan Investment Board currently holds more than 1% stake in companies including food delivery app Zomato and private lender Kotak Mahindra Bank.
And the investment goes both ways.
Industry groups estimate that India-based companies are investing billions of dollars and creating thousands of jobs in Canada, including top IT giants TCS and Infosys.
Top Canadian companies such as aircraft manufacturer Bombardier also have a strong presence in India.
Indian billionaire Gautam Adani said in September that he had discussed “transformational partnerships” in aircraft services and defense with Bombardier Chief Executive Eric Martel.
CARE Ratings estimates that more than two-fifths of Canada’s international students come from India, contributing US$7 billion annually to the education sector.
It remains to be seen how much of a negative impact this uproar will have on the influx of students.
Applications for Canadian study permits from India fell by about 15% last year, and the uproar erupted in September 2023.
However, other factors also contributed, including a weak job market and Canada’s tightening regulations regarding cost of living requirements for students.
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