The ongoing diplomatic tensions between India and Canada can have far-reaching consequences not only on the diplomatic relations but on the commercial ties between the two nations. The issue is concerning for the business community in both the countries. The rift, which has been simmering for a while now, seems to be heading toward a critical juncture. I believe if things aren’t handled with care, we could be looking at a situation not beneficial for businesses and economies on both sides.
India and Canada have a deep-rooted economic partnership. With bilateral trade exceeding $8 billion, this relationship isn’t something that either country can afford to treat lightly. Though bilateral trade with Canada is less than one per cent of India’s total trade, it still presents significant opportunities for growth, innovation, and collaboration in various sectors, including technology, agriculture, and education.
India is one of the top trading partners for Canada. Our exports to Canada have increased to $ 3.8 billion in 2023-24 from $2.0 billion in 2106-17 and we are able to narrow the trade deficit to $0.7 from $2.1 billion. Indian companies are setting up bases in all parts of Canada and are working closely with domestic companies in the field of research and development, education and hand-holding SMEs who are looking for opportunities and expanding their business internationally.
These businesses are creating jobs, contributing to Canada’s economic growth, and fostering a spirit of collaboration with local businesses. If the current strain deepens, these ventures could be in jeopardy, affecting jobs and economic momentum, particularly in sectors already vulnerable.
Canada, on the other hand, is the 18th largest foreign investor in India with an investment of over $3.9 billion from Apr 2000 - June 2024 and has a share of 0.57% of total FDI inflows in India.
What worries me is the potential disruption to this flow of investments and partnerships should the diplomatic spat continue unchecked. If the situation escalates further, there is a possibility - though less likely - of India freezing Canadian funds or Canadian investors exiting India.
I just hope that Canada doesn't go to the extent of imposing sanctions, because if they do India's reply will also be with counter sanctions. And as a top-10 trading partner, India could significantly harm Canada’s economy, which already faces a trade imbalance in India's favour. Let's just hope we don't go that far to hurt each other's mutual interests.
I invite your opinions.
