NEW DELHI: India’s diplomatic ties with Canada have come under strain after Canadian Prime Minister Justin Trudeau recently blamed the Indian government for assassination of a Sikh activist in that country. Will the diplomatic relations get in the way of economic ties between the two countries?
Recently, Indian government sources told this newspaper that the ongoing trade negotiations with Canada were put on hold owing to ‘political’ reasons. But this was before Trudeau made the allegation against India. Things could go downhill from here onwards.
But how much is at stake for either country when it comes to economic ties? Canada is not a very big trading partner of India. The total size of India- Canada merchandise trade is $8.2 billion, or 0.7% of India’s total trade in 2022-23. India exported just over $4 billion of goods to Canada, and imported nearly similar amounts in 2022-23.
A new free trade deal could have given a boost to trade between the two countries. But trade negotiations have fallen victim to the latest diplomatic row with Canada. Canada is also a big source of portfolio investments in the Indian capital market. At the end of August, FPIs from Canadian funds accounted for $1.77 lakh crore investment in the Indian capital market. Canada ranked seventh among countries in terms of contribution in portfolio investments in the Indian capital market.
“It is the investment flows from Canada, especially, from their vast pension funds, which are substantial and support our renewables and other infrastructure investments. I hope this stand-off will not affect these flows,” says Subhas Chandra Garg, former finance secretary, Government of India. A stock analyst this newspaper spoke to said his discussions with a couple of large institutional investors suggest the impact will not be significant even if there is some in the short-term. India has received FDI worth $3.4 billion from Canada since 2000, making the North American country the 17th largest source of FDI for India.
India also receives a large amount of remittances from Canada. As per a PIB statement in February this year, India received 0.6% of inward remittances in 2020-21 from Canada at $80 billion. In 2022, it received $111 billion in remittances. Canada received maximum immigrants from India (118,095) in 2022, and Indians accounted for the highest number of (27%) permanent residency status given during the year.
It is not all one-sided traffic. Canada benefits from investments made by Indian firms. A recent joint report by Confederation of Indian Industries (CII) and Canada India Business Council shows Indian firms have made over $6.6 billion investments in Canada generating over 17,000 jobs in eight of the 10 provinces in Canada.
