How India-Canada Tensions Have Put Trade & Investments Worth Billions In Jeopardy

A diplomatic fight between Canada and India over the murder of a Sikh leader is threatening to freeze billions of dollars worth of growing investments and economic ties between the two nations, which are much more than just the flow of goods.

What Is Happening Between India-Canada?

Justin Trudeau/Twitter

Canadian Prime Minister Justin Trudeau shocked the country earlier this week on Monday by alleging that India was behind the murder of a Sikh separatist leader in a suburb of Vancouver that took place in June. India denied that it had anything to do with the killing, calling the allegation ¡°absurd.¡± Both nations expelled one of the other¡¯s diplomats.

The incident exposes a widening rift between two countries that, in financial and economic terms, had been growing closer. Investments between Canada and India rose to C$36.2 billion in 2022, up 37% in four years, according to Statistics Canada data, as per a Bloomberg report.

¡°The financial connections are very strong in both directions,¡± said Vivek Dehejia, professor of economics at Ottawa¡¯s Carleton University. The diplomatic row is more likely to have a ¡°chilling effect¡± on investment flows between the two countries than affect trade, he said.

How Much Trade Happens Between The Two Nations?

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Canada said this month it had paused talks on the proposed treaty with India, just three months after both said they aimed to seal an initial pact this year. Industry estimates show the Comprehensive Economic Partnership Agreement (CEPA) between Canada and India could boost two-way trade by as much as $6.5 billion, yielding a GDP gain of $3.8 billion to $5.9 billion for Canada by 2035, as per a Reuters report.

Steady growth has seen goods trade rising to $8 billion in 2022, with Indian exports to Canada touching $4 billion and imports from Canada also worth $4 billion.

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What Are The Major Imports & Exports?

Major imports from Canada include energy products such as coal, coke and briquettes, besides fertilizers, while India exports consumer goods, garments, and engineering products such as auto parts, aircraft equipment and electronic items.

Canada's top exports to India in 2022 were fossil fuels and related products worth nearly $1 billion, followed by fertilizers worth nearly $748 million, and wood pulp and plant fibres worth about $384 million, according to Trading Economics/UN Comtrade data.

Canada's Canpotex is also among the biggest suppliers of fertilizer ingredient potash. Three companies from India, which rely solely on the import of fertilizer, signed an MoU with Canpotex in September 2022 to import about 1.5 million metric tonnes annually for three years.

As per the report, pharmaceutical products, worth about $418 million, made up the bulk of Indian exports last year, followed by iron and steel products worth about $328 million and machinery, nuclear reactors and boilers worth about $287 million.

India's growing demand for imported lentils has benefited Canadian farmers, while Indian pharmaceutical and software companies have expanded their presence in the Canadian market.

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How Much Does Canada Invest In India?

Canada is India's 17th largest foreign investor, pouring in more than $3.6 billion since 2000, while Canadian portfolio investors have invested billions of dollars in Indian stock and debt markets.

The Canadian pension fund, CPP, had increased its investment in Indian markets to about $15 billion, in areas such as real estate, renewables and the financial sector by the end of the last fiscal year in March 2023.

Other big pension funds with sizeable exposure to India include Caisse de d¨¦p?t et placement du Qu¨¦bec (CDPQ), which has investments worth C$8 billion ($6 billion) as of Dec. 31, 2022, and Ontario Teachers' Pension Plan (OTPP), which had investments of more than $3 billion as of last year.

What About Corporates' Presence In The Two Countries?

More than 600 Canadian companies, including Bombardier and SNC Lavalin, have a strong presence in India, while more than 30 Indian companies, such as infotech majors TCS, Infosys, and Wipro have invested billions of dollars in Canada, creating thousands of jobs.

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