India-Canada diplomatic rift won’t impact trade, experts say

Bengaluru: In the light of the diplomatic standoff between India and Canada, the trade relationship between the two countries has come into focus. India’s merchandise bilateral trade with Canada amounted to $8.4 billion in FY24.

Canadian investments account for 0.5 per cent of India’s total foreign direct investment (FDI), with services and infrastructure comprising 41 per cent of these inflows. However, Canadian pension funds and asset management companies have invested in key sectors in India, with investments exceeding $45 billion.

It may be recalled that the two countries were engaged in free trade agreement talks (FTA), which are now all but dead.

Experts who spoke to DH say that if diplomatic relations are fully severed, then trade and investment between the two countries might get affected. However, no immediate impact will be seen in the bilateral trade.

“Despite the diplomatic tiff and frosty relationship which has been prevailing since September 2023, bilateral trade has not suffered, so it is unlikely to have any impact,” said Jayant Dasgupta, former India ambassador to the World Trade Organisation (WTO).

Hinting at the possibility of sanctions against India, Canada's foreign affairs minister Melanie Joly said that "everything is on the table", reported PTI on Tuesday.

“We have less than $10 billion trade with Canada, so it might not have a severe impact. Moreover, diplomatic and trade ties do not go hand in hand, in most cases. However, if diplomatic relations are fully severed, then definitely there would be a case of trade getting affected,” said Madan Sabnavis, chief economist, Bank of Baroda.

Defying most expectations, total two-way trade between Canada and India actually increased slightly from C$880 million to C$923 million from March 2023 to March 2024, according to the Asia Pacific Foundation (APF) of Canada.

Despite a sharp deterioration in relations between the two countries since 2023, the Canada Pension Plan Investment Board had announced a follow-on investment of Rs 1,820 crore in the National Highways Infra Trust, sponsored by the National Highways Authority of India (NHAI) in March 2024.

India's imports from Canada include minerals, pulses, potash, industrial chemicals, and gemstones. Additionally, several Indian companies, including TCS, Infosys and Aditya Birla Group have a presence in Canada.

“This diplomatic stand-off would surely put a vast number of companies on alert, on both sides – across many sectors such as IT, metals, gems & jewellery, BFSI, textiles, chemicals and engineering which are involved in bilateral trade,” said Ambareesh Baliga, independent market analyst.

Every year, Canada receives huge numbers of Indian immigrants, especially students, which interestingly corresponds with the rise in consumer products imports from India in areas which have large Indian diaspora communities, highlighted a report by AFP.