India vs Canada: A Clash of Economic Interests
Photo by Dominik Lückmann on Unsplash
Indo-Canadian diplomatic relations are truly a mess. On September 13, 2023, Canadian Prime Minister Justin Trudeau ignited a new spark in the House of Commons when he accused the Indian government of undertaking an extrajudicial killing of Canadian citizen and Sikh separatist leader, Hardeep Singh Nijjar, who was shot dead at a Surrey temple back in June.
The Indian central government responded with condemnation, after which ensued the dismissal of top diplomats, a pause in trade talks, and even the suspension of visa services. Indeed, for decades, India has levied accusations against Canada of harboring Sikh separatists, something which India believes to be an existential threat to their security. This new explosive chapter has only deteriorated already fraying diplomatic relations.
As Canada’s 10th largest two-way trading partner as of 2022, India provides the possibility of blossoming trade and economic development. Nevertheless, the strain in relations has had a serious economic effect, impacting trade, threatening the bilateral flow of human capital, and hurting future economic strategic efforts. But how exactly?
Impact on Trade
The frigid Indo-Canadian diplomatic relations have indeed had a serious impact on mutual trade. But how was trade between the two nations before all of this?
In recent years, bilateral trade between the nations has grown exponentially, reaching upwards of a whopping $8.16 billion in 2022-23. Indian exports to Canada consist mainly of pharmaceuticals, jewelry, textiles, and machinery, while Canadian exports to India are sourced from resource extraction or agriculture, including lentils and pulses. Moreover, India and Canada are, based on GDP, the 5th and 10th largest economies respectively. Despite their sizable mutual trading relationship, the past few years have seen a consistent rise in trade between the two nations with investments between Canada and India rising to $36.2 billion in 2022, a figure up by 37% compared to 4 years prior.
However, in just the past few months of strife, the impact on bilateral trade has been significant. Negotiations for a two-way trade deal, labeled the Comprehensive Economic Partnership Agreement (CEPA) had been underway since 2010. However, Canadian Trade Minister Mary Ng paused future trade talks and postponed a scheduled October trade mission visit to Mumbai, despite initial signs of an agreement being announced later this year. Meanwhile, industry-specific trade has also been disrupted, with Reuters reporting that although Indian steel exports to Canada have not slowed, Canadian lentil sales to India have substantially decreased.
It's clear that free trade between India and Canada would not only be mutually beneficial, as it would dismantle trading barriers between some of the world's largest economies, but it would also encourage further Canadian investment into the subcontinent. Moreover, access to the 1.4 billion strong market of India can result in boosted growth of Canadian industries. The implementation of a free trade deal would allow Canadian companies to have access to the lucrative Indian market. One such example is Vancouver-based Teck Resources, which was planning to sell their coal businesses to Indian bidders; however, the ensuing strife has hurt the possibility of a deal. Lastly, a general relaxation of the diplomatic row would also allow agricultural and mining trade between the two nations to strengthen.
Flow of Human Capital
The derailing of trade, however, has not been the only economic impact of the recent Ottawa-New Delhi dispute. With India’s suspension of visa services for Canadian citizens, the ever-growing threat to the flow of capital and goods across the two nations has become more realistic.
Nearly 1.4 million Canadians, roughly 4% of the nation's entire population, self-identified as being of Indian origin in the last census. Of this share, more than 770,000 identified as Sikhs (I count myself as 1 of these 770,000). More importantly, the large ethnic Indian diaspora in Canada is a substantial indicator of the importance of human capital flow between the two nations. For instance, India is the largest source of foreign students attending Canada’s colleges and universities, with the Canadian Bureau for International Education (CBIE) putting this figure at a total of 800,000 international students.
Moreover, the relaxation of labor laws pertaining to students has allowed a greater share of local businesses to employ them. Some local communities, like my hometown of Surrey, BC, are becoming increasingly reliant on this young type of labour, which not only provides a valuable contribution to the local economy but also generates [nearly $4.9 billion][1] for the national economy. These students and foreign workers provide close to $2.9 billion in remittances that directly fund their families in India, as reported by the Ministry of Overseas Indian Affairs.
Photo by Dominik Vanyi on Unsplash
However, existential threats such as the suspension of visas has the potential to discourage the future flow of valuable human capital. Visa suspension has already shaken the Indo-Canadian transportation sector, stoking public fears of booking air tickets to India and back; in August, roughly 212 one way flights between the nations took off, highlighting the important cultural and economic relationship between India and Canada.
Impact on Strategic Economic Efforts
Specifically in the past few years, India has become a centerpiece of the West’s Indo-Pacific economic strategy. Therefore, a secure economic relationship with India is of utmost importance to Canada, particularly as part of the West’s plans to counter Chinese influence in Asia.
Lately, this need has driven Canadian investment in India. According to the Economic Times, the Canadian Pension Plan Investment Board (CPPIB), which manages nearly $575 billion in assets, invested nearly $45 billion USD into India, making it the 4th largest recipient of Canadian foreign direct investment globally. Specifically, the CPPIB has invested in major indian companies, such as ICICI Bank, Kotak Mahindra Bank, and Paytm. The CPPIB, along with several provincial investment boards, has opened up trade offices in and around India: the CEPA would have boosted the development of these trade bureaus and missions.
But the fall-through of CEPA has thrown the possibility of the removal of bilateral trade barriers, promotion of mutual growth, and solidification of the two nations’ trading relationship up in the air. All of this has occurred despite the “tremendous opportunity” for Canadian companies in India’s emerging industries, such as transportation, clean energy and natural resources. In fact, the sustained growth of India’s GDP has regularly reached above 7%, and provides a critical opportunity to the West. Further Western - specifically Canadian - investment into the subcontinent can be extremely profitable not only for Canadian corporations and industry, but also can foster economic growth in India.
So What Now?
The past few months of the Indo-Canadian diplomatic strife has highlighted the substantial political disagreements between the Indian and Canadian governments. Nevertheless, the negative consequences of the situation on bilateral trade, the threat to capital flows, and the Canadian strategic economic efforts are dire. The importance of India as a strong future trading partner not only to Canada, but to the West as a whole, is paramount. Clearly with their vast manufacturing, natural resources, and agricultural sectors respectively, a robust Indo-Canadian partnership has soaring potential for lucrative economic growth.