Will the worsening diplomatic relations between India and Canada impact their commercial ties?
In a major escalation of tensions between India and Canada, New Delhi ordered the expulsion of six Canadian diplomats on Monday and announced the recall of its High Commissioner to Canada, along with other key diplomats.
Diplomatic relations between the two countries began to strain in September 2023, when Canadian Prime Minister Justin Trudeau accused “agents” of the Indian government of involvement in the murder of Hardeep Singh Nijjar, a Canadian citizen, on Canadian soil. This latest escalation comes as India has been actively pursuing trade partnerships with various nations through free trade agreements (FTAs). However, diplomatic friction with Canada has already halted discussions for an FTA, and this development suggests that the deal might no longer be viable.
Significantly, Canadian pension funds, asset management firms, and financial institutions have substantial investments in key sectors of India’s economy, making investors closely monitor the evolving diplomatic situation. Additionally, Canada remains one of the leading sources of remittances to India.
Canadian Investments in India
According to Invest India, Canada ranks as the 18th-largest foreign investor in India, with cumulative investments amounting to $3.31 billion between 2020-21 and 2022-23. Canadian investments make up 0.5% of India’s total foreign direct investment (FDI), with the services and infrastructure sectors accounting for 41% of these inflows.
Several major Indian companies, including Tata Consultancy Services, Aditya Birla Group, Wipro, and Infosys, have a strong presence in Canada. The Canada Pension Plan Investment Board (CPPIB) holds significant stakes in various Indian companies, such as Kotak Mahindra Bank, Paytm, and Zomato, with its investments in India reaching $14.8 billion by 2023. Additionally, Caisse de dépôt et placement du Québec (CDPQ), another key Canadian investor, had invested approximately $6 billion in India by the end of 2022.
Remittances from Canada
Canada plays a vital role in remittances to India. In 2023, India received an estimated $125 billion in global remittances, with Canada ranking among the top 10 sources, according to the World Bank. The Indian diaspora in Canada, primarily composed of professionals and skilled workers, regularly sends remittances to India, contributing to a steady inflow of funds.
Indian students make up nearly 40% of the international student population in Canada, with around 427,000 Indian students currently enrolled there. Furthermore, Indian immigration to Canada saw a significant surge, increasing by 326% from 32,828 in 2013 to 139,715 in 2023, according to data from the National Foundation for American Policy (NFAP).
Trade Ties with Canada
Despite ongoing political tensions, a report by the Global Trade Research Initiative (GTRI) reveals that the actual effects on trade have been limited. Bilateral merchandise trade between India and Canada saw a slight increase, rising from $8.3 billion in FY2023 to $8.4 billion in FY2024. India’s imports from Canada reached $4.6 billion, while exports experienced a minor decline to $3.8 billion.
