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Can a deteriorating relationship between India and Canada affect commercial relations?

India-Canada News: The relationship between the two countries has reached new lows as both have announced the expulsion of diplomatic personnel from the other. This comes after Canadian Prime Minister Justin Trudeau accused Indian government officials of involvement in the murder of Khalistani terrorist Hardeep Singh Nijjar.

Following Canada’s expulsion of a senior Indian ambassador over the murder of Khalistani terrorist Hardeep Singh Nijjar, India on Tuesday requested that a senior Canadian diplomat leave the country, according to the Ministry of External Affairs. Asserting that Indian government agents killed Khalistan advocate Hardeep Singh Nijjar in June of this year, Canadian Prime Minister Justin Trudeau earlier today fired a senior Indian diplomat.

The negotiations between India and Canada on the free trade agreement (FTA), which resumed after a decade, have reportedly come to an end due to political concerns, according to a previous report from Mint.

The official stated that talks will restart after the “political issues” have been settled without specifically mentioning the Khalistan issue, which caused friction between the two nations.

“On September 10, Prime Minister Narendra Modi conveyed to his Canadian counterpart Justin Trudeau India’s strong concerns about the continuing anti-India activities of extremist elements in Canada that were promoting secessionism, inciting violence against its diplomats, and threatening the Indian community there,” according to PTI.

Let’s examine the relations and trade between India and Canada.

Important trade figures between India and Canada

Canada is the 18th largest foreign investor in India, according to Invest India, with total investments of around $3,306 million between April 2000 and March 2023. So, of all the FDI (foreign direct investment) inflows into India, Canadian investment accounted for about 0.5%. In 2022, India ranked as Canada’s ninth-largest trading partner. Together, services and infrastructure accounted for 40.63% of all FDI investments made by Canada in India.

According to Invest India, over 1,000 Canadian businesses are actively looking to expand into the Indian market. Over 600 Canadian businesses have a presence there.

According to information held by the Ministry of Commerce, India’s total exports to Canada was $4,109.74 million in FY23, or 0.9% of the $450,958.43 million total exports of India during the previous fiscal year.

On the other side, according to data from the Ministry of Commerce, India’s total imports from Canada in FY23 totaled $4,051.29 million, or around 0.6% of the country’s overall imports of $714,042.45 million.

According to a PTI article, India exports equipment, gems and jewelry, textiles, and medicines to Canada, while Canada exports pulses, lumber, pulp and paper, and mining goods to India.

In terms of personal remittances, the World Bank reports that India got close to $859.83 million in remittances from Canada in 2022.

Trade between India and Canada may not be affected.

According to a PTI article, experts say that since economic ties between India and Canada are motivated by business interests, the recent escalation of hostilities is unlikely to have an effect on commerce or investments between the two nations.

Experts point out that because India and Canada trade in complimentary goods rather than comparable ones, these occurrences may not have an impact on their trade relations.

Ajay Srivastava, co-founder of the Global Trade Research Initiative (GTRI), was quoted by PTI as saying that Canadian pension funds will continue to invest in India due to the country’s sizable market and favorable return on investment.

By the end of 2022, Canadian pension funds had made over $45 billion in investments in India, making it the fourth-largest beneficiary of FDI from Canada globally. Infrastructure, renewable energy, technology, and financial services are the top industries in India where Canadian pension funds are investing, according to a PTI report.