India-Canada diplomatic flare-up unlikely to singe trade ties

For the diplomatic one-upmanship which began in June 2023, it has taken sixteen months for India-Canada ties to explode into a diplomatic war. On Monday, India recalled its High Commissioner to Canada along with several other diplomats, and expelled six Canadian diplomats including the Acting High Commissioner Stewart Ross Wheeler from New Delhi.

The action follows the unprecedented allegations by Canadian authorities accusing India of “supporting criminal activity against Canadians” and also of “coercive behaviour targeting South Asian Canadians”.

India termed Canada's allegations “preposterous” and accused Canadian Prime Minister Justin Trudeau of pushing the allegations as a political ploy meant to gain support from Canada's Sikh community, which is among the largest in the world outside of India. “Prime Minister Trudeau's hostility to India has long been in evidence,” said a blistering statement by the Ministry of External Affairs.

Impact on Bilateral Trade

According to Invest India, Canada was the 17^th largest investor in India in the period between April 2000 and June 2024. Canadian companies invested $3.9 billion during the period, which made up for 0.57 per cent of the total Foreign Direct Investment (FDI) into India. There are as many as 600 Canadian companies present in India.

Figures from the Department of Commerce show a gradual but steady increase in total trade between the two countries, barring a Covid-era dip. Bilateral trade, as displayed in the table, rose 23.5 per cent in five years to 2023-24.

Analysts believe the impact on trade of the diplomatic fracas between the two nations will be minimal as most business dealings happen on private level and neither of the countries have restricted trade in any way.

The China Example

A case in point is China. The diplomatic freeze after the Galwan clashes in May 2020 and the subsequent border stand-offs has still not thawed. But, this has not stopped China from overtaking United States as India’s largest trade partner in 2023-24. The increase in trade activity happened despite greater scrutiny by the Government of India on investments and imports from China.

Figures in the below table from Department of Commerce shows the massive 55.7 per cent jump in imports from China in the past five years.

Canadian Presence In India

India is the second most popular destination for Canadian pension fund investments after Australia, accounting for 25 per cent of investment flows in the region from 2019-2023. Funds like the Canada Pension Plan Investment Board (CPPIB), Ontario Teachers Pension Plan (OTPPB), Caisse de dépôt et placement du Québec (CDPQ), and the Ontario Municipal Employees Retirement System (OMERS) have invested billions of dollars in the Indian equity and real estate markets.

Sun Life Financial has a joint venture with the Aditya Birla Group and also has state-of-the-art tech centres in Bengaluru and Gurugram. Other financial giants of Canadian origin present in India include British Columbia Investment Management Corporation, Fairfax Financial Holdings Limited and Brookfield Asset Management which focuses on real estate, renewable power, infrastructure and private equity.

McCain Foods (India) is a wholly-owned subsidiary of McCain Foods of Canada and also one of the more popular frozen food brands in India. Magna International is a Canadian auto parts and mobility technology company with 13 manufacturing and assembly facilities in India.

Indian companies like the Aditya Birla Group, Tata Consultancy Services, Infosys and Wipro have a large presence in Canada and have created hundreds of thousands of jobs.

Impact on the Indian ‘Thali’

Canada is one of the biggest suppliers of pulses (dal) to India. In 2023, Canada accounted for more than half of all ‘dal’ imports. According to Government of Canada figures, top pulses exported to India in 2023 were lentils with values of $544 million, up 54 per cent from $63 million in 2018. Other big Canadian imports into India were yellow peas with values of $42 million and chickpeas with values of $7.6 million.

India also depends on Canada for potash, an essential ingredient in fertiliser production. Other big imports from Canada include pharma products, timber and pulp among other products.