Why Canada’s threat of ‘sanctions’ against India may just be hot air!

For a country that is home to around 2 million Indians, Canada’s toughening stance against New Delhi would certainly seem incongruous. Ironically, the political influence of a section of this diaspora has triggered this abnormally harsh response by the Justin Trudeau government in Ottawa.

It was the threat of sanctions against India that caught the attention of New Delhi on Tuesday, October 15. “Everything is on the table”, said Melanie Joly, the Canadian Foreign Affairs Minister, when asked whether Canada was considering sanctions against India. The fact that the minister had to invoke larger groupings to buttress the import of actions by Canada also did not escape notice. “We will continue to push India to make sure they cooperate. We will continue to engage with our ‘Five Eyes’ partners. We will also continue to engage with the G-7 partners”, Joly added.

While ‘Five Eyes’ is an intelligence-gathering grouping of the United States, the United Kingdom, Australia, New Zealand and Canada, the G-7 is a grouping of advanced economies comprising the U.S., the U.K., Canada, France, Italy, Germany and Japan.

Indian Buyers A Step Ahead

Canada has for long decided the pulse of the Indian ‘thali.' India produces just about half of its annual requirement of ‘dal’ and is dependent on imports to fill the huge demand-supply gap. And it just so happens that Canada has been the largest supplier of lentils to India.

So, can any possible Canadian sanctions make ‘dal’ disappear from the ‘thali’?

Indian buyers are already a step ahead. Ever since Canadian authorities began their misinformation campaign against India last year, Indian importers have already found other sellers. Figures below from the Department of Commerce show Australia overtaking Canada as the largest source of lentils in 2023-24.

Import of Lentils (tonnes)

Year	Canada	Australia
2021-22	523,367	134,814
2022-23	485,492	355,179
2023-24	760,746	822,531
2024-25 (Apr-Jul)	105,673	154,691

Source: Department of Commerce, GoI

In what could be construed as an economic barrage on Canada, lentil buyers have also increased their purchases from markets like Russia, Turkey and the United States.

So, if ‘sanctions’ were a way for Canada to economically target India, the move could boomerang and hit its own farmers – something Trudeau can ill-afford as he faces elections next year.

Modi Govt’s ‘Aatmanirbhar’ Drive

India is also planning ahead. As part of its ‘Aatmanirbhar’ initiative, the government has set a target to make India self-sufficient in pulses by December 2027. The recently launched e-Samridhi portal encourages farmers towards crop diversification, particularly towards cultivating pulses. As an incentive, the government has assured it will procure 100 per cent of the pulses grown by farmers registered on the portal at the minimum support price (MSP).

Trade with Canada

The other big import from Canada is potash – a crucial ingredient in the manufacture of fertilizer. Between 2021-22 and 2023-24, imports of potassium chloride from Canada surged 90.7 per cent. In the first four months of this fiscal, 485 thousand tonnes of the chemical has already been imported from Canada.

But, here as well, buyers in India have hedged their bets, turning towards sellers like Russia and Jordan.

Meanwhile, a day after Canada’s foreign minister created waves with her statement, the country’s trade minister stepped in to soothe the nerves.

“I want to reassure our business community that our government remains fully committed to supporting the well-established commercial ties between Canada and India”, said Mary Ng, Canada’s Minister of Export Promotion, International Trade and Economic Development, adding, “We will work closely with all Canadian enterprises engaged with India to ensure these important economic connections remain strong.”

The trade minister, nevertheless, stuck to her government’s official stance, saying, “we will not tolerate any foreign government threatening, extorting or harming Canadian citizens on our soil. We urge the government of India to respect the same principles of law and justice that guide our actions.”

India’s bilateral trade with Canada in 2023-24 was $8.4 billion, making it the nineteenth largest trader partner for India.

Impact of Past Sanctions

India has been at the receiving end of economic sanctions. United States and several other countries, infuriated by the Atal Bihari Vajpayee’s nuclear tests in 1998, imposed economic sanctions in response. These included termination of U.S. foreign assistance other than humanitarian or food assistance, termination of U.S. government sales of defence articles and services, design and construction services, licenses for exporting U.S. Munitions List (USML) items, termination of foreign military financing, denial of most U.S. government-backed credit or financial assistance, U.S. opposition to loans or assistance from any international financial institution, prohibition of most U.S. bank-backed loans or credits, prohibition on licensing exports of “specific goods and technology”, and denial of credit or other Export-Import Bank support for exports.

The impact on India was negligible. Most of the sanctions were either lifted or eased within a few months, with the U.S. Congress giving President Bill Clinton the authority to remove all remaining restrictions in 1999.

Another example is Russia. The sanctions imposed by the west after Russian troops rolled into Ukraine threatened to cripple the Russian economy. However, Russia has persevered, weathering the financial storm. According to the Finland’s Institute for Emerging Economies, Russia’s GDP grew at an impressive 5.4 per cent in the first quarter of 2024. Overall investments have risen by 14.5 per cent, and the unemployment rate has fallen to 2.6 per cent.

Canadian Presence in India

The top envoys of both the countries will be leaving their High Commissions in the next couple of days. However, Canada’s economic envoys – the massively funded pension funds, have no intention to walk away from the Indian markets. Funds like the Canada Pension Plan Investment Board, Ontario Teachers Pension Plan, Caisse de dépôt et placement du Québec, and the Ontario Municipal Employees Retirement System have invested nearly $55 billion in Indian equity and real estate markets. There is, according to reports, no change in their stance as of now.