Recent escalation in the diplomatic row between India and Canada over investigations related to killing of Canadian Sikh separatist leader Hardeep Singh Nijjar in Surrey in June 2023 could affect bilateral trade if both countries do not make concerted efforts to prevent an economic spillover although the two-way trade remained steady last year, according to industry representatives and trade experts.
While the overall impact on India’s trade is not likely to be significant, as bilateral trade with Canada at $8.39 billion in 2023-24 accounted for less than 1 per cent of India’s total foreign trade, supplies of items such as pulses and fertilizers, imported in considerable quantities from Canada, and exports of products such as pharmaceuticals, may get hit more than other items.
“So far, if data is any indication, we have not seen much impact of the diplomatic row between India and Canada on bilateral trade (which rose 1.5 per cent last fiscal). But with the escalation of tensions, one has to see if it stays limited to political rhetoric. If there is significant disruption in trade, the challenge is that some products may become expensive, trade may become slow and political sensitivity may continue to affect trade and investment,” said Ajay Sahai, Director General, Federation of Indian Export Organisations.
Although political tensions did not affect the bilateral trade last year, Canada opted out of negotiations on a free trade agreement with India in September 2023.
On Monday, Canada expelled six Indian diplomats including the High Commissioner while India expelled six high-ranking Canadian diplomats following a bitter exchange after the country sent a diplomatic communication to India the previous day suggesting that the top Indian diplomats were ‘persons of interest’ in the investigations on the killing of Nijjar on Canadian soil last June.
India strongly rejected the “preposterous imputations” and ascribed them to the political agenda of the Trudeau Government centred around “vote bank politics”.
“Canada may not be a very important trade partner for India going by the overall numbers, but if the tension escalates, there are a few products that Canada supplies which may be impacted affecting prices. These items include pulses and fertilisers,” Sahai said.
Pulses supply
“Roughly 25 per cent of India’s imports of pulses last year came from Canada. That is significant, but we have alternative suppliers such as Mozambique, Myanmar, Australia and Tanzania whom we could tap for more imports. At the same time, global prices could increase if India stops sourcing pulses from Canada,” Sahai said.
Since India sourced about 5 per cent of its fertilizer requirements from Canada, it is another commodity where the country should stay vigilant, he added.
On the export front India is not too vulnerable despite shipping over $400 million worth of pharmaceuticals to Canada last year, as it was just a small part of total pharma exports of much more than $20 billion, the FIEO DG said. “For now, the resilience of trade between India and Canada highlights an important lesson — diplomatic tensions, while damaging, do not always spell disaster for economic ties. But as this dispute drags on, both nations will need to carefully manage their actions to avoid a full-blown economic fallout,” said Ajay Srivastava, founder, Global Trade and Research Initiative (GTRI).
Despite significant political frictions, which began in September 2023 over accusations around Nijjar’s murder, the on-ground impact on trade has been minimal because trade happens at the private-sector level, and neither India nor Canada has introduced regulations that restrict the flow of goods or services, Srivastava explained. “In other words, while diplomatic relations may have soured, businesses on both sides have continued to engage, insulated from the political noise,” he added.
