How Tense are India & Canada’s Financial Relations? Truth Behind Myths

India hosted the G20 Summit for 2023 in New Delhi, giving the world a chance to witness our nation's might. Over 20 countries attended the event, including Canada, the nation with which India is on a silent disapproval war. Where diplomats and key personalities from different countries posed for an optimistic partnership with India, Canada looked a bit uncomfortable.

Canadian Prime Minister Justin Trudeau had several "oops" moments at the G20 event, which resulted in his humiliation by fellow citizens back home. 🫢

For those not aware, the Canadian PM had questions raised about his dignity due to showing indifference at the event towards PM Narendra Modi at the event. The Canadian PM exhibited his inner thoughts when he refused to shake hands with the Indian PM properly. It's ironic that such a trivial matter had the potential to initiate a diplomatic meltdown. 🤣

Now, both nations are firing poison-dipped statements at each other on a daily basis. But is this matter only related to “anti-India” activities, or are there any other repercussions not as clearly visible? If you are thinking that the tension is limited to the political relations between the two nations, then you would be wrong.

The Canada-India tensions could have a significant impact on the economies of both countries. Export-import activities, airfare, and travel are already affected, causing direct and indirect ramifications. Strange how media outlets are not very focused on these consequences, right? 🤔

What’s the Status Quo of the India-Canada Tension?

Canada is home to a large crowd of Indian emigrants, with over 1.5 lakh Persons of Indian Origin and 1.7 lakh Non-Resident Indians. This community has played a significant role in shaping Canada's culture and economy. But now, with the continuous rise of Khalistani activities in the nation and little to no action from the government's end, India is on edge. Allegations of espionage and terrorism are causing a rift between the two countries.

Interestingly, what proved to be ghee in the fire here is the Canadian PM's public statement of finding Indian secret agencies responsible for a Canadian citizen's murder. The same citizen was labelled a terrorist by Indian authorities for playing a major role in promoting Khalistani activities in Canada.

As a result, the ties between the two nations are fraying. Investors, Canadian students from India, and NRI citizens are most likely to be caught in the crossfire of India-Canada tensions.  
The media is ablaze with stories, some factual and some sensationalised, leaving citizens wondering what to believe. The significant update on India’s financial relations with Canada got lost amidst all the gossip of which official said what.

To focus our attention on what's vital for you, reader, I will dissect the two nations' original trade and investment conditions and decipher the future outlook. So, shift your schedule for a 5-7 minute read and start taking notes because your financial safety might be on the line.

Chain of Events that Strained India & Canada’s Bilateral Relations

A minor indiscretion sparked the flame in the already tense relations between both countries. Let's see what happened and where the situation is at present:

• June 2023: Murder of Sikh separatist Hardeep Singh Nijjar, who was shot dead in the state of British Columbia. Najjar was labelled as a “terrorist” by India due to his advocacy for a separate Sikh state “Khalistan”.   
• Early-to-Mid September 2023: Increased tension between India and Canada during the G20 event.
• Late September 2023: The Canadian Prime Minister accused India of “certain allegations” for the murder of Nijjar during a parliamentary session. This followed the firing of an Indian diplomat from the parliament. India rejected the accusations by claiming them absurd and firing Canadian diplomats. Bharat also suspended its VISA services in Canada.
• Early October 2023: The Indian government ordered Canada to reduce its number of diplomats from 62 to 41 by October 10.

Sectors Affected by India-Canada Cold War

Major areas that are affected by the ongoing tension between India and Canada are trade & investments, education, and tourism. Let’s verify the impact of each of these sectors separately;

Trade & Investments:

Canadian investors have been flocking to India in recent years, drawn by our booming economy and diverse investment opportunities. With the Canadian Pension Plan Investment Board investing over ₹16,000 crore in six listed Indian stocks like Kotak Mahindra Bank and L&T Infrastructure, ₹16,200 crore in five unlisted companies, and multiple asset management companies like Brookfield Corporation, Canadian investors are betting big on India's future.

According to Invest India, Canada is the 18th largest foreign investor in India, with a cumulative investment of ₹27,432.9 crore between April 2000 and March 2023. The bilateral trade between the countries increased to $8.16 billion (around ₹67,834.08 crore) in 2022-23. India's exports to Canada stood at ₹34,167 crore, and imports worth ₹33,668 crore were reported in 2022-23.

India was also Canada's 9th largest trading partner in 2022, the 13th-largest merchandise trading partner globally and the 14th-largest destination for merchandise exports.

Top exports from India to Canada include pharmaceuticals (drug formulations and biologicals), iron and steel products, RMG cotton, marine products, and telecom instruments. In contrast, top imports include coal, fertilisers and pulses.

The numbers looked promising, with plans of escalations, but the rapidly rising tensions have caused a temporary roadblock. See for yourself. 👇    

Why is the Free Trade Agreement on Hold?

The trade figures may not seem as impactful compared to other nations like the USA or France. But, if you look at cumulative figures for the past decade, you will realise that trade between the two countries has seen a rise of 10%, with a 25% growth in 2022 alone.

Despite the good data and multiple possibilities, over half a dozen rounds of talks have been kept on hold for now. Most important among those is the further talks on the Free Trade Agreement (FTA), which resumed after a decade. FTA is supposed to be one of the most awaited deals between India and Canada as it would work towards the removal of existing barriers in trade and investments.

India and Canada were keen on sealing a trade deal by March 2023, with nine rounds of talks already complete and a deadline of 2023-end looming. The stakes were high, as the Comprehensive Economic Partnership Agreement (CEPA), part of the Free Trade Agreement, could boost bilateral trade and create thousands of jobs. And let's not forget the miracles it would have done for both nation's economies.

But, an Indian-acclaimed terrorist died, and things escalated. Or was that actually the reason behind Canada's hostility towards India? Of course not!

In reality, Justin Trudeau needed support to form a majority government with the Liberal Party of Canada. So bam! Priorities shifted just like that!

Yes, that's exactly why Canada, the (so far) silent observer of rising anti-India activities, suddenly decided to take sides. It's not because they are trying to protect Canadian citizens of Indian origin. No, no! It's all business at the end. 

Justin's party decided to make a cooperative government with opposing leader Jagmeet Singh's party, NDP, for the majority. And interestingly, Jagmeet Singh is a big vocal supporter of Khalistan.

And that's how we come full circle. It's incredible how a political issue is causing such uproar in the economic world.  
Tell me about it! 😮‍💨

Education Sector

In 2023 alone, over 3 lakh students went to Canada for further study, making the Great White North the most preferred educational destination. What's the draw, you ask?

For one, Canada has a large Indian diaspora, which provides a sense of community and support for international students. Secondly, Canada's Post-Graduation Work Permit (PGWP) allows students to stay and work in Canada for up to three years after graduation, making it a popular destination for students who want to gain work experience.
Is that why a large Punjabi population (around 7,70,000) lives there? 🤔

Keeping my inherent blabbering aside, it is crystal clear why more and more students would pay millions of Canadian Dollars to complete their education in Canada. But it's not just a one-way street: Indian students contribute $4.9 billion, around ₹40,734 crore, to the Canadian economy, making up 20% of all international students.

In short, the rise of the rift between India and Canada is bound to have economic side effects. Where students would hesitate now before choosing Canada for education, Canada will face the loss of a sizable investment it was receiving from India. 

Tourism

Like the world, India was forced to adopt a complete lockdown due to the rapid rise of COVID-19 cases. This phenomenon brought a sudden stop to several activities, in which the tourism sector was the most affected. With a somewhat controlled Coronavirus outbreak, the nation returned on track, and tourism started to boom.

If we talk particularly about travel, over 2 lakh people travelled from Canada to India in 2022. India has been a hotbed for foreign tourists for many years, and the numbers seem to be rising every year. The same applies to Canadian tourists as well.

Due to the Canadian PM's so-called "credible allegations" of India assassinating Nijjar, India had to respond strictly. They did this by suspending its VISA services in Canada. Thus, no more Canadian tourists can enter India for the time being; the same goes true for Overseas Citizen of India (OCI) card holders.

On the other hand, last-minute airfares in India-Canada routes have gone through the roof. Parents are worried sick for the safe return of their children studying or working in Canada. Direct flight prices between New Delhi and Toronto have exceeded ₹1.46 lakh. It is more than ₹1.01 lakh on the Toronto-Delhi route. Paying such an enormous amount during times of distress is not a fair deal for the citizens involved.

With no announcement of an official talk between nations to find peaceful grounds, the tourism sector is likely to be impacted drastically.

The Bottom Line

The sectors discussed above explain how things being worse in this scenario will affect ordinary citizens profoundly. Besides being curious about what Justin Trudeau said and how PM Modi responded, we should have remembered to ask the main question: what is the impact on people's lives? The relationship between Canada and India is worth billions of dollars in trade and investment. And a big chunk of that money is yours.
 
As history portrays, things have the probability of getting worse before getting better. When it comes to politics, the little matters always escalate. Therefore, while you are watching the stock market today, take a moment to reflect on the situation with India-Canada relations. The market is already affected by the bad blood between the two countries, and so are your lives. You just weren't aware of it before.