The recent India-Canada diplomatic faceoff stems from several core issues, including political tensions, security concerns, and differences over handling separatist activities. Ideological differences between the two countries have affected the trade and diplomatic relations.
Until 2023, India and Canada shared strong trade ties, educational exchange, and strategic cooperation across several sectors, despite periodic tensions around separatist issues.
However, the recent escalation over security and sovereignty concerns has disrupted this relationship, affecting diplomatic representation, visa services, and trade negotiations. India and Canada have scaled down the diplomatic relationship.
The future of India-Canada relations may depend on how both nations navigate these complex issues while balancing domestic and diplomatic priorities.
Let us see how the trade between the two countries will be impacted.
Impact on Bilateral Trade between India and Canada:
The diplomatic rift and the reduction of diplomats are likely to affect bilateral trade between India and Canada, impacting various sectors and trade-related activities.
1. Impact on Trade Negotiations and Agreements:
- Paused Trade Talks: The suspension of diplomatic services and the strained relations have already led to the halting of trade talks between the two countries. Hence, delay in trade agreements.
2. Reduced Diplomatic Support for Trade:
- Limited Trade Facilitation: Diplomatic missions typically assist companies from their home countries in navigating foreign markets. The scaling down of diplomats means that Indian and Canadian businesses will have fewer resources to address trade issues, access market information, and resolve disputes.
3. Sectors Most Affected:
- Agriculture and Agro-products: Canada is a significant exporter of pulses and agricultural products to India, while India exports processed foods, spices, and textiles to Canada. Reduced diplomatic interaction could create hurdles for companies in these sectors, delaying the resolution of tariff issues, quality control disputes, or new market access opportunities.
- Technology and Innovation: Both countries collaborate extensively in technology, innovation, and startups. Reduced diplomatic support might limit the opportunities for tech companies to engage in cross-border partnerships or take part in trade fairs and joint ventures.
- Energy Sector: Canada is also a key supplier of energy products to India, including uranium and natural gas. Delays in trade facilitation or investment approvals could affect the smooth flow of these crucial resources.
4. Overall Trade Flow Impact:
- Trade Volumes: Canada and India conduct billions of dollars in bilateral trade annually, with key sectors like pharmaceuticals, automotive parts, information technology, and agriculture. With diplomatic ties strained, both countries might see a decrease in trade volumes and missed opportunities for trade growth in the near future.
5. Long-Term Effects on Economic Ties:
- Trust and Uncertainty: The current diplomatic crisis may lead to a loss of trust between businesses and investors from both countries. Even if the political tensions are eventually resolved, the uncertainty created by this diplomatic breakdown could have a long-lasting negative impact on business confidence, making companies hesitant to engage in future trade or investment ventures.
As of FY 2024, the trade relationship between India and Canada has grown significantly, covering various sectors like agriculture, technology, pharmaceuticals, energy, and more.
Here’s a detailed breakdown of India-Canada trade:
- India-Canada Bilateral Trade in FY 2024:
Total Trade Volume:
- The total bilateral trade between India and Canada in FY 2024 is estimated to be around USD 9 billion to USD 10 billion, reflecting the ongoing trade expansion despite recent diplomatic tensions.
- India exports more to Canada than it imports, resulting in a trade surplus for India.
- Indian Students going to Canada for higher studies
The highest number of overseas students studying in Canada is from India.
Canada has been a preferred destination due to its high-quality education, multicultural environment, and post-graduation work options.
Trends in Indian Students Going to Canada (2019-2024)
- Impact of Recent Diplomatic Tensions
Diplomatic tensions could reduce the flow of Indian students to Canada, either due to restrictive policies or students opting for alternative destinations like Australia, the UK, and the USA.
Potential repercussions of a decline in Indian students include:
- Revenue Loss: Loss in tuition fees, potentially affecting university funding.
- Skilled Workforce Shortage: Canada relies on international graduates to fill key workforce gaps, especially in tech, healthcare, and engineering.
- Reputational Impact: Diplomatic issues may affect Canada’s image, making it less attractive compared to its competitors.
In conclusion, we sum up the points below:
- India is the 5th largest economy and the economy driver today in the world
- India is the trade surplus with Canada
- From the “Five Eye” countries, there has been no serious comment on India
- India will import pulses and lentils from alternate destinations like Canada, Myanmar etc.
- India will still surge ahead with 7% GDP growth in FY 2024.
There are more challenges that Canada may face as a fall out of this diplomatic crisis in which Canada has not been able to issue any concrete proof.
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Hope wisdom prevails.