The Background
The diplomatic relations between India and Canada have hit a new low after both countries expelled each other’s diplomats over allegations of espionage and links to a Khalistani terrorist. The latest row comes amid India’s strong concerns about the continuing anti-India activities of extremist elements in Canada that are promoting secessionism, inciting violence against its diplomats, and threatening the Indian community there.
The tension between the two countries has been simmering for a long time, especially since Canadian Prime Minister Justin Trudeau’s visit to India in 2018, which was marred by controversies over his perceived support for Sikh separatists. India has also been unhappy with Canada’s criticism of its human rights record and its handling of the farmers’ protests.
The two countries have tried to mend their ties through high-level engagements, including a phone call between Prime Minister Narendra Modi and Trudeau in February this year, when they discussed COVID-19 cooperation, climate change, and regional issues. However, the recent developments have cast a shadow over the prospects of improving the bilateral relationship.
The Trade And Investment Scenario
Despite the diplomatic troubles, the trade and investment ties between India and Canada have been growing steadily in recent years, driven by commercial considerations and complementarities. According to Invest India, Canada is the 18th largest foreign investor in India, with cumulative FDI inflows of USD 3.6 billion from April 2000 to March 2021. The major sectors that attract Canadian investments in India include renewable energy, infrastructure, mining, agri-food, and financial services.
On the trade front, the bilateral trade between India and Canada reached USD 8.16 billion in 2020-21, with India’s exports at USD 4.1 billion and imports at USD 4.06 billion34. The main items of India’s exports to Canada include pharmaceuticals, gems, and jewelry, textiles, and machinery, while the main items of India’s imports from Canada include pulses, timber, pulp and paper, and mining products.
The two countries have also been negotiating a Comprehensive Economic Partnership Agreement (CEPA) since 2010, which aims to boost trade and investment flows by reducing tariffs and non-tariff barriers. However, the talks have been stalled due to differences over issues such as market access, intellectual property rights, labor standards, and environmental protection.
The Impact And Outlook
The experts believe that the current diplomatic spat between India and Canada will not have a significant impact on the trade and investment ties between the two countries, as they are driven by market forces and mutual benefits. They also point out that both countries trade in complementary products and do not compete on similar products.
However, they also caution that the political tensions may hamper the progress of the CEPA negotiations and create uncertainties for businesses operating in both markets. They suggest that both countries should resolve their differences through dialogue and cooperation and focus on enhancing their economic partnership for mutual gains.
They also highlight the potential areas of collaboration between India and Canada in sectors such as clean energy, digital economy, education, health care, and innovation. They note that both countries share common values of democracy, pluralism, and rule of law and have strong people-to-people ties with a large Indian diaspora in Canada.
They hope that both countries will overcome their diplomatic challenges and work together to realize their full potential of bilateral cooperation for their own benefit as well as for regional and global stability.
This post India-Canada Diplomatic Spat: Will It Hurt The Trade And Investment Ties? was originally published at Finance Crave
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