How Will the Strained India-Canada Bilateral Relations Affect Global Diplomacy and Trade?

This report explores the possible fall outs for Canada with straining diplomatic relations with India. It analyses the impact on Immigration of students, trade relations and Canada’ Indo-pacific strategy.

1.     Indian Students and Immigration:

 Canada has significant dependencies on India:

1. International Students: India is the largest source country for international students in Canada, with over 40% of the more than 800,000 international students in 2022 coming from India.

2. Immigration: India is a major source country for immigration to Canada, with the Indian diaspora in Canada increasing to over one million as of 2022.

According to Immigration, Refugees and Citizenship Canada (IRCC), a record 226,450 Indian students went to study in Canada in 2022, which increased to 2.78 lakh students in 2023. 

These Indian Students are contributing to Canada’s economy, culture, and research landscape.

a)   Economic contributions: Indian students, along with other international students, help fill labor gaps in Canada’s gig economy, particularly in low-wage jobs. This contributes to the country’s economic growth and development.

b)   Diversification of skills: Indian students bring diverse skills and expertise to Canada, enriching the country’s knowledge economy. Many pursue higher education and research in fields like science, technology, engineering, and mathematics (STEM), which benefits Canada’s innovation landscape.

c)   Cultural exchange: Indian students introduce Canadian society to their culture, traditions, and values, promoting cross-cultural understanding and exchange. This enriches Canadian communities and fosters greater international cooperation.

d)   Human capital: Indian students, upon completing their studies, can potentially become permanent residents or citizens, contributing to Canada’s workforce and social fabric. This helps address labor shortages and demographic challenges.

e)   Research collaborations: Many Indian students collaborate with Canadian researchers and academics, leading to joint research projects and publications. This strengthens Canada’s research capabilities and enhances its global reputation in various fields.

However, due to recent setback in India-Canada relation one can witness the drop in the applications filed by Indian Students:

A reduction in the flow of Indian immigrants, which constitute almost one in five of all recent immigrants to Canada, could be even more devastating than a deterioration of trade relations.

2.  Impact on Canada-India Comprehensive Economic Partnership Agreement (CEPA):

Negotiation between India and Canada are going on to sign CEPA. CEPA would cover trade in goods, trade in services, rules of origin, sanitary and phytosanitary measures, technical barriers to trade and other areas of economic cooperation. It is estimated that India-Canada Comprehensive Economic Partnership Agreement (CEPA) between Canada and India would boost bilateral trade by US$ 4.4-6.5 billion (C$ 6-8.8 billion) and yield a GDP gain of US$ 3.8-5.9 billion (C$ 5.1-8 billion) for Canada by 2035.

Key provisions include:

• Elimination of tariffs on a substantial majority of bilateral trade, as recommended by the India-Canada CEO Round Table in 2008

• Coverage of trade in goods, services, rules of origin, sanitary and phyto-sanitary measures, technical barriers to trade, and other areas of economic cooperation

• Simplification of customs procedures and reduced non-tariff barriers

• Enhanced cooperation on government procurement, intellectual property, and investment

Canada may benefit more from the agreement due to:

• India’s larger and growing market size, providing Canadian exporters with a significant potential customer base.

• The agreement’s focus on eliminating tariffs and reducing non-tariff barriers, which could give Canadian businesses a competitive edge in the Indian market.

India’s retaliatory measures, such as imposing tariffs or restricting imports, could impact Canadian businesses, particularly those in the agriculture and manufacturing sectors.

Due to ongoing tensions between Canada-India negotiations has been halted and it will impact Canada more than India. Best example is pulses in this case.

Canada is one of the largest producer of Pulses in the world. India consumes Pulses and lentils at a large scale while the production was not at par with domestic consumption. Thus this led to import of Pulses and one of the topmost contender for import was Canada. India Canada trade used to be around $8bn in which import and export stood equal i.e. around $4bn. Pulses have a great share amongst the items exported by Canada.

Until came 2017-18, when the Indian government vowed to make India self-reliant in Pulse production to meet the domestic demand and cut import. The Pulse consumption and import raised simultaneously in past few years while the production grew significantly as well but the amount of Pulse imported from Canada was reduced and replaced with other choices like Myanmar and Nigeria. Around 2015, India used to import about $2.1bn Pulses from Canada. This was reduced to s ome hundreds of millions ($300-400mn) in few years down the line.

Sikhs in Canada hold farmlands in Canada in a large number. The share of Sikh populace in Canada’s Pulse production and its export to India which is a large market was cut hugely in previous years and impacted them the most. The participation of Canadian Punjabi Sikhs in recently concluded Farmer’s protest and now growing the voices of separatism and demand for Khalistan could have been influenced by the changes in trade dynamics related to Pulse import by India.

India’s growing economy, expected to grow 6% in 2023 and 7% in 2024, according to the Organisation for Economic Co-operation and Development (OECD), presents attractive trade opportunities for Canada. However, the dispute may deter Canadian businesses from investing in India, and Indian companies may redirect investments to other countries, such as Australia, which has already negotiated a bilateral economic cooperation agreement.

3.  Canada's Marginalization in Indo-Pacific Institutions:

India, with its economic might and security capabilities, has been hailed by the United States and democratic allies as a regional counterweight to China. . Washington included India as a founding member of the Indo-Pacific Economic Framework (IPEF) and the freshly-anointed I2U2 bloc with Israel and the United Arab Emirates. Both countries are also founding members of the Quadrilateral Security Dialogue (QSD or “the Quad”), a strategic security dialogue that includes Japan and Australia.

Canada was not invited to join QUAD, Indo-Pacific Economic Framework (IPEF) and I2U2 Bloc (with Israel and the UAE).

Canada’s strained relations with India may impede its ability to join key Indo-Pacific institutions. Regional allies might hesitate to support Canada to avoid straining ties with the Modi government, and India could block Canada's inclusion in certain groups.

Moreover, in late November 2022, Canada released its much-heralded and long-awaited Indo-Pacific Strategy to great interest among Canadians. The document outlined Canada’s Indo-Pacific national interest in one clean line: “Encompassing 40 economies, over four billion people, and $47.19 trillion in economic activity, it is the world’s fastest growing region and home to six of Canada’s top 13 trading partners.”

Canada’s Indo-Pacific strategy could not yield its desired ambitious results without harmonic relations with India.