Tensions between India and Canada are putting their trade and investment relations at risk. The strained bilateral ties stem from Prime Minister Justin Trudeau's allegations that New Delhi was involved in the assassination of a Sikh separatist leader in British Columbia, leading to a diplomatic standoff that could spill over into their economic affairs. A potential early-stage trade agreement hangs in the balance, endangering India's ambitions to establish itself as a Western supply-chain alternative to China. Additionally, India's access to Canadian potash, a vital crop nutrient, may be compromised.

Furthermore, New Delhi's issuance of a safety advisory against Canada for alleged "anti-India" activities might deter Indian students from pursuing higher education in Canada. This could have significant repercussions, as the education sector contributes approximately C$22 billion ($16.3 billion) annually to Canada's revenue.

The escalation of the dispute has already seen both nations expelling senior diplomats in a retaliatory fashion. Canada is planning to reduce embassy staff in response to rising security threats in India, while New Delhi has halted the issuance of visas to Canadian citizens.

Here are some key points to consider:

Immigration:
Indians constitute nearly one-fifth of Canada's immigrants, the highest share from a single place of origin since 1971. However, remittances from Canada to India remain relatively low, primarily because many immigrants settle permanently in Canada, bringing their families along. Immigration plays a pivotal role in Canada's labor force growth, accounting for 90% of it, particularly due to an aging working population.

A significant number of Indian immigrants in Canada originate from the state of Punjab and belong to the Sikh community, representing 1.7% of India's population, with Canada hosting the largest Sikh population outside of India.

Higher Education:
Canada attracts a substantial number of international students from India, with Indians making up over 28% of the total foreign student population in 2022. The higher education sector is a crucial contributor to Canada's economy, accounting for more than 15% of its annual services exports. In 2019, international students alone contributed 1.3% to Canada's gross domestic product.

Trade:
Bilateral trade between India and Canada amounted to $8.16 billion in 2022-23, significantly lower than India's trade with the US, which stood at $128.7 billion. However, India heavily relies on Canada for imports of potash, a critical agricultural nutrient, as Canada is the world's largest exporter.

Canadian supplies have gained importance for India, especially as sanctions have disrupted trade and expansion plans involving Russia and Belarus. The current tension between the two nations may impact this crucial supply chain.

India's major exports to Canada include pharmaceuticals, iron, and steel products. Negotiations on an early-stage trade deal were underway before being paused by Canada, citing "political developments."

Despite the tensions, there were no bilateral meetings at the G-20 summit, indicating the growing strain in relations. However, both leaders did engage in a sideline conversation, during which Trudeau raised concerns about the Sikh leader's assassination, prompting criticism from Modi regarding Canada's alleged support for separatist groups.

Foreign Investment:
Between April 2000 and June 2023, India received foreign direct investment equity inflows of $3.60 billion from Canada. While this represents only 0.56% of India's total FDI inflows during that period, it pales in comparison to the $61.26 billion from the US.

While there may not be an immediate impact on investments, analysts are concerned that the ongoing dispute could have a "chilling effect" on future investments. Some noteworthy investments include Sun Life Financial Inc.'s joint venture with India's Aditya Birla Group and the CPP Investment Board's $21 billion investment in India, with a significant stake in Kotak Mahindra Bank Ltd.

In terms of foreign portfolio investment, commitments from Canada rose from 1.57 trillion rupees in April to 1.72 trillion rupees in July of the current year.

The India-Canada feud is posing significant challenges to their economic and diplomatic relations, with potential consequences for trade, education, immigration, and investment. The outcome of this situation remains uncertain as both nations grapple with the ongoing tensions.

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