As diplomatic tensions escalate between India and Canada, the potential fallout on bilateral trade relations raises significant concerns. The recent assassination of pro-Khalistani activist Hardeep Singh Nijjar in Canada has ignited a diplomatic crisis, prompting both nations to recall diplomats and expel certain officials. This situation has led to fears that the ongoing strife may jeopardize approximately ₹70,000 crores (around $8.4 billion) in trade between the two countries.

Current Trade Dynamics: A Fragile Status Quo

Despite the rising tensions, trade statistics indicate that, thus far, there has been no major impact on India-Canada trade. According to the Global Trade Research Initiative (GTRI), the total bilateral trade stood at $8.3 billion in 2022-23, slightly increasing to $8.4 billion in 2023-24. Notably, India’s imports from Canada have risen to $4.6 billion, while exports have experienced a modest decline to $3.8 billion.

While immediate disruptions may not be apparent, experts warn that further deterioration in relations could pose risks to both economies, particularly in light of the ongoing increase in import and export activities.

The Weight of Canadian Pension Funds in Indian Real Estate

A crucial aspect of this diplomatic rift is the significant investment made by Canadian pension funds in India, particularly in the real estate sector. Current estimates suggest that Canadian pension funds have invested nearly ₹6 lakh crores (approximately $72 billion) in various sectors within India, with real estate accounting for a substantial portion of these investments.

Reports from AsiaPacific.ca reveal that from 2013 to 2023, Canadian pension funds have channeled over CAD 3.8 billion into Indian real estate. Additionally, substantial investments have been made in financial services (over CAD 3 billion) and industrial transport (approximately CAD 2.6 billion). The real estate sector, therefore, stands at the heart of these investments, making it particularly vulnerable to geopolitical tensions.

Impact on Employment and Innovation

Canadian businesses, approximately 600 in number, are actively operating in India. These companies not only contribute significantly to the economy but also provide employment opportunities for more than 17,000 individuals. A report by the Confederation of Indian Industry (CII) highlighted that Canadian companies have invested ₹40,446 crores in India, with a considerable portion allocated to research and development, amounting to CAD 70 million.

With trade and investment flows potentially disrupted, Canadian pension funds could face challenges in managing their Indian investments, which may, in turn, lead to job losses and a slowdown in innovation within the affected sectors.

A Call for Diplomatic Resolution

The escalating diplomatic tensions between India and Canada present a critical juncture for both nations. If not addressed promptly, these strains could have far-reaching consequences for bilateral trade, particularly in the vital real estate sector. A swift resolution is essential not only for the preservation of economic interests but also for maintaining stability and growth in both countries. As the situation evolves, stakeholders from both nations must engage in constructive dialogue to mitigate risks and safeguard their economic partnerships.