The escalation of diplomatic row between New Delhi and Ottawa is unlikely to have any major impact on trade and investment relations between the two countries at least for the time being, a senior official said Tuesday.
The tensions between India and Canada first came out in open in September last year, but two-way trade and investment flows continued without disruptions. Merchandise trade between the two countries in fact grew 1.46% to $8.4 billion in 2023-24, while overall world trade was in the doldrums. The pace of growth in India-Canada trade was, however, over 20% in FY22 and FY23.
India’s imports from Canada increased to $4.6 billion, while exports saw a marginal dip, falling to $3.8 billion in FY24. During April-July this fiscal, India’s exports to the North American country stood at 1.3 billion, while imports were $1.37 billion.
“Nothing worrying so far.. bilateral trade with Canada isn’t that big to significantly impact India’s overall trade basket,” the official added.
Concurring with this view, partner at Indus Law Shashi Mathews said: “Trade and commercial relations between the two nations are unlikely to be impacted in the near future, as the current standoff appears to be more of a political situation.”
“Despite significant political friction, the on-ground impact on trade between the two countries has been minimal. This is largely because trade happens at the private-sector level, and neither India nor Canada has introduced regulations that restrict the flow of goods or services,” co-founder of Global Trade Research Initiative Ajay Srivastava said.
“In the absence of a Free Trade Agreement (FTA) as on date, neither countries offer any preferential tariffs as on date. Owing to WTO commitments, any adverse tariff measures by either country is highly unlikely,” Mathews said.
India’s exports to Canada include pharmaceuticals, gems and jewellery, textiles, and machinery, while Canada’s exports to India include pulses, timber, pulp and paper, and mining products. If there is disruption in that trade then India has other options to source these products, the official said.
The annual Foreign Direct Investment (FDI) from Canada remained in the vicinity of $500 million in 2023-24 as seen since 2018-19. Between April 2000 and March 2024 total FDI from Canada stands at a mere $3.8 billion. Indian investments in Canada also grew in 2023-24 to $2.1 billion from $2.0 billion in 202-23.
Most of the investments from Canada come as portfolio investments and in the calendar year 2023 they had grown Rs 31,221 crore to Rs 1.93 lakh crore.
For Canadian pension funds India replaced China as the second largest recipient of inflows between 2019 and 2023 in Asia-Pacific. India got 25% of all investments made by these funds in Asia-Pacific, according to a report by Asia-Pacific Foundation of Canada.
The top three sectors in India to receive investment flows from Canadian pension funds between 2013-2023 were real estate (comprising 57% of Canadian pension funds investment in India with over C$3.8B or US $2.7 billion received), financial services (C$3B or US $2.1 billion invested), and industrial transportation (roughly C$2.6B or US $1.8 billion invested).
Canadian pension funds are also big investors in infrastructure snapping up functional road assets. Last financial year, despite the diplomatic tensions, Ontario Teachers’ Pension Plan and Canada Pension Plan Investment Board maintained their holding in National Highways Infra Trust (NHIT) at 50% by investing $438 million in acquisition of 10 highway projects of National Highways Authority of India
It is expected that when NHAI does the fourth round of InVIT issues this financial year to raise around Rs 16,000 crore, the funds will continue to invest and keep their combined stake at 50%.
The official said countries across the world are seeking opportunities to invest in India and according to some estimates $3 trillion worth capital is seeking opportunities worldwide. If India can offer projects to invest some of these funds can come to India.
The first signs of trouble in India-Canada ties emerged when both countries paused negotiations on a Comprehensive Economic Partnership Agreement (CEPA). Later Canada’s Prime Minister Justin Trudeau accused India of organising the murder of a Sikh separatist. After months of stand-off on Monday the tensions took a drastic turn when India decided to recall its High Commissioners and other senior diplomatic staff from Canada. India also announced the expulsion of six Canadian diplomats.
“However, the discussions around Free Trade Agreements, which are on hold since September 2023, cannot resume until the political situation normalises,” Mathews said..
As this dispute drags on, both nations will need to carefully manage their actions to avoid a full-blown economic fallout, Srivastava added.
From: financialexpress
Financial News
