NEW DELHI — The spiraling diplomatic spat between India and Canada over the murder of a Sikh separatist risks “economic fallout” in their multibillion-dollar trade and business relationship, analysts warn.
So far, the countries’ more than $8 billion annual trade ties — and a total of 75 billion Canadian dollars ($54.3 billion) invested by Canadian pension funds in India — appear to have been largely unaffected by the yearlong spat. Government officials on both sides have played down concerns that economic ties could fall victim to a bitter dispute that has sent bilateral relations to rock bottom.
But tensions flared again last week when both countries each expelled a half dozen diplomats in a tit-for-tat move following Canada’s explosive allegations that Indian agents were behind the killing of Hardeep Singh Nijjar. The Sikh separatist was gunned down in June last year by unidentified attackers outside his temple in the western Canadian province of British Columbia.
Four Indian nationals living in Canada have since been arrested in the case, while the U.S. Justice Department last week revealed it has charged a former Indian government official with orchestrating the failed murder plot of another Sikh separatist in New York.
Canada is home to about 800,000 Sikhs, the highest population outside their home state of Punjab, where separatists have called for the creation of an independent state called Khalistan.
Expelled diplomat Sanjay Kumar Verma, India’s High Commissioner to Canada, and other envoys were described as “persons of interest” in the Canadian probe of Nijjar’s killing — claims that India rejected as “preposterous” and driven by “vote-bank politics.” A high commissioner is equivalent to an ambassador for Commonwealth countries.
Delhi has previously labeled Singh a “terrorist,” but denied targeting dissidents in Canada. This weekend, top envoy Verma accused Prime Minister Justin Trudeau of making the accusations of Indian involvement in Singh’s death without hard evidence.
“On the basis of intelligence, if you want to destroy a relationship, be my guest. And that’s what he did,” Verma said in an interview broadcast on Sunday.
High Commissioner of India to Canada Sanjay Kumar Verma gestures during an interview in Ottawa on June 24. Kumar and other Indian diplomats have since been expelled. © ReutersMore than 600 Canadian companies have a presence in India, including insurer Sun Life Financial, pharmaceutical giant Apotex and auto parts maker Magna International. Indian companies operating in Canada include Tata Consultancy Services, IT giant Infosys and conglomerate Aditya Birla Group.
Economic liberalization under Prime Minister Narendra Modi has helped drive investment in India’s fast-growing economy as some countries draw down their exposure to China.
While both countries have warned of possible further steps, neither has so far imposed sanctions or other economic retaliation. Trade would continue to be guided by economic rationale, said a high-level Indian government source.
“In terms of economic trade [between India and Canada], it is done by importers and exporters depending upon value chains, and these are private entities,” said the source speaking on condition of anonymity.
India is Canada’s ninth biggest trading partner, while Canada is well down the list as India’s 33rd-biggest trading partner.
Two-way trade between India and Canada grew slightly to $8.4 billion in the most recent fiscal year to March, from $8.3 billion a year earlier.
“While diplomatic relations may have soured, businesses on both sides have continued to engage, insulated from the political noise,” Ajay Srivastava, founder of the Global Trade Research Initiative in New Delhi. said in a research note shared with Nikkei Asia.
“For now, the resilience of trade between India and Canada highlights an important lesson: diplomatic tensions, while damaging, do not always spell disaster for economic ties. But as this dispute drags on, both nations will need to carefully manage their actions to avoid a full-blown economic fallout,” Srivastava added.
Agriculture forms a key part of the trading relationship. Canada’s lentil exporters have called on their government to restart on again, off again bilateral trade talks with the world’s most populous nation, which Ottawa halted just before Trudeau’s first public allegations against India last year.
Canada accounts for over half of India’s lentil imports, “And in spite of the frosty bilateral relationship, these export levels have largely persisted,” said a June report by the Asia Pacific Foundation of Canada. “[But] any further escalation in diplomatic tensions could erode the confidence of Indian importers, who now have the option to turn to Australian supplies,” it added.
Mary Ng, Canadian Minister for Export Promotion, International Trade and Economic Development, issued a statement last week to “reassure our business community that our government remains fully committed to supporting the well-established commercial ties between Canada and India”.
“However, we must consider our economic interests with the need to protect Canadians and uphold the rule of law,” she added.
Canada is home to about 1.7 million people of Indian origin, and they account for the largest group of international students studying in the country. India briefly suspended visas for Canadian citizens after the spat first erupted last year, and there are concerns about damage to the two nations’ people-to-people contacts.
“The biggest casualty could be visa issuance,” said Prerna Gandhi, an associate fellow at India-based think tank Vivekananda International Foundation. Gandhi added that the Canadian allegations risked “breaking down a strong people-to-people relationship with one of the best performing global economies.”
source: asia.nikkei