The ongoing diplomatic crisis between Canada and India, ignited by accusations surrounding the death of Khalistan separatist Hardeep Singh Nijjar, threatens to strain the commercial ties between the two nations. While much of the discourse centers around political issues and allegations of foreign interference, the fallout will likely have far-reaching economic consequences, especially for Canada. As tensions deepen, Canada’s economy, heavily reliant on trade, immigration, and collaboration with India, stands to suffer more compared to India’s growing and diversified market.
The commercial relationship between the two countries has expanded significantly over the past decade, with bilateral trade reaching $8 billion in 2022. India represents a critical market for Canadian goods, particularly agricultural exports like lentils and pulses. Canada’s resource-based economy has long relied on international markets to sustain growth, and India, with its growing middle class and rising demand for imports, has become a vital destination. However, as the diplomatic rift deepens, trade disruptions seem increasingly inevitable. India could respond with tariffs, restrictions, or non-tariff barriers that would make it difficult for Canadian exports to compete in its market. Canada, unlike India, does not have a similarly diverse array of trading partners to easily compensate for the potential loss of access to the Indian market.
India’s economy, in contrast, has a much broader trading portfolio. While Canada represents a relatively small share of India’s overall trade, India is Canada’s tenth-largest trading partner. India’s extensive trade relationships with major economies like the United States, the European Union, and China give it the flexibility to absorb any potential commercial losses stemming from strained ties with Canada. Furthermore, India’s status as a key player in global supply chains, especially in sectors like pharmaceuticals, textiles, and information technology, gives it a level of resilience that Canada, with its dependence on commodities and limited manufacturing base, cannot match.
One area where the fallout could hit Canada particularly hard is immigration and labor flows. India has been a significant source of skilled immigrants, particularly in the technology and healthcare sectors. Indian professionals have been instrumental in filling labor shortages in these areas, which are critical to Canada’s economic growth. Moreover, Indian international students represent a substantial portion of Canada’s foreign student population, contributing billions of dollars annually to the Canadian economy. The influx of students not only sustains universities but also drives local economies, particularly in cities like Toronto, Vancouver, and Montreal, where demand for housing, retail, and services is closely tied to the student population.
If diplomatic tensions lead to visa restrictions or a slowdown in the issuance of student and work permits, Canada could face labor shortages, further straining industries that are already grappling with a lack of skilled workers. Indian students and professionals, on the other hand, have numerous alternative destinations, such as Australia, the United Kingdom, and the United States, which are all eager to attract top talent from India. The loss of Indian students and workers could thus leave a significant gap in Canada’s economy, which would be difficult to fill quickly.
The tech sector, a crucial driver of innovation and economic growth, is another area where Canada is vulnerable. India’s IT services and software development industry has been deeply integrated into the operations of Canadian companies, particularly in areas like outsourcing, R&D, and tech support. Disruptions to this collaboration could hurt Canadian businesses that depend on India’s affordable and highly skilled workforce. While large corporations may be able to absorb these disruptions by shifting operations elsewhere, smaller businesses may struggle to find viable alternatives. India’s tech sector, meanwhile, is globally competitive and can easily redirect its partnerships toward other countries, making it less dependent on Canada for growth and development.
Tourism is yet another sector where Canada stands to lose more. Indian tourists, driven by a rising middle class with disposable income, represent a growing source of revenue for Canada’s travel and hospitality industries. Any decline in tourism, either from official travel advisories or a general cooling of relations, would impact local businesses that rely on international visitors. Canadian tourism, already struggling to recover from the effects of the COVID-19 pandemic, would suffer from this additional setback. India, with its vast array of domestic and international tourism options, would feel less of an impact from a reduction in Canadian tourists.
In terms of foreign investment, the diplomatic rift could also discourage businesses from pursuing new ventures in each other’s countries. Canadian companies looking to expand into India, one of the world’s largest and fastest-growing economies, may face additional hurdles as political tensions complicate business operations. India, on the other hand, has seen a surge in foreign investment from various global partners and is less reliant on Canadian capital to fuel its economic growth. The stalling of trade negotiations, such as the Comprehensive Economic Partnership Agreement (CEPA), is a clear indicator that economic diplomacy has taken a back seat to political tensions. The longer this standoff continues, the more both sides will suffer, but Canada, with its smaller market and more limited range of international partners, has much more to lose.
Canada’s diplomatic isolation in this situation could extend beyond India. As a rising global power with strong ties to countries in the Global South, India’s influence on international trade and diplomacy is growing. Canada’s firm stance against India may strain its relationships with other nations that view India as a crucial partner in the shifting global order. India, as a key member of forums like the G20 and BRICS, holds considerable sway in international discussions on trade, development, and climate action. By alienating India, Canada risks marginalizing itself in these important arenas, which could have long-term consequences for its ability to influence global economic policy.
In conclusion, the ongoing diplomatic crisis between Canada and India is poised to hurt Canada more severely, particularly in terms of trade, labor, and foreign investment. India’s large, diversified economy, its role as a global supplier of goods and services, and its growing influence on the world stage give it greater resilience in the face of this fallout. Canada, by contrast, is heavily reliant on Indian markets, labor, and partnerships, leaving it more exposed to the economic consequences of deteriorating diplomatic relations. The longer the standoff continues, the more Canada risks being left behind as India continues to strengthen its global economic ties. If diplomatic channels are not reopened and economic ties not repaired, Canada’s commercial interests could face lasting damage, while India, with its vast global network, remains better positioned to absorb the shock.