It’s Not Just About Two Governments
Newsreel Asia Insight #3
Oct. 4, 2023

Strained relations between India and Canada have far-reaching implications, affecting Indians in both countries in areas ranging from diplomacy to education.

India’s bilateral relations with Canada have been deteriorating since September, when Canadian Prime Minister Justin Trudeau accused India of involvement in the assassination of Sikh activist Hardeep Singh Nijjar on Canadian soil.

India’s Ministry of External Affairs has issued an advisory urging Indian nationals and students in Canada to “exercise utmost caution,” signalling the gravity of the situation, according to The Hindu.

Canada is home to about 108,000 students from India, making up more than 37% of its international student pool, the newspaper said, indicating that the strained relations could jeopardise their educational and financial stability, as international tuition fees are crucial to many Canadian educational institutions.

India has also instructed Canada to remove 41 diplomats from its embassy in Delhi, according to The Guardian, which said this move could potentially affect consular services available to Indians in Canada.

Further, trade negotiations between India and Canada have been postponed, affecting sectors where Indians have significant stakes, which could delay the easing of trade barriers in key sectors like dairy products and cereals, potentially impacting Indian exporters, Mohit Singla, Chairman at the Trade Promotion Council of India, told The Hindu.

Investments between India and Canada had been growing, reaching C$36.2 billion in 2022, a 37% increase in four years, according to Mint. However, the current diplomatic tensions could slow down these investments, Vivek Dehejia, an economics professor at Ottawa’s Carleton University, told Bloomberg.

Canada is also a significant player in India’s education sector, and large Canadian pension funds have offices in Indian cities. The Canada Pension Plan Investment Board, the largest pension manager in Canada, invested $21 billion in India last year, including a stake in Mumbai-based Kotak Mahindra Bank and about 70 other Indian companies, Mint pointed out, adding that two other big Canadian pension funds also have significant investments in India, totalling more than C$11 billion.

A significant decline in foreign investment from Canada can trigger a ripple effect that impacts ordinary Indians. This may manifest as job losses, as companies often rely on foreign capital for expansion and hiring. Additionally, the government may experience reduced tax revenue, affecting the quality and availability of public services for citizens. Consumer prices could also rise due to decreased competition, and the value of the currency may decline. This depreciation, in turn, can lead to an increase in the cost of imported goods.

The diplomatic consequences could also be significant, say experts in international relations.

Manjari Chatterjee Miller, a senior fellow at the U.S.-based Council on Foreign Relations, called Prime Minister Trudeau’s claim “explosive” for its implications on India’s international standing and its partnerships, especially with the United States.

Nijjar was a member of the separatist Khalistan movement, which advocates for an independent Sikh homeland from India’s Punjab state. The movement has been a point of contention between India and Canada, with India accusing Canada of harbouring Sikh “terrorists.”

Several of Canada’s Western allies, including the United States, Australia and the United Kingdom, have issued cautious statements. Miller, also a research associate in the Contemporary South Asian Studies Programme at the Oxford School of Global and Area Studies at the University of Oxford, believes that barring further crises, the issue will likely recede but raises questions about India’s role as a rising power.

The United States has a significant population of Indian-origin citizens, including Sikhs. Miller points out that the U.S. may find it challenging to maintain a neutral stance in the long term.