How the India-Canada fallout could affect trade and immigration

After strong accusations by Canadian officials this week — that they believe Indian government agents are linked to a murder and extortion campaign in the country — diplomatic relations have reached new lows.

This rift now raises questions about the impact it could have on the deepening trade and migration ties between the two countries.

Bilateral trade is worth billions of dollars, and Canada is home to about 1.7 million people of Indian origin.

Experts point out that a breakdown in relationships at this level is uncharted territory, and much of what happens next will depend on how they choose to move forward.

Neither country has imposed tariffs or other forms of economic retaliation, but experts warn that this may change, and that a cold relationship between India and Canada could hinder further economic growth.

“The biggest challenge, especially for businesses and citizens, will be uncertainty,” Arif Lalani, a senior consultant at government consultancy Strategy Corp and a former Canadian diplomat, told the BBC.

The two countries have been negotiating a bilateral trade deal on and off for more than a decade, but Canada halted the talks last year shortly before Prime Minister Justin Trudeau made a public accusation against India for the first time.

In September 2023, Trudeau said Canada had “credible allegations” linking Indian government agents to the killing of Sikh separatist Hardeep Singh Nigar, who was shot to death in Surrey, British Columbia in June of that year.

India temporarily suspended visas for Canadian citizens soon after, but the move was short-lived and it resumed visa processing in November.

Meanwhile, trade relations between the two countries remained as usual. The volume of bilateral trade amounts to about $8 billion (£6.15 billion), according to the latest financial figures issued by the Indian Ministry of Commerce.

Canada’s Commerce Minister recently assured business owners that Ottawa is seeking to disrupt trade relations with India.

However, as uncertainty persists, Lalani said entrepreneurs from both countries can look for opportunities elsewhere.

“People will think twice about expanding trade, or trying to build on what they already have,” he said.

Another major concern is how this rift will change the movement of people between the two countries. India has been Canada’s number one source of international students since 2018, and about 4% of Canada’s total population is of Indian origin.

“The humanitarian connection between our two countries is deep,” Karan Thukral, a Delhi-based lawyer, told the BBC, adding that a large portion of his clients are people eager to move to Canada.

He said many are now concerned about how diplomatic tension will affect their plans to work or study in Canada.

Mr. Thukral noted that immigration processing was still operational, but advised his clients to expect potential delays due to reductions in diplomatic staff in both countries.

He added that others, especially those in Canada with family in India, are concerned about India reimposing visa restrictions on Canadian citizens.

Any visa restrictions would come with trade implications and could have a dampening effect on trade, tourism and investment, said Jeff Nankeville, president of the Asia Pacific Foundation of Canada.

“The Indian government has already once indicated its willingness to suspend visa issuance, so it is possible it will do so again,” he said, adding that the biggest impact would be felt in Canada’s large Indian diaspora community.

Mr. Nankivell said he suspects the diplomatic situation will continue to evolve, and the repercussions will continue to be felt for a long time as Canadian police take legal action against those allegedly complicit in Mr. Najjar’s death and other criminal acts.

“This will continue to raise the temperature,” he said.

Four people have been arrested and charged in connection with Mr Najjar’s killing – all Indian nationals in their 20s – although it remains unclear whether and how they are linked to the Indian government.

Their trial date has not yet been set.

Canadian police said this week that there are “multiple ongoing investigations” into the alleged involvement of Indian government agents in “serious criminal activity” in Canada.

On Wednesday, Trudeau doubled down on the accusations against India by sharply criticizing New Delhi’s alleged aggressive interference in Canadian sovereignty.

But he also warned that he did not want to harm economic and social relations.

“We do not want to be in this situation where we are forced into a battle with an important trading partner, with whom we have deep popular ties and a long history, and are fellow democracies,” Trudeau told a public inquiry examining foreign affairs. Intervention in the country.

India responded angrily, calling Trudeau’s behavior “arrogant” and accusing Canada of not providing evidence to support its accusations.

Earlier this week, India said it “reserves the right to take further steps” in its response, while Canadian Foreign Minister Mélanie Jolie said all options, including sanctions, are on the table.

With reporting from Jessica Murphy in Toronto.