No immediate fallout on bilateral trade from Indo-Canadian tensions but no immediate opening up either

Canada is the second biggest market in North America after the US for pharma exports for India.

The simmering standoff between India and Canada has driven diplomatic relations between the two countries to new lows. However, with bilateral trade largely balanced totalling $8 billion annually, experts have so far dismissed worries of a spillover of security tensions into the export-import business between the two sides.

While crucial for India’s market, trade with Canada accounts for less than 1 percent of India’s total trade and came to only 0.7 percent last fiscal. The share has hovered at this level for the past five years.

“No immediate fallout of the situation on trade between the two is expected as trade between the countries is well balanced with both depending on each other to some extent in different products,” said A Sakthivel, president, Federation of Indian Export Organisations.

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Fertilisers, mainly muriate of potash (MOP), was the second largest component, worth $715 million.

The third biggest import segment constituted pulp of wood or of other fibrous cellulosic material and waste and scrap of paper or paperboard, together worth $424 million.

In the current fiscal to date, while the top two import categories have remained the same, the third largest import has been replaced by edible vegetables and certain roots & tubers

On the other hand, India exported pharmaceutical products worth $ 435 million, iron or steel articles worth $ 312 million, nuclear reactors, boilers, machinery and mechanical appliances and associated parts worth $ 277 million to Canada in FY23.

Canada’s overall imports of pharmaceutical products stood at $20.05 Billion in 2022-23 with the US and the European Union as main import partners, according to the United Nations COMTRADE database on international trade.

However, despite holding a small percentage of total imports, Indian generic pharmaceuticals are very important for Canada, stressed Ajay Srivastava, founder of the think tank Global Trade Research Initiative. “They are of high quality and cheaper and help their economically vulnerable population,” he added.

A generic drug is a medication created to be the same as an existing approved brand name drug in dosage form, safety, strength, route of administration, quality and performance characteristics.

Meanwhile, Canada is the second biggest market in North America after the US for pharma exports for India.

Canada is, as stated earlier, also an important source of MOP or potassium chloride, the third most consumed fertiliser in India after urea and di-ammonium phosphate. India’s dependence on Canadian potash has seen a boost in the past few years, growing 279 percent between FY22 and FY23 as India’s imports of the commodity grew from $188 million to $715 million.

With global surge in fertiliser prices, which are up by at least 20 percent from a month back, and China’s suspension of urea exports along with Russia’s discontinuation of fertiliser discounts to India, the industry in India is already worried of stocks it has to store for the upcoming winter season when demand rises for sowing the wheat crop.

However, experts say this may not hit trade between the two countries. “India’s imports of fertilisers from Canada should not be affected as the current situation is more of a diplomatic standoff. I don’t think there is any move towards stopping or reducing trade between two countries, at least at this point of time,” said Sanjiv Kanwar, managing director of Yara Fertilisers.

Canada is also an important supplier of lentils to India. Amid fears of a fall in pulse production, what will be crucial is shipments of masur dal (red lentil) from Canada, which constitutes 95 percent of India’s imports of the lentil.

“Masur dal is not a very major import item for India in the sense that India falls short only of tur in the country and to make up for that, we import different lentils from different countries. While the said lentil comes in at zero duty and good quality, it would not be difficult for India to replace its imports,” said Jayant Dasgupta, former Indian ambassador to the World Trade Organisation.

India- Canada FTA on pause

The dialogue on the India-Canada Free Trade Agreement, which has been on since 2010, had finally gained momentum after negotiations were re-launched in March 2022, soon after India and Canada held the fifth Ministerial Dialogue on Trade & Investment. As many as nine rounds had been conducted between the two countries till July 2023.

But given the current situation, talks stand suspended with sources on the Indian side stating that they will resume only when political issues at both ends are settled.

Indian businesses were looking for duty-free access for products like textiles and leather, besides easy visa norms for movement of professionals. Canada had interests in areas like dairy and agricultural products.

“While political situations may be weighing down on us right now, I think FTA negotiations will resume as soon as they resolve. This FTA has been in the making a long time. With current trade significantly small, putting FTA on pause is not really an issue,” said Sakthivel.