Industry, political analysts cautiously optimistic despite Canada pulling out diplomats from India

India, last month, asked Ottawa to reduce its diplomatic presence after PM Justin Trudeau cited 'credible evidence' of a potential link between Indian agents and the murder of Hardeep Singh Nijjar, who was shot in British Columbia

Amid the escalating tensions in the diplomatic relations between India and Canada, there is a sense of cautious optimism prevailing among industry experts and political analysts.

While Canada's recent decision to withdraw 41 diplomats from India, in response to its claims of India's threat to strip them of their diplomatic immunity, raised concerns, many experts are confident that this diplomatic row is unlikely to have a significant impact on trade, investment or souring relations between the two nations.

The analysts acknowledge the fallout of the situation, which revolves around the alleged killing of Hardeep Nijjar -- a member of the Khalistani movement -- has the potential to strain bilateral ties. However, they emphasise the robustness of the economic and trade bonds that have been carefully nurtured over the years, which they believe will likely withstand the current political turmoil.

“This action appears to be a direct result of India urging Canada to match its diplomatic staff levels with those of India’s in Canada. It’s imperative not to over-interpret this move, as it chiefly stems from India’s demand for Canada to reduce its presence on Indian soil,” said Anirudh A Damani, Director of Artha India Ventures.

Financial Times earlier reported that Canada had 62 diplomats in India and New Delhi asked it to reduce this number by 41. There are still 21 diplomats in India.

ALSO READ: Canada pulls 41 diplomats out of India; accuses New Delhi of breaching Vienna Convention

Damani said there’s no denying that there’s a need for mending relations between the two nations, but the “ball is in Canada’s court”. “India, being on track to become the world’s third-largest economy by 2027 or 2030, with a projected GDP surpassing $5 trillion, underscores the new global order,” he added.

However, there could be an impact if the situation is prolonged.

“Imagine a world where Canadians of Indian origin are less likely to visit their homeland and Indian students are less likely to study in Canada. This is the alarming scenario that could unfold if the current diplomatic conflict between Canada and India is not resolved,” said Mithun Vijay Kumar, a political analyst and author.

While crucial for India’s market, trade with Canada accounts for less than 1 percent of India’s total trade and came around to only 0.7 percent in the last fiscal. The share has hovered at this level for the past five years. The top three categories in India’s imports from Canada in FY23 include mineral fuels, mineral oils and products of their distillation; bituminous substances; and mineral waxes, together amounting to $1 billion.

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

The recent rift may have an impact on sentiment in the short term, but Mukesh Kochar, National Head of Wealth at AUM Capital does not expect it to have a long-term negative impact in the long run.

“As far as Canadian companies are concerned, the total amount of their investment in Indian companies, including the investment in ADRs of Indian companies, is estimated to be around a lakh crore, and I don't think that we will see Canadian companies exiting these positions in the next few years,” he added.