Comprehensive Economic Partnership Agreement Faces Uncertainty Amid Diplomatic Friction Between India and Canada

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Trade discussions between India and Canada have encountered setbacks due to escalating tensions following Prime Minister Justin Trudeau's statement regarding the investigation of "credible allegations" linking New Delhi's agents to the assassination of Sikh separatist leader Hardeep Singh Nijjar. India has strongly rejected these allegations as "unfounded" and has called upon Canada to address anti-India elements operating within its borders.


Canada recently announced the suspension of negotiations on the proposed treaty with India, a mere three months after both countries expressed their intent to finalize an initial agreement within the year. Experts estimate that the Comprehensive Economic Partnership Agreement (CEPA) between Canada and India has the potential to increase bilateral trade by up to $6.5 billion, resulting in a GDP gain ranging from $3.8 billion to $5.9 billion for Canada by 2035.


The trade in goods has witnessed steady growth, with the total trade volume reaching $8 billion in 2022. India's exports to Canada amounted to $4 billion, while imports from Canada were also valued at $4 billion. Major imports from Canada include energy commodities like coal, coke, and briquettes, as well as fertilizers. Conversely, India exports consumer goods, garments, and engineering products such as auto components, aircraft equipment, and electronics.

In 2022, Canada's primary exports to India consisted of fossil fuels and related products worth nearly $1 billion, followed by fertilizers valued at almost $748 million, and wood pulp and plant fibers amounting to approximately $384 million, according to Trading Economics/UN Comtrade data. Additionally, Canada's Canpotex is a significant supplier of the fertilizer ingredient potash, and three Indian companies, relying entirely on fertilizer imports, signed a Memorandum of Understanding (MoU) with Canpotex in September 2022 to import approximately 1.5 million metric tonnes annually for three years.

The bulk of Indian exports in the same year comprised pharmaceutical products, totaling about $418 million, followed by iron and steel products valued at around $328 million, and machinery, nuclear reactors, and boilers amounting to roughly $287 million. Canada's lentil exports have benefited from India's growing demand, and Indian pharmaceutical and software firms have expanded their presence in the Canadian market.


Canada ranks as India's 17th largest foreign investor, having invested over $3.6 billion since 2000. Canadian portfolio investors have also allocated substantial sums in Indian stock and debt markets. Notably, the Canadian Pension Plan (CPP) increased its investments in Indian markets to approximately $15 billion, primarily in real estate, renewables, and the financial sector by the end of the last fiscal year in March 2023. Other prominent pension funds with significant exposure to India include Caisse de dépôt et placement du Québec (CDPQ), with investments worth C$8 billion ($6 billion) as of December 31, 2022, and the Ontario Teachers' Pension Plan (OTPP), which had investments exceeding $3 billion as of the previous year.


More than 600 Canadian companies, such as Bombardier and SNC Lavalin, maintain a strong presence in India. Simultaneously, over 30 Indian companies, including IT giants TCS, Infosys, and Wipro, have invested billions of dollars in Canada, generating thousands of job opportunities.


Since 2018, India has held the position of being the largest source country for international students in Canada. In 2022, their numbers increased by 47% to nearly 320,000, constituting approximately 40% of the total overseas student population, according to the Canadian Bureau of International Education. This influx of Indian students also enables universities and colleges in Canada to provide subsidized education to domestic students.


Many analysts point out that the deteriorating bilateral relations could impact the economic interests of numerous Sikh families in India's Sikh-majority state of Punjab, as they often have relatives in Canada who remit substantial sums of money back home. Canada's Sikh population has more than doubled in the past two decades, reaching 2.1% of the population according to the country's 2021 census. This increase is attributed to a significant number of Sikhs migrating from India in pursuit of higher education and employment opportunities.