The recent tensions between India and Canada have sparked a significant controversy on the global political scene. Big nations, from Russia to the US and Israel to Bangladesh, have taken stands on the issue. In just a few days, the Indo-Canadian conflict has gathered such traction worldwide that no sector seems to have remained aloof of its brunt.
What’s the conflict all about?
On 18th September, Prime Minister Justin Trudeau made a shocking statement in the Canadian parliament accusing the Indian government of killing a Canadian-Sikh citizen on Canadian soil. While he mentioned of there being credible allegations for this claim, he could not present any credible evidence to back the same. This sent a shattering shockwave throughout the global political diplomatic community.
While the Indian Prime Minister Narendra Modi has refrained from commenting on the issue yet, there have been official statements from the foreign office and in the UN from the Union Minister of External Affairs Dr S Jaishankar himself, firstly denying the allegations and secondly calling out the West on cherry-picking about certain national security issues.
The bottom-line from the Indian side remains that although India had nothing to do with the killing, the person in question was a designated terrorist and separatist who had been working constantly against India. In the light of this, India also accused Canada of harboring Indian-designated anti-national and anti-social elements on its territory.
So, what’s the economic impact going to be?
India currently is the 5th largest economy in the world and aspires to become the 3rd largest by 2025. Canada, on the other hand is one of the important countries of the Global North and a vital trade partner for India. Given the kind of economic ties between the two countries, the burning question of the day is how far this tussle is going to impact both the parties.
India is a start-up hub of the world and as far as Indian entrepreneurs are concerned, Canada has always been perceived as a bridge to reach North America. As per some industry leaders, if the tiff continues to escalate, Indian entrepreneurs may have to seek out new alternatives in this respect as well.
There is no doubt that all kinds of industrial sectors are going to be impacted in one way or the other if this conflict escalates. Here’s how this rift, if widened, may affect the manufacturing sector:
- Supply Chain Disruptions: Tensions may lead to disruptions in the supply chain, affecting the flow of raw materials, components, and finished goods between the two countries. This could result in delays in production and increased costs for manufacturers.
- Market Access Restrictions: Trade tensions can lead to the imposition of tariffs, quotas, or other trade barriers, making it more difficult for manufacturers to export and import their products. This can reduce market access.
- Increased Costs: Tariffs or additional compliance measures can lead to increased costs for manufacturers who rely on inputs or components from Canada and/or India. This may lead to higher production costs and potentially lower profitability.
- Diversification of Suppliers: Manufacturers from both countries may seek to diversify their supply chains to reduce dependence on one another. This could involve finding alternative sources for raw materials or components.
- Market Uncertainty: These tensions can also create uncertainty in the business environment. Both Indian and Canadian manufacturers may become hesitant to invest in new projects or expand operations until there is greater clarity in the geopolitical situation.
- Shift in Investment: Indian and Canadian manufacturers may reconsider their investment decisions, potentially redirecting investments more stable or less affected markets.
- Regulatory Changes: Tensions may lead to changes in regulations or policies affecting trade and investment, which manufacturers would need to adapt to.
- Long-term Strategic Planning: Indian and Canadian manufacturers may need to re-evaluate their long-term strategic plans and consider different scenarios based on the evolving geopolitical landscape.
According to Invest India, India and Canada are natural allies with Canada being the 18th largest investor in India. Moreover, more than 600 Canadian companies have their presence in India currently and over 1,000 are actively pursuing business opportunities in the Indian market. On the other hand, India’s imports from Canada in FY23 amounted to 0.6% of India’s total imports, which is significant too.
Given the level of maturity both countries have shown till date, especially when it comes to economic considerations, it is highly unlikely that the overall trade and investments (which also includes the manufacturing sector) between the two countries will be adversely impacted. After all, economic ties are always driven by commercial considerations, and both the nations are fully capable of understanding this very well and keeping their national interest at the forefront.