How the India-Canada fallout could affect trade and immigration

After a bombshell accusation from Canadian officials this week - that they believe India government agents were linked to a campaign of murder and extortion in the country - diplomatic relations hit new lows.

That rift is now raising questions over the impact it could have on the deep trade and immigration ties between both countries.

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

The breakdown of relations at this level is uncharted territory, and much of what happens next will depend on how they choose to move forward, experts suggest.

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

“The biggest challenge, particularly for business and citizens, is going to be uncertainty,” Arif Lalani, a senior advisor at government consulting company StrategyCorp and a former Canadian diplomat, told the BBC.

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

In September 2023, Trudeau said that Canada had "credible allegations" linking Indian government agents to the murder of Sikh separatist Hardeep Singh Nijjar, who was shot and killed in Surrey, British Columbia that June.

India temporarily suspended visas for Canadian citizens shortly after, but that move was brief and it resumed visa processing in November.

Trade ties between the two, meanwhile, remained as usual. Bilateral trade is around $8bn (£6.15bn), according to the latest fiscal figures from India’s trade ministry.

Canada’s trade minister recently assured business owners that Ottawa does seek to disrupt commercial ties with India.

Still, with ongoing uncertainty, Mr Lalani said businesspeople from both countries could look elsewhere for opportunities.

“People will be thinking twice in terms of expanding trade, or trying to build on what they already have,” he said.

Another big concern is how the rift will alter movement of people between the two countries. India has been Canada’s top source of international students since 2018, and about 4% of Canada’s overall population is of Indian origin.

“The human connection between our countries is profound,” Karan Thukral, a lawyer based in Delhi, told the BBC, adding that a big portion of his clientele are people eager to move to Canada.

He said many are now anxious about how the diplomatic tension could affect their plans to work or study in Canada.

Immigration processing remains operational, Mr Thukral noted, but he has advised his clients to anticipate potential delays due to the reduction of diplomatic staff in both countries.

Others, especially those in Canada with family in India, are anxious about India reinstating visa restrictions for Canadian nationals, he added.

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

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

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

“That’s going to continue to raise the temperature,” he said.

Four people have been arrested and charged in connection with Mr Nijjar's murder - all Indian nationals in their 20s - though it remains unclear if and how they are connected to India’s government.

A trial date for them has not yet been scheduled.

Canadian police said this week there are "multiple ongoing investigations" into the alleged involvement of India government agents in "serious criminal activity" in Canada.

On Wednesday, Trudeau doubled-down on accusations against India with sharp criticism of Delhi's alleged aggressive interference in Canada's sovereignty.

But he also cautioned that he does not want to hurt economic and social ties.

“We don’t want to be in this situation of picking a fight with a significant trading partner, with whom we have deep people-to-people ties and a long history and are fellow democracies,” Trudeau told a public inquiry looking into foreign interference in the country.

India hit back angrily, calling Trudeau’s behaviour “cavalier” and accusing Canada of not presenting evidence to back up its accusations.

Earlier this week, India said that it “reserves the right to take further steps” in its response, while Canada’s foreign minister Mélanie Joly said all options, including sanctions, are on the table.

With reporting from Jessica Murphy in Toronto.