The Quick Decline in India-Canada Relations

The announcement on September 18 by Prime Minister Justin Trudeau that “Canadian security agencies have been actively pursuing credible allegations of a potential link between agents of the government of India and the killing of a Canadian citizen, Hardeep Singh Nijjar” has led to a serious and quick deterioration of the Canada-India relationship. 

While this crisis has its origins in the domestic politics of both countries, it highlights how geopolitical developments can impact unrelated commercial interests.  

The situation will likely get worse before it gets better, and the path forward will be determined by the interplay of economic factors, geopolitics, and political decisions. 

What Has Happened  

In addition to Prime Minister Trudeau’s statement, he also called on India to take the matter seriously, stating that it had global ramifications. Later, Global Affairs Canada expelled a senior Indian diplomat, believed to be the head of the Indian High Commission’s intelligence office (RAW – the “Research and Analysis Wing”). 

India responded quickly: 

• calling the allegations “absurd and motivated”; 
• demonstrated no public sign of willingness to cooperate in any investigation; and,  
• doubled down on its decades-long accusations that Canada and others harbour Sikh extremists and those that fundraise for them.   

India Strikes Back 

India took reciprocal action by calling in a senior Canadian diplomat and giving him five days to leave the country, with sources indicating this official is Canada’s High Commissioner Cameron MacKay. However, it remains to be seen if India follows through on this expulsion.  India also updated its travel advisory yesterday to warn Indians to be extremely cautious in Canada due to anti-India activities and politically condoned hate crimes. The processing of visa applications for Canadians travelling to India were also abruptly halted earlier today.  

Canada’s Efforts to Build International Support Sputter 

In the lead-up to this week’s news, Prime Minister Trudeau’s recent trip to India for the G-20 was clearly frosty, and now it is obvious why.   

Canada has tried to court support from allies like the United States and the United Kingdom to clearly and unequivocally add their voices with specifics around the accusations.  To date, while both countries have issued statements supporting that those responsible be held to account and for a full investigation, they have not gone as far as Canada in reiterating Prime Minister Trudeau’s statement. 

India has also called on several liberal democracies that are home to sizable Sikh diasporas to clamp down on Sikh separatist and extremist activities within their borders. Leading figures, such as Nijjar, have been designated terrorists by India and are wanted for related crimes there.  

Meanwhile, some Sikh radicals in these countries have increased separatist activities, including attempting an international referendum in support of an “independent Khalistan” (Sikh homeland), as well as the glorification of political violence.  In addition, Canada has recently provided extra security for Indian diplomats resident here due to calls for bloodshed against them. 

Domestic Political Lens 

The Canadian side is also accused by India of playing domestic politics for turning a blind eye to the more extreme views of some Sikh organizers, so as to not offend an important voting demographic. This hasn’t created the conditions for the enhanced relationship envisioned by Canada’s Indo-Pacific Strategy, the Trudeau government’s flagship foreign policy initiative.  

Canada also announced the pausing of on-going trade negotiations and canceled a high-profile Team Canada trade mission for this October, catching the ire of the Saskatchewan government given their prominent position in Canadian exports to India.  

Why This Matters 

Less than a year into the Indo-Pacific Strategy (IPS) and a key pillar is cracking with the risk of bringing down with it some important commercial ties. While this is still live, we’re in a position for a quick stock-take to ask some questions and signpost potential risks: 

1. Things will get worse before they get better: The developments this week signal just how badly relations have deteriorated and how unsuccessful back-channel efforts have been. The two PM’s have historically frosty relations and this latest spat has deeply offended Modi, who has the levers to escalate retaliation if he chooses.    
2. Prepare for the long haul on this: It is difficult to see today how the relationship could get back on track anywhere in the next 6-12 months; absent a major development. It would have to include the provision and acceptance of the intelligence Canada claims it has.   
3. Canada will likely “go it alone”: This will revert to a bilateral issue rather than one which Canadian allies come to their side.  Geopolitical considerations and national interests are trumping like-minded values. The response from the US, UK, and Australia has been muted – making it clear that while these allegations are serious, and the Indians should cooperate, it is for Canada to pursue the matter.    
4. India’s Growing Geopolitical Weight: In today’s geopolitical environment, India has emerged as a heavy player that can tilt the balance of power on issues ranging from tensions with China and the Russian invasion of Ukraine. India is seen as a key component in not only Canada’s response to a changing world order but many other countries as well. It has strategic importance to the EU, the Middle East, East Asia, and the US, placing Canada’s allies in a difficult position. In short, India presumes it can weather a diplomatic freeze with Canada as China and the Kingdom of Saudi Arabia have.  
5. A hurdle for the IPS: Canada’s Indo-Pacific Strategy, which counted on India as a counterweight to China, will also suffer a pause, at best.  With India having the world’s largest population it could spell trouble for the trade diversification pillar of the strategy. 

This leads to the potential commercial fallout. Two sectors should immediately be on high alert: education and agriculture.  

With over 226,000 Indian students in Canada (2022) representing roughly 28% of all international students, Canadian universities and colleges derive considerable revenue from India. Similarly, with Canada being a major agricultural exporter, no wonder Premier Moe has been so upset with the downturn in relations. 

• Geoeconomics or ‘Business as Usual’: Political tensions don’t necessarily translate into commercial losses. Liberal market democracies do their best to separate diplomatic and business relations, however we are now in an age of geopolitics where economic tools are increasingly being deployed for non-economic purposes.  
• India is a special case: As its global stature rises, it is an open question to how much of the pre-established norms India wishes to follow. With this week’s news, there is clear potential for economic retaliation. For example, we may see a rise in phytosanitary concerns or other non-tariff barriers applying to Canadian agricultural exports. But this would not happen in a vacuum; food security concerns and Indian domestic supplies of key commodities will be important variables in their calculus. 
• FTA Talks are a side-show: We shouldn’t read too deeply into the stalling of FTA talks. These discussions have been off and on for years. India engages when domestic conditions compel it to, namely food security or local farmer interests. As a developing country, India is not keen on the high environmental and labour standards that Canada wants. Let’s not forget the domestic considerations that may also determine Canada’s political will as well. The primary beneficiaries of the agreement would be Western Canadian farmers, not exactly a key constituency of the Trudeau Liberals.  
• Learning is at risk: Education institutions should pay attention to not only the possibility of India restricting students, particularly following their prompt release of a travel advisory warning students of a deteriorating security situation in Canada, but they should also consider that the Canadian side may use this as a scapegoat for its own domestic agenda. For example, India was de-prioritized in the most recent International Education Strategy released by Global Affairs Canada precisely because of the outsized proportion of Indian students studying here. Additionally, the government signaled it has international students in its sights as it sets to combat unaffordable housing.  

StrategyCorp Geopolitical Advisory Practice 

Ultimately, it will be political decisions (and hopefully restraint) that will lead the next steps. But geopolitical forces have unleashed new risks for Canadian businesses. Stakeholders should assess their exposure to these and other geopolitical risks. StrategyCorp’s Geopolitical Advisory Practice assists companies globally to not only interpret the headlines, but also understand the structural factors that drive them.  

• Garry Keller, Vice President 
• Arif Lalani, Senior Advisor and Former Canadian Ambassador 
• Jeff Mahon, Director, Geopolitical Advisory Practice and Former Deputy Director at Global Affairs Canada