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Experts say Canada's already lagging trade with India could take a hit from increasingly tense relations, including the potential for the country to impose punitive measures in response to the allegations leveled against it. Prime Minister Justin Trudeau takes part in a bilateral meeting with Indian Prime Minister Narendra Modi during the G20 Summit in New Delhi, India on Sept. 10.Sean Kilpatrick/The Canadian Press

Shawn Barber is a former foreign service officer and ambassador. Until last year he was the head of the economic security task force at Public Safety Canada.

If the current crisis in bilateral relations between Canada and India is allowed to escalate there’s bound to be only one loser. It won’t be India.

Less than a year ago, in its new Indo-Pacific Strategy, the government was trumpeting India’s rise as a global economic power with a “shared tradition of democracy and pluralism.” It was “a critical partner” in Canada’s strategy in pursuit of greater security and prosperity in the region and an important counterbalance to economic and security threats presented by China.

Canada hasn’t been alone in welcoming India as an increasingly important global actor. Indo-optimism has found its way into almost every foreign ministry and leader’s office in the Western world. With every news report coming out of China of slowing growth, a teetering property market or slumping exports, attention is increasingly drawn to the epic transformation under way in India and its emergence as an economic powerhouse. While there are naysayers, it’s hard to argue with the facts.

In 10 years, India has grown from the 10th to the fifth largest economy in the world and has doubled household incomes. The Organisation for Economic Co-operation and Development predicts the Indian economy will grow 6 per cent this year and 7 per cent next year in real terms, faster than any other large economy. Financial reform and the implementation of a national digital infrastructure have been a boon for consumers, expanded the formal economy and helped to foster a truly national internal market.

India has become a global technology leader with a thriving startup and innovation sector that has produced business leaders who now head some of the biggest U.S. technology giants including Microsoft, Google and IBM. The Indian diaspora is now the world’s largest and most influential creating an unparalleled global network. India has assumed an increasingly important leadership role in the global south, under Prime Minister Narendra Modi, who is admired for his willingness to challenge a global order dominated by the West.

Until the current crisis, hopes were high that Canada and India could conclude negotiations on an Early Progress Trade Agreement (EPTA) by year end. Talks on a Comprehensive Economic Partnership Agreement were initiated in 2010 under the Harper government but languished until March, 2022, when negotiations restarted on a more modest agreement.

Canada’s bilateral trade with India has been modest but growing at $13.7-billion in 2022. Investments between Canada and India stood at $36.2-billion, with pensions funds, including the CPPIB, accounting for more than $32-billion. Not huge figures from an international trade and investment perspective but it’s the potential that India represents that has our commercial competitors scrambling to take advantage of the new and emerging opportunities.

Infrastructure spending in India is skyrocketing. The country has been adding 10,000 kilometres of highway annually, the number of airports has doubled since 2014, and overall infrastructure spending has increased 33 per cent this year to $122-billion. The government has set a target of installing 500 gigawatts of renewable energy by 2030. By comparison, Canada has a total installed power generation capacity of 154 gigawatts.

India is also benefiting from the slowdown in investment in China as Western firms seek to diversify their supply chains. This is certainly true in the case of Canada where 2022 saw the lowest flows of foreign direct investment (FDI) to China since 2003.

In the face of these opportunities what have our friends been doing? The answer is a lot.

The Australians negotiated a bilateral economic co-operation agreement, which came into effect in December last year. Both the EU and the U.K. are well advanced in negotiating comprehensive trade and investment accords, and during their bilateral summit in Washington this past June, President Joe Biden and Mr. Modi signed several important co-operation agreements on technology sharing, defence, supply chain security and scientific exchanges.

In contrast, our negotiations with India on the EPTA have been suspended. The government of India is warning its citizens not to visit Canada, and on Wednesday it suspended visa services at its High Commission in Ottawa. Our diplomatic staff in New Delhi is being reduced. Left unchecked we risk this spiralling out of control. We can’t afford to let that happen.

Foreign policy is about finding the balance between pursuing your interests and defending your values. In an increasingly complex international landscape of new powers, multiplying forums and intractable global problems, successive Canadian governments have often had difficulty finding that balance. This is a case where we need to get it right. We need to defend our sovereignty, but we also need to be fair and transparent about these serious allegations.

Prime Minister Justin Trudeau has correctly sought to de-escalate the situation. But we need to go further, and together with the government of India put in place a high-level dialogue to address shared concerns on both sides. We need to reset a relationship that has clearly gone off-course.

We need to defend our values, but equally we need to keep an eye on our long-term interests. That means we need a strong and mutually beneficial relationship with a country that will play an important global role for years to come.

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