Did spat with Canada hit Indian economy? 'Negligible' impact, expert tells WION

Amid heightened tensions between New Delhi and Ottawa over the issue of Khalistan, some observers have overhyped Canada's contribution to the Indian economy and stock market.

As per India's National Securities Depository, foreign investors pulled out a total of $1.77 billion in Indian equities in September alone, marking the first time international investors sold more Indian shares than they bought every month since February.

Japan's Nikkei Asia blamed this dip on Canadian investors, with its report claiming that India's stock market was losing momentum as risk-averse investors pulled out money "amid a diplomatic row with Canada," giving an impression that India is facing economic setback as a result of its standoff with the G7 nation.

It also noted that Sensex, a stock index that tracks the performance of 30 of India's largest and most actively traded firms on the Bombay Stock Exchange, has lost 1 per cent of its valuation since Trudeau's explosive allegations against India regarding the death of the Khalistani terrorist Hardeep Singh Nijjar. "The index slumped as low as 65,226 on Oct 4, nearly 4 per cent down from the record high," it said.

However, experts have questioned this naive take, while citing Canada's next-to-nothing role in the Indian economy. 

Amit Agrahari, a Public Policy Executive at iSPIRT Foundation (A Bengaluru-based think-tank), told WION that decisions taken in Canada have negligible impact on India.

"Given the fact that Canada accounts for less than even 1 per cent of total investment in India, the decisions on the country level or company level have negligible impact on India's markets," he said while referring to the fact that Canada is India's 18th-largest foreign investor, with cumulative investments totalling $3.3 billion between April 2000 and March 2023.

The juxtaposition of this figure with the total market valuation of the Indian stock market—$3,840.500 billion in Sep 2023—paints a clear picture of Canada’s minuscule or rather non-existent role in the Indian economic landscape.

Watch: India-Canada row: Kamaljit Ram housed, fed Khalistani militants

Amit further attributes the dip in foreign investments to 'profit booking,' an act involving individuals or companies liquidating their holdings to cash out the profits that they have created.

"India's P/E (price to earnings) ratio is among the highest in the world today at 24.32 per cent as compared to 13.7 per cent of Indonesia or 12.45 per cent of China. Given the high valuations in the Indian stock market, the Foreign Institutional Investors see this as the perfect timing for profit booking," he tells WION.

According to the expert, it would be simply an overstatement to say that the ongoing tensions with Canada are taking a toll on India's economic health. Notably, it is Canada which might have to face the music even if a slight drop is registered in the number of Indian students preferring Canada for overseas studies above the UK, US and Australia.

Also read: Picking fight with India to cost Canada over $700 million in 2024: Study

Last month, a New Delhi-based independent think tank revealed that the Canadian economy will take a hit of $700 million even if a mere 5 per cent drop is recorded in the number of Indian students going to Canada for higher studies in 2024.

(Disclaimer: The views of the writer do not represent the views of WION or ZMCL. Nor does WION or ZMCL endorse the views of the writer.)