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People protest outside the Indian Consulate in Vancouver on Sept. 25.DARRYL DYCK/The Canadian Press

Companies operating in Canada and India are taking a hit as the diplomatic dispute between the two countries stretches into its second month, according to business groups.

Relations between Canada and India were thrown into turmoil in September when Prime Minister Justin Trudeau alleged that India’s government was responsible for the killing of Hardeep Singh Nijjar, a Canadian citizen who advocated for an independent homeland for Sikhs.

In advance of the accusations becoming public, Ottawa cancelled a trade mission and suspended trade talks, which business groups had expected would at least produce an interim free-trade deal by the end of the year.

With no end in sight, and continued escalation – such as Canada pulling out dozens of diplomats on Thursday – community leaders say businesses are in a heightened state of uncertainty.

“Business wants clarity, stability and predictability, and those three things have not been there,” said Victor Thomas, president of the Canada India Business Council. “In many ways, we’re still trying to figure out how we navigate this new period of time.”

India has had a huge role in Canada’s economy through its diaspora, with 1.3 million Canadians reporting their ethnic origin as Indian in the 2021 census.

The trading relationship, though, has been disproportionately smaller. India is Canada’s eighth-largest trading partner, with $5.6-billion in exports in the last year, a fraction of what Canada sends to the U.S. or China. The majority of exports are from resource extraction or agriculture.

Businesses had hoped a trade deal might turn that around. In May, the two countries released a joint statement saying they hoped an initial trade deal might be signed by the end of this year, and lead to expanded investments in areas such as clean technology.

But relations turned frosty after Mr. Nijjar’s death in the summer, and the trade talks were officially postponed in September.

“It’s a very big shock and setback for the business community because this kind of episode creates a lot of uncertainty about what’s going to happen next,” said Satish Thakkar, chair of the Canada India Foundation.

Businesses have been careful about expressing concerns publicly during the tense diplomatic environment, but groups say they are hearing growing worries from their members.

Of particular concern is India’s suspension of visa services, said Matthew Holmes, senior vice-president of government relations and policy at the Canadian Chamber of Commerce.

“For service-intensive industries, such as IT, that are also based on talent, this may become an acute concern before long,” Mr. Holmes said.

Mr. Thomas said that if the visa-processing issue continues, it could deal a serious blow to Canada’s efforts to attract international students. About 40 per cent of Canada’s more than 800,000 international students are from India, according to the Canadian Bureau for International Education. And the federal government has also increasingly relaxed working rules for international students in recent years, making them a key source of labour for local businesses.

“Will Canada be the top destination to send someone next fall?” Mr. Thomas said. “Do they continue to come back when they’re looking at options beyond that?”

Many of those students come from the Indian state of Punjab. The Times of India reported last week that member of parliament Vikramjit Singh Sahney was urging the Indian government to resume visa processing. “Every second home in Punjab has one or other family member in Canada,” the English-language newspaper quoted him as saying.

At a public event on Sunday, India’s foreign affairs minister S. Jaishankar cited security concerns as the reason why the country had stopped issuing visas in Canada. He said India would resume the issuance of visas if there was progress in the safety of its diplomats working there.

Canada warned of visa delays on its side because of threats against its diplomats.

Mr. Thakkar said he is hopeful the diplomatic issues can be resolved so the two countries can continue to build stronger relations.

“India is a very important partner,” he said. “Looking at our prosperity, future growth, we need to strengthen our bond with India. Whatever our issues are at the government-to-government level, or political level, we need to resolve that.”

With a report from Reuters

Business groups warn of trade and hiring impact as dispute with India continues
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