The tense diplomatic relations between India and Canada are likely to impact trade and investments between the two countries in the short to medium term.

The prices of pulses could shoot up further as India is a major buyer of Canadian pulses and it would add to the inflationary pressure on the economy as output in the country is expected to be hit by lower acreage because of poor rainfall. Pulses acreage continues to lag, down by (-) 5.2 per cent on the back of scanty rainfall with arhar sowing down by (-) 5.6 per cent and urad sowing lower by (-) 2.2 per cent. The risk of lower crop yield might push the prices higher, analysts said.

Trade experts said one has to watch out for how political developments pan out to assess their economic impact.

Biswajit Dhar, a trade expert, said: “The country’s 21 per cent of its pulses imports come from Canada, similarly 40.5 per cent of newsprint is from that country. These would be impacted as the diplomatic fallout has been due to the political compulsions of the ruling party in Canada. So, the impact on trade in the short term has already been visible with the suspension of trade talks and there would be impact on fresh investments too.”

There would be pressure on the ruling Liberal Party headed by Prime Minister Justin Trudeau to weaken its economic ties with India.

Trudeau heads a minority government which is backed by the New Democratic Party (NDP), headed by Jagmeet Singh, an arch-Khalistani separatist. The NDP has 24 seats in parliament, whose support is critical for the survival of the Trudeau government, analysts said.

Dhar said: “The strong stand taken by Canada is due to political compulsions. Even after Galwan clashes the trade ties between India and China did not sour so badly, though India had taken steps to reduce its dependence on Beijing”.