Neither country has imposed tariffs or other forms of economic retaliation, but experts warn that this could change and that a cooling relationship between India and Canada could hinder further economic growth.
“The biggest challenge, especially for business and citizens, will be uncertainty,” Arif Lalani, a senior adviser at public consultancy StrategyCorp and a former Canadian diplomat, told the BBC.
The two countries have been negotiating a bilateral trade deal on and off for over a decade, but Canada put negotiations on hold last year, shortly before Prime Minister Justin Trudeau first made a public accusation against India.
In September 2023, Trudeau said Canada had “credible allegations” linking Indian government agents to the murder of Sikh separatist Hardeep Singh Nijjar, who was shot dead in Surrey, British Columbia that June.
India temporarily suspended visas for Canadian citizens soon after, but that move was short-lived and it resumed visa processing in November.
Trade ties between the two, meanwhile, remained as normal. Bilateral trade is about $8 billion. (£6.15 billion), according to the latest financial figures from India’s Ministry of Commerce.
Canada’s trade minister recently assured business owners that Ottawa is trying to disrupt commercial relations with India.
Still, with uncertainty lingering, Mr Lalani said businesspeople from both countries could look elsewhere for opportunities.
“People will think twice about expanding the trade or trying to build on what they already have,” he said.
Another major concern is how the break will change the movement of people between the two countries. India has been Canada’s largest source of international students since 2018, and about 4% of Canada’s total population is of Indian origin.
“The human connection between our countries is deep,” Karan Thukral, a lawyer based in Delhi, told the BBC, adding that a large part of his clientele are people eager to move to Canada.
He said many are now worried about how the diplomatic tension could affect their plans to work or study in Canada.
Immigration processing remains operational, Mr. Thukral noted, but he has advised his clients to anticipate potential delays due to the reduction of diplomatic staff in both countries.
Others, particularly those in Canada with family in India, are concerned about India reimposing visa restrictions on Canadian citizens, he added.
Any visa restrictions would come with business implications and could have a dampening effect on trade, tourism and investment, said Jeff Nankvell, president of the Asia Pacific Foundation of Canada.
“The Indian government has already shown its willingness once to suspend visa issuance, so it’s possible they may do it again,” he said, adding that the biggest impact will be felt in Canada’s large Indian diaspora community.
Mr. Nankivell said he suspects the diplomatic situation will continue to develop and the fallout will be felt for a long time as Canadian police pursue legal action against those allegedly complicit in Mr. Nijjar’s death and other criminals actions.
“It will continue to raise the temperature,” he said.
Four people have been arrested and charged in connection with Mr Nijjar’s murder – all Indian nationals in their 20s – although it remains unclear if and how they are linked to India’s government.
A trial date for them has not yet been scheduled.
Canadian police said this week there are “several ongoing investigations” into the alleged involvement of Indian government agents in “serious criminal activity” in Canada.
On Wednesday, Trudeau redoubled the accusations against India with sharp criticism of Delhi’s alleged aggressive interference in Canada’s sovereignty.
But he also warned that he does not want to damage economic and social ties.
“We don’t want to be in this situation where we have to fight with a significant trading partner with whom we have deep people-to-people ties and a long history and are fellow democracies,” Trudeau told a public inquiry looking into foreign. interference in the country.
India hit back angrily, calling Trudeau’s behavior “cavalier” and accusing Canada of failing to provide evidence to support its allegations.
Earlier this week, India said it “reserves the right to take further action” in its response, while Canadian Foreign Minister Mélanie Joly said all options, including sanctions, are on the table.
With reporting from Jessica Murphy in Toronto.