Will Canada-India Political Tensions Hit The Maple Eight?
India-Canada ties have hit a new low after Canada decided to investigate the Indian High commissioner and other diplomats as "persons of interest" likely in connection with the assassination of Hardeep Singh Nijjar, a Khalistani terrorist and subsequently India recalling its High Commissioner and many other diplomats as well as expelling six Canadian diplomats.
Canadian Prime Minister Trudeau and Jagmeet Singh, the leader of the New Democratic Party which had propped up Trudeau's minority government, are known for patronising pro-Khalistani anti-India separatists. Trudeau has accused India of engaging in activities threatening public safety, including covert operations targeting South Asian Canadians. India has accused Trudeau of using anti-India rhetoric for domestic political gains, citing his past association with separatist elements while rejecting his allegations.
The erosion of trust between the two governments ever since Trudeau alleged last year in September that Indian agents killed Nijjer contrasts with the confidence Canadian investors have expressed in India's economic growth and stability.
Canadian investors, mainly pension funds, have been investing huge amount of money in Indian markets betting on the Narendra Modi government's economic agenda just as the Trudeau government paints the Modi government as a sponsor of criminal activities in his country. If the diplomatic relations between the two countries degrade further, there could be a chance of Canadian investors exiting India.
Canadian investment in India has increased significantly in recent years, reflecting the confidence of Canadian investors in India's growth story. "Given that investments generally involve long-term commitments of capital, Canadian investors, like investors in other countries, previously exercised some degree of caution with respect to India," says an analysis published by the Asia Pacific Foundation of Canada in June. "However, the BJP government's economic liberalization policies have opened up a variety of sectors to foreign direct investment (FDI) over the past decade, such as infrastructure and food processing. Canadian companies responded to this opportunity, and consequently, Canada and India invested around C$36.5 billion in each other’s economies from 2014 to 2023, growing from C$1.55 billion in 2014 to C$3.9 billion in 2023."
"Canada’s investment in India hit an all-time high in 2020 with Brookfield Asset Management’s C$3-billion acquisition of RMZ Corp, India’s largest realty portfolio," says the Asia Pacific Foundation of Canada article. "The recent growth in Canadian investment also includes pension fund investments, including C$11.9 billion invested in India in the last five years alone (2019-23)."
A significant part of Canadian investment in India is by Canadian pension funds. These funds accounted for around 50 per cent of total Canadian investment flows into the Asia-Pacific region from 2019-2023.
From 2019 to 2023, India replaced China as the second-largest recipient of Canadian pension fund investment flows into the region, accounting for 25 per cent of total investment flows, a significant increase from the 10 per cent of investment flows the country received between 2003-2018, as per the Asia Pacific Foundation of Canada. The top three sectors in India to receive investment flows from Canadian pension funds between 2013-2023 were real estate (comprising 57% of Canadian pension funds investment in India with over C$3.8B received), financial services (C$3B invested), and industrial transportation (roughly C$2.6B invested).
Three large funds that collectively manage more than C$1.2 trillion ($893 billion) — Canada Pension Plan Investment Board and pension funds for Quebec workers and Ontario school teachers — have opened offices in Mumbai or New Delhi in recent years, Bloomberg reported last year.
Will India-Canada tensions hit Canadian investments?
While pension funds and other Canadian investors are invested in India for higher returns, the diplomatic tensions between the two countries might become a cause for concern.
"With Canada-India political tensions showing no signs of improving in the immediate future, Canadian investors will have to continue monitoring both the opportunities and risks of investing in an economy that is expected to become the world’s third-largest by 2027," says the Asia Pacific Foundation of Canada.
However, rising geopolitical tensions between China and the Western countries has not affected the flow of investment into the Chinese markets as much as the foreign direct investment. Canada's current FDI represents only 0.57 per cent of India's total FDI inflow, as per the Asia Pacific Foundation of Canada.
"Given the many factors that could suppress Canada-India investment in the short term, it would be premature to attribute any recent declines in investment to the current diplomatic dispute. The impact of the dispute, if there is one, will need to be evaluated in the long term once more data becomes available," as per the Asia Pacific Foundation of Canada.
Alright, it's Tuesday and we all woke up to the stunning new allegations from the RCMP that Indian diplomats and consular officials are linked to violent criminal activity on Canadian soil.
The news hit Canadian and Indian media hard, Canada and India expelled top diplomats and not surprisingly, relations between the two countries have hit a new low.
It's important to remember this dispute between Canada and India has been simmering for a very long time:
India-Canada ties were destroyed today
— Shashank Mattoo 🇮🇳 (@MattooShashank) October 14, 2024
The relationship won’t recover for years
But there's a 10 year backstory to this whole crisis
Here's all you need to know🧵 pic.twitter.com/sv2p6sFhDY
I suspect the RCMP report hit like a ton of bricks and let's not forget, we are headed for elections here, and this too factors into the equation.
The timing of this latest diplomatic fallout is suspect to me for another reason.
Yesterday, one of my LinkedIn contacts from India contacted me to tell me last month, India's Highways Minister Nitin Gadkari was fuming at poor upkeep of EPE, and even warned operators:
Union Road Transport and Highways Minister Nitin Gadkari on Tuesday came down heavily on agencies and contractors over ill-maintained roads, saying good operators would be awarded but bad ones would be "driven out of the system". "We will not spare you. We'll ensure that bank guarantees of those doing bad work are forfeited and after this, we will blacklist you, not allow you to apply for new tenders," the minister said.
His warning came after he noticed the bad maintenance of the Eastern Peripheral Expressway that he took to reach Ghaziabad to inaugurate a tree plantation drive 'Ek Ped Maa Ke Naam' under the 'Swachhata Hi Seva 2024 - Swabhav Swachhata - Sanskar Swachhata' campaign.
During his address, the minister highlighted the strides in development made under the government, the ministry and the National Highway Authority of India, citing data, expenditures and the future vision for the sector.
He also emphasised the need for pro-environment policies and initiatives like biofuel, saying the ministry is undertaking many studies for plans that could be implemented in India to reduce pollution.
However, the minister, without mincing words, expressed unhappiness over the upkeep of the Eastern Peripheral Expressway and rebuked the agencies and contractors concerned.
"I have used the Eastern Peripheral Expressway after a long time. A lot of work has been done. Now I wish that a lot of people who don't work retire, some contractors get blacklisted and bank guarantees of some are forfeited," Gadkari said.
"The office bearers of associations are sitting here (in the audience at the event), the roads should be well-maintained. I saw the road today, it's very poorly maintained. We will not spare you. We'll ensure that bank guarantees of those doing bad work are forfeited and after this, we will blacklist you, not allow you to apply for new tenders," Gadkari warned.
On the other hand, Gadkari said the agencies and operators maintaining roads well will be given special recognition by the government.
"Those who do good will be awarded while those who do bad will be driven out of the system," the minister remarked.
The person in India who sent me this also reminded me that CDPQ-backed Maple Highways completed the acquisition of Eastern Peripheral Expressway back in 2022:
The 135-kilometre, six-lane express highway has been in operation since 2018 and was designed to decongest Delhi of commercial traffic, and runs through the states of Haryana and Uttar Pradesh down the eastern side of the NCR. All lighting and other utilities along the expressway are fully solar-powered, the company said.
Popularly known as National Expressway 2, EPE is India’s first Intelligent Transport System (ITS) enabled road. It is equipped with a drip irrigation system and rainwater harvesting structures every 500 metres. It has a closed loop tolling system and 99% of its revenue is collected through electronic tolling, using the interoperable RFID tag, known to millions of drivers as FASTag.
"For CDPQ, the acquisition is a major step forward in building a scaled portfolio of strategically located, long-term revenue generating road assets in India," it said in a press statement.
Now, does the Highway Minister's stern warning to concession operators have anything to do with deteriorating Canada-India relations?
I doubt it as it happened a month ago but it's a reminder yet again that buying foreign infrastructure has its unique risks: currency risk, regulatory risk, political and economic risks.
And it's the political risk that is typically the wild card as foreign governments can make your life miserable when it comes to owning major infrastructure assets.
Having said this, Canada's Maple Eight pension funds almost all own major assets in India and the top five -- CPP Investments, CDPQ, PSP Investments, OTPP and OMERS -- are major investors in the country, mostly in toll roads and real estate.
I'm certain CDPQ-backed Maple Highways got the message from Minister Gadkari and will make sure the Eastern Peripheral Expressway is maintained properly and up to the highest standards.
What remains to be seen is how this diplomatic fallout will impact Canadian pension funds' investments in India going forward.
I don't see any reason for a major change.
India remains a strategically important country offering secular growth and all of Canada's large pension funds want a slice of that pie.
They will continue to partner up with top funds and operating companies there to invest in this country and leave politics out of their investment decisions.
Keep in mind, Brookfield which represents many small, medium and large Canadian pensions is a major investor in India and this will not change no matter what is going on in Ottawa.
Prime Minister Modi is a wise and practical man, he doesn't have any reason to extend this diplomatic dispute with Ottawa to our large pension funds which operate at arms-length from the federal and provincial governments.
But I'm not going to lie, this is a major diplomatic dispute which doesn't help our large pension funds conduct business in India. I really hope to see better relations between Canada and India in the future (under a different federal government).
That's all I have to say on this subject, as always, feel free to email me at LKolivakis@gmail.com if you have anything to add.
Below, CTV News reports a stunning claim by the RCMP alleges that several Indian officials are connected to clandestine activities inside Canada; Harris and Trump are taking their fight to Pennsylvania as U.S. election polling shows the race is in a dead heat; and, streaming services are getting more expensive for Canadians.
Also, President of the Asia Pacific Foundation of Canada Jeff Nankivell says Canada’s allegations are not being received well in India.
Lastly, the ‘Highway-Man’ of India Nitin Gadkari on Sept 18 lashed out at agencies and contractors over ill-maintained roads, saying good operators would be awarded but bad ones would be "driven out of the system". "We will not spare you.’ Watch the video to know more.
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