This escalation comes at a time when India and several western countries have been seeking closer economic integration in a bid to decouple from China. Capitalising on the geopolitical opportunity, India has been negotiating free trade agreements (FTAs) with nearly half a dozen economic blocs and countries, including the European Union and the UK.
The diplomatic tensions have already impacted negotiations with Canada for a modern FTA, which could have meant not only better export opportunities for Indian garments, leather, and machinery products in Canada, but also greater collaboration in the booming services sector in both countries. However, the escalation in tension may well mean that the deal may no longer be on the table.
Beyond the missed trade deal opportunity, Canadian companies, especially Canadian pension funds, have considerable investments in India. While Canadian pension funds have significant investments in India, according to the Ministry of External Affairs, asset management companies and financial services firms headquartered in Canada have invested in key sectors of India’s economy, making investors keenly observe these diplomatic shifts.
Federation of Indian Export Organisation (FIEO) Director General Ajay Sahai said that Canada contributes to nearly 1 per cent of total exports and similar levels of imports in India’s over trade basket. However, about 25 per cent of total pulses import and 5 per cent of total fertiliser imports are sourced from Canada that can be easily substituted, he said.
Canadian investments in India
While Tim Hortons and McCain Foods might have the biggest brand recall when it comes to Canadian businesses in India, Canadian investments in the country go far beyond coffee chains and frozen snacks. Canadian pension funds, asset management companies, and financial services and insurance players are invested in key sectors of India’s economy, including financial services, financial technology, infrastructure, real estate, information technology, and energy, among others.
According to the National Investment Promotion & Facilitation Agency, or Invest India, Canada is the 18th-largest foreign investor in India, with a cumulative investment of $3.31 billion from 2020-21 to 2022-23. Canadian investments accounted for 0.5 per cent of the total foreign direct investment (FDI) inflows into India. Services and infrastructure together accounted for close to 41 per cent of Canadian FDI into India. Canadian pension funds have cumulatively invested over $75 billion in India and are increasingly viewing India as a favourable destination for investments, according to the Ministry of External Affairs.
“The Indian market is too large an investment opportunity for Canadian investors to miss. If the investors don’t enter directly, it will be rerouted through Singapore, Hong Kong or UAE. That aside, India has significant investment interests from the US and elsewhere to offset any hit from Canada,” a senior government official said.
The ministry also stated that over 600 Canadian companies have a presence in India and more than 1,000 companies are actively pursuing business in the Indian market. Notably, the Canadian Pension Plan Investment Board (CPPIB) holds stakes in Kotak Mahindra Bank, Indus Towers, Paytm, Zomato, Nykaa, and Delhivery. It also owns US-listed shares of Indian majors like Infosys, Wipro, and ICICI Bank. The CPPIB also has business partnerships with Piramal Enterprises, the Shapoorji Pallonji Group, and Larsen & Toubro.
Canada-based global investment group Caisse de dépôt et placement du Québec (CDPQ) counts India as a strategic market and had invested around $6 billion in India as of the end of 2022, according to its website. Over the past few years, CDPQ has invested in companies like Kotak Mahindra Bank, the Edelweiss Group, Piramal Enterprises, TVS Logistics, Azure Power Global, and Apraava Energy. In February 2020, it launched a $300-million private credit platform with a third-party asset manager to invest in India.
Remittances from Canada
India is the largest recipient of remittances from abroad, due to the sizeable presence of the Indian migrant workforce globally. In 2023, India received an estimated $125 billion in remittances, with Canada ranking among the top 10 sources, according to the World Bank. According to the Ministry of Finance, Canada contributed 0.6 per cent of the total inward remittances in 2021-22.
Notably, the Indian diaspora in Canada, which includes a large number of professionals and skilled workers, sends money regularly through formal banking channels and online services, supporting robust remittance flows despite global economic fluctuations. According to the National Foundation for American Policy (NFAP), Indian students account for nearly 40 per cent of all international students in Canada.
There are about 13.35 lakh Indian students studying abroad, of which about 427,000 are studying in Canada, official data shows. Moreover, from 2013 to 2023, the number of Indians immigrating to Canada increased from 32,828 to 139,715, marking a 326 per cent rise, NFAP data shows.
Trade ties with Canada
Major items of India’s exports to Canada include gems, jewellery and precious stones, pharmaceutical products, ready-made garments, mechanical appliances, organic chemicals, light engineering goods, iron and steel articles, etc. Meanwhile, India’s imports from Canada include pulses, newsprint, wood pulp, asbestos, potash, iron scrap, copper, minerals, and industrial chemicals, etc.
“India’s trade with Canada has not been that significant. There is nothing worrying so far as bilateral trade isn’t that big to significantly impact the overall trade basket. For instance, we import lentils from Canada. It can easily be replaced by Australia. We are already negotiating a larger trade agreement with them,” the official said.
A report by think tank Global Trade Research Initiative (GTRI) pointed out that despite these significant political frictions, the on-ground impact on trade between India and Canada has been minimal. This is largely because trade happens at the private sector level, and neither India nor Canada has introduced regulations that restrict the flow of goods or services.
As far as bilateral merchandise trade between India and Canada is concerned, it has shown a slight upward trend, from $8.3 billion in FY2023 to $8.4 billion in FY2024. India’s imports from Canada increased to $4.6 billion, while exports saw a marginal dip, falling to $3.8 billion.
“For now, the resilience of trade between India and Canada highlights an important lesson — diplomatic tensions, while damaging, do not always spell disaster for economic ties. But as this dispute drags on, both nations will need to carefully manage their actions to avoid a full-blown economic fallout,” GTRI said.
India and Canada's ties have been strained since September last year. 
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