Sunday, 26 Oct, 2025
Photo courtesy. Pixabay
Canada supplies the energy and critical minerals powering India’s green-manufacturing push, while New Delhi gives Ottawa’s exporters a fast-growing market beyond the US and China
India and Canada are cautiously restoring ties after two years of diplomatic chill, signalling a shift toward pragmatic engagement centred on trade, investment, and mobility.
Recent meetings in New Delhi between Prime Minister Narendra Modi, External Affairs Minister S Jaishankar, and Canadian Foreign Minister Anita Anand have set the stage for what officials call a “structured re-engagement process.” The talks mark the most substantive step toward normalisation since relations collapsed in 2023 following a rare diplomatic crisis.
Ties hit rock bottom in September 2023 when then Canadian Prime Minister Justin Trudeau accused India of involvement in the killing of Khalistani separatist Hardeep Singh Nijjar in British Columbia. India dismissed the charge as “absurd and motivated,” responding with reciprocal expulsions of diplomats and suspension of trade talks.
The fallout derailed an expanding economic partnership. Political mistrust hardened, and people-to-people ties—anchored by Canada’s 1.6-million-strong Indian diaspora—grew tense.
Trade feels the chill
The diplomatic rupture quickly showed up in trade data. India’s merchandise exports to Canada fell 6.5 per cent in FY24 in US dollar terms—the year Trudeau’s allegations surfaced—even as India’s overall exports to North America grew.
Imports from Canada, dominated by pulses and fertilisers, rose in FY24 but slipped again in FY25. Overall exposure remains shallow: Canada accounts for less than 1 per cent of India’s total merchandise trade.
Commerce Ministry data show India’s exports to Canada at $4.22 billion in FY25, down from $4.72 billion in FY18, while imports stood steady at $4.44 billion. Despite both being G20 economies with complementary strengths in natural resources, technology, and services, trade has stagnated.
The trade relationship has long underperformed relative to potential, and political volatility has only reinforced the perception of risk.
Capital flows dry up
Investment flows mirror the slowdown. Between 2022 and 2024, Canadian investment in India plunged 42 per cent, while Indian investment in Canada fell 25.6 per cent, according to Statistics Canada.
Canada’s major pension funds—CPPIB and CDPQ—have slowed new deployments in Indian infrastructure, logistics, and renewable energy projects. Indian firms in IT, pharmaceuticals, and auto components have also scaled back in Canada amid regulatory uncertainty and strained political ties.
By 2024, Indian direct investment in Canada had dropped to C$7.75 billion from C$10.42 billion in 2022. Canadian FDI in India declined from C$4.91 billion to C$2.86 billion. Analysts say the cooling reflects a broader trust deficit that will take time to repair. Capital is sensitive to political tone and even institutional investors prefer policy predictability—and that’s what’s been missing.
Student visa caps deepen strain
Immigration has emerged as another flashpoint. Canada’s recent cap on international student visas has hit Indian applicants hardest—they form nearly 40 per cent of all foreign students in the country.
Ottawa says the move aims to make immigration “sustainable” amid housing shortages and domestic pressure. But its impact on Indians has been stark. In 2023, Canada issued 278,005 study permits and 250,765 work permits to Indians. By 2024, those numbers fell to 188,255 and 208,985 respectively—a drop of nearly one-third in study permits, according to Immigration, Refugees and Citizenship Canada.
The decline has also hurt Canada’s post-secondary sector, which depends heavily on Indian enrolments, and may complicate efforts to preserve educational and cultural linkages even as diplomacy recovers.
Realism over rhetoric
For both governments, the current thaw is driven by strategic necessity, not sentiment. Canada remains a key supplier of energy and critical minerals vital to India’s green-manufacturing ambitions. India, in turn, offers a large and fast-growing market for Canadian exporters seeking diversification beyond the US and China.
As Western economies realign supply chains, both countries have reason to re-engage on pragmatic grounds. “We are not seeking to return to old rhetoric but to build forward-looking cooperation,” said a senior Indian official briefed on the talks.
The road to reset
A full rapprochement remains distant, but both sides recognise that prolonged estrangement carries economic costs. Early diplomatic outreach and renewed emphasis on trade and investment suggest an effort to separate politics from commerce—at least in part.
Whether that balance endures will depend on how quickly trust is rebuilt. For now, the shift from isolation to engagement marks a cautious but significant turning point—an acknowledgment that in a volatile global order, India and Canada can ill afford to remain apart.
