India, Canada reopen dialogue to strengthen economic partnership

India and Canada have agreed to resume free trade agreement (FTA) negotiations and restore diplomatic ties, starting with the return of High Commissioners. The talks, paused since September 2023, aim to advance the Early Progress Trade Agreement (EPTA) and eventually conclude a Comprehensive Economic Partnership Agreement (CEPA). Both nations emphasized collaboration in areas like clean energy, digital transformation, and food security.

Despite diplomatic strains, economic ties between India and Canada held steady, with bilateral merchandise trade rising marginally from US$8.3 billion in FY2023 to US$8.4 billion in FY2024. Moreover, Canadian investments have remained resilient despite diplomatic challenges, with portfolio investments in India estimated to surpass US$75 billion.

India and Canada have agreed to resume negotiations on a free trade agreement (FTA), signaling a renewed effort to rebuild ties after diplomatic relations soured in late 2023. The agreement was reached during a meeting between Prime Minister Narendra Modi and Canada’s new Prime Minister Mark Carney on the sidelines of the G-7 Summit in Kananaskis, Canada.

The two leaders explored opportunities to strengthen cooperation in key sectors such as clean energy, critical minerals, liquefied natural gas (LNG), artificial intelligence, higher education, food security, mobility, and digital transformation. They also reaffirmed their commitment to a free and open Indo-Pacific and recognized the advancements made at the G7 Summit on global challenges, including climate action and sustainable economic development.

As a first step towards normalisation, both leaders agreed to restore high-level diplomatic representation by reinstating their respective High Commissioners.

The renewed dialogue includes plans to restart stalled talks on the Early Progress Trade Agreement (EPTA), an interim pact aimed at boosting trade until a full-fledged Comprehensive Economic Partnership Agreement (CEPA) can be concluded. CEPA negotiations began in 2010 but failed to progress significantly. They were revived in March 2022, alongside parallel discussions on EPTA. Nine rounds of EPTA talks had taken place, the last one in July 2023 before talks were paused.

The trade negotiations had been suspended in September 2023, just ahead of the G-20 Summit in New Delhi, following serious diplomatic tensions. Relations deteriorated sharply after then-Prime Minister Justin Trudeau accused India of interfering in Canadian internal matters. This led to the expulsion of each other’s envoys by October 2024.

However, a change in political leadership in Canada and disruptions in global trade—especially due to the policies of U.S. President Donald Trump—have pushed both countries to reconsider their trade strategies. Canada, which relies heavily on the U.S. for exports, is now seeking to diversify its trading partners, with India being a key focus.

Despite political tensions, economic relations between India and Canada remained stable. Bilateral merchandise trade slightly increased from US$8.3 billion in FY2023 to US$8.4 billion in FY2024. During this period, India’s imports from Canada rose to US$4.6 billion, while exports dipped slightly to US$3.8 billion. In FY2024-25, India’s exports to Canada rose by 9.8% to US$4.2 billion, while imports fell by 2.3% to US$4.4 billion. In addition to goods, the two countries share a strong services trade relationship.

In the trade negotiations, India is seeking better access for its traditional products and more relaxed visa policies for Indian professionals. Canada, on the other hand, is pushing for greater market access in sectors such as agriculture and automobiles. The two sides are also exploring a Foreign Investment Promotion Agreement to encourage cross-border investments.

Canadian investment in India remains strong, particularly through pension funds that have invested heavily in infrastructure and energy. These investments have continued despite diplomatic challenges, with Canadian portfolio investments in India estimated to exceed US$75 billion. Over 600 Canadian companies operate in India, and more than 1,000 are active in various capacities across the Indian market.

The resumption of free trade agreement (FTA) negotiations and efforts to normalise ties between the two nations, present a strategic opportunity for New Delhi to diversify its supply of critical minerals including lithium, nickel, cobalt, graphite, and rare earth elements. With China imposing curbs on key mineral exports such as rare earth magnets, India faces mounting pressure to identify alternative, dependable sources to fuel its rapidly expanding EV, solar energy, and electronics sectors.

Canada, which exported over US$50 billion worth of critical minerals in 2023—primarily to the U.S.—is emerging as a promising partner. It holds reserves of more than 31 critical minerals and is known for its environmentally and socially responsible mining practices.

India currently depends heavily on China for essential minerals, with 71% of lithium and 42% of rare earth imports coming from there. In contrast, Canada accounts for just 0.13% of lithium and 0.02% of rare earth imports to India, according to the Asia-Pacific Foundation of Canada.

A comprehensive India-Canada FTA could provide India with preferential access to Canadian critical minerals, foster joint ventures in extraction and processing, and facilitate technology transfers. As Canada looks to reduce its reliance on the U.S. and find new markets amid new U.S. tariffs, and India seeks to broaden its supplier base through partnerships with countries like Australia, Argentina, Brazil, and Chile, their collaboration gains new strategic relevance.

Conclusion

The renewed engagement between India and Canada marks a significant step toward rebuilding diplomatic trust and enhancing economic cooperation. With trade talks back on track and shared interests in areas like clean energy, and technology, both nations stand to benefit strategically. As global trade dynamics shift, this partnership offers India a valuable opportunity to diversify supply chains while strengthening long-term ties with a trusted and resource-rich partner.