Despite growing diplomatic tensions between India and Canada, Canadian pension funds have so far remained committed to investing in India.
Primary sectors that attract Canadian pension funds include infrastructure, renewable energy, technology and financial services.
According to the National Investment Promotion and Facilitation Agency (Invest India), Canada is ranked as the 18th largest foreign investor in India with a total investment of $3.31 billion from 2020-21 to 2022-23. Canadian investments represent 0.5 percent of India's total foreign direct investment (FDI), with services and infrastructure accounting for 41 percent of these flows.
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From 2003 to 2023, Canadian pension funds represented almost 30% of Canadian investment flows to the Asia-Pacific region, with investment in India having increased significantly in recent years. While investment flows peaked at CAD 22 billion in 2021, they declined to CAD 8 billion in 2022 and CAD 2.6 billion in 2023, according to the 2024 Investment Monitor Report.
Canadian Pension Fund Investment Flows in the Asia-Pacific Region by Top Destination Countries, 2013-2023
Change investment focus
Historically, Australia has been the largest beneficiary of Canadian pension fund investments, receiving 50% of the total. China, which was once in second place, saw its share fall from 19% to just 3% in the last five years, which led Canadian funds to diversify their portfolios. In contrast, India's share in Canadian pension fund investments increased from 10% (2003-2018) to 25% (2019-2023), reveals the report titled “Canadian Pension Fund Investments in Asia-Pacific”.
From 2013 to 2023, almost 57% of Canadian investment in India was concentrated in real estate, financial services and industrial transportation. The infrastructure and renewable energy sectors have attracted attention, supported by supportive government policies.
Substantial investment
Examples of notable investments include the Ontario Municipal Employees Retirement System's CAD 186 million stake in the IndInfravit Trust's toll road portfolio and the Canada Pension Plan Investment Board's CAD 283 million investment in the National Highways Infra Trust. Additional investments by the Ontario Teachers' Pension Plan Board, totaling CAD 683 million, include partnerships in important infrastructure projects.
Resilience under political pressure
Canadian pension funds' investment in India increased from CAD 28 million in the third quarter of 2023 to CAD 111 million in the fourth quarter of 2023, despite the deterioration of bilateral relations following Prime Minister Justin Trudeau's accusations of associating India to the murder of a Canadian citizen. The Ontario Teachers' Pension Plan Board's investment in ExpressBis, according to the Asia Pacific Foundation of Canada, an independent, non-profit organization focused on Canada's relationship with Asia
Influence of diplomatic affairs
Cold relations have stalled negotiations for a preliminary free trade agreement between Canada and India, which was due to expire in September 2023. Additionally, business travel between the two countries was affected when India suspended visa services for Canadians, making it difficult for companies looking to expand their networks. Although these visa restrictions were lifted a month later, the incident highlighted how political tensions undermined investor confidence in the country. market.
Optimism for future trade
Despite current challenges, experts are optimistic about the future of Canada-India trade and investment. Canadian pension funds typically adopt a long-term investment strategy, which can cushion the immediate effects of diplomatic friction. As both countries navigate their complex relationship, the potential for cooperation remains, particularly in sectors critical to economic growth and development.
“With Canada-India political tensions showing no signs of improving in the immediate future, Canadian investors need to monitor both the opportunities and risks of investing in an economy expected to become the world's third largest by 2027. We still expect funds Canadian pension plans to just Not just in India, but will expand its presence
But in other parts of Asia-Pacific in the future. If they do so, this increased presence will align with Canada's Indo-Pacific strategy and calls for greater investment and trade with the region,” noted the report from the Asia-Pacific Foundation of Canada.
Political context
The recent diplomatic dispute between India and Canada stems from the Indian government's alleged involvement in the murder of a Canadian citizen in Canada.
In September 2023, Canadian Prime Minister Justin Trudeau announced that there were “credible allegations of a possible link between agents of the government of India” and the murder of a Canadian citizen on Canadian soil. This caused a significant deterioration in bilateral relations.
In May 2024, the RCMP arrested four Indian nationals on charges of first-degree murder and conspiracy to commit murder. These arrests increased tension between the two countries.
Here's a breakdown:
Serious allegation: Trudeau's allegations suggested that India may have been involved in the extrajudicial killing of Nijr on Canadian soil. This was an important charge as it implied state-sponsored action against a foreigner in Canada.
India's Response: India has vehemently denied the allegations, labeling them “absurd” and claiming that Canada welcomes people who promote separatism and terrorism. Following Trudeau's comments, India accused Canada of failing to address these security concerns.
Diplomatic action: Both countries expelled diplomats from each other's embassies following the allegations. Canada called for a thorough investigation, while India insisted on its right to defend its national security.
Diplomatic conflicts have several outcomes:
Suspension of visa services: The government of India has suspended visa services for Canadians, affecting business travel and people-to-people exchanges.
Trade negotiations stalled: Negotiations on the Canada-India Early Progress Free Trade Agreement (EPTA) have been suspended due to tense bilateral relations.
