Despite rising diplomatic tensions between India and Canada, Canadian pension funds have so far remained committed to investing in India.
The main sectors attracting Canadian pension funds include infrastructure, renewable energy, technology and financial services.
According to the National Investment Promotion and Facilitation Agency (Invest India), Canada is the 18th largest foreign investor in India with total investments of $3.31 billion during 2020-21 to 2022-23. Canadian investment accounts for 0.5 per cent of India's total foreign direct investment (FDI), with services and infrastructure accounting for 41 per cent of these flows.
Click here to connect with us on WhatsApp
Between 2003 and 2023, Canadian pension funds accounted for almost 30% of Canadian investment flows to the Asia-Pacific region, with investment in India increasing significantly in recent years. Investment flows peaked at C$22 billion in 2021, but declined to C$8 billion in 2022 and C$2.6 billion in 2023, according to the Investment Monitor Report 2024.
Canada Pension Fund investment flows in the Asia-Pacific region by most frequently targeted countries, 2013–2023
Change the direction of your investment
Historically, Australia has been the largest recipient of Canadian pension fund investments, receiving 50% of the total. Once in second place, China has seen its market share decline from 19% to just 3% over the past five years, prompting Canadian funds to diversify their portfolios. Meanwhile, India's share in Canadian pension fund investments increased from 10% (2003-2018) to 25% (2019-2023), according to a report titled 'Canadian Pension Fund Investments in the Asia-Pacific Region'.
Between 2013 and 2023, almost 57% of Canadian investment in India was focused on real estate, financial services and industrial transportation. The infrastructure and renewable energy sectors gained attention, supported by supportive government policies.
A significant investment
Examples of significant investments include the Ontario Municipal Employees Retirement System's C$186 million investment in the IndInfravit Trust's toll road portfolio and the Canada Pension Plan Investment Board's C$283 million investment in the National Highways Infra Trust. Additional investments by the Ontario Teachers' Pension Plan Board, totaling C$683 million, include partnerships on key infrastructure projects.
Resistance to political pressure
Canadian pension fund investments in India increased from C$28 million in Q3 2023 to C$111 million in Q4 2023 despite deterioration in bilateral relations following Prime Minister Justin Trudeau's accusations of linking India to the murder of a Canadian citizen. According to the Asia Pacific Foundation of Canada, an independent non-profit organization focusing on Canada's relations with Asia, the Ontario Teachers' Pension Plan Board's investment in ExpressBis
The influence of diplomatic affairs
The cooling of relations has stalled negotiations on the initial landmark free trade agreement between Canada and India, which was set to expire in September 2023. In addition, business travel between the two countries was hit when India suspended visa services for Canadians, hampering businesses looking to expand their networks . Although visa restrictions were lifted a month later, the incident highlighted how political tensions have weakened investor confidence in India and the market may be impacted
Optimism about future trade
Despite current challenges, experts are optimistic about the future of trade and investment between Canada and India. Canadian pension funds typically adopt a long-term investment strategy that can hedge against the immediate effects of diplomatic friction. As the two countries navigate their complex relationship, potential for cooperation remains, especially in sectors key to economic growth and development.
“With political tensions between Canada and India showing no signs of improving in the near future, Canadian investors must monitor both the opportunities and risks associated with investing in an economy that is projected to become the world's third largest by 2027. We continue to expect that Canadian pension funds will only expand their presence in India
But in the future elsewhere in the Asia-Pacific region. If this occurs, this increased presence will be consistent with Canada's Indo-Pacific strategy and will require increased investment and trade with the region,” the Asia-Pacific Foundation of Canada said in a report.
Political context
The recent diplomatic spat 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 resulted in a significant deterioration of 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 tensions between the two countries.
Here's the breakdown:
Serious allegations: Trudeau's claims suggest India may have been involved in the extrajudicial killing of Nijra on Canadian soil. This was a serious allegation because it suggested state-sponsored action against a foreign national in Canada.
India's response: India strongly denies the allegations, calling them “absurd” and saying Canada harbors 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 their 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 effects:
Suspension of Visa Services: The Government of India has suspended visa services for Canadians, affecting business travel and people-to-people exchanges.
Trade talks stalled: Talks between Canada and India on an Early Progress Free Trade Agreement (EPTA) have been suspended amid tense bilateral relations.
