Prime Minister Mark Carney and Prime Minister Narendra Modi at the G20 in Johannesburg on November 23, 2025/Narendri Modi X

By Sanjay Ruparelia

November 27, 2025

The joint declaration that India and Canada issued from the sidelines of the South Africa G20 this week announcing that the two countries are seeking a Comprehensive Economic Partnership Agreement (CEPA) is a significant development.

Prime Minister Mark Carney cultivated this possibility when he invited Prime Minister Narendra Modi to the Kananaskis G7 in June. Whether their governments can strike a deal, given the protracted negotiations over the last 15 years, is not an idle question. Nonetheless, the ambition is notable given the diplomatic crisis that had upended bilateral relations over the last two years.

The announcement in Johannesburg follows the reappointment of high commissioners in Ottawa and New Delhi, and multiple visits between cabinet ministers and senior officials in charge of foreign affairs, international trade, and national security. The completion of police investigations and judicial inquiries into alleged foreign interference and transnational repression may still upset the process of rapprochement.

Yet, many factors are driving both sides to address serious issues, grasp economic opportunities and lessen their respective vulnerability to the United States. Perhaps most striking, the pace and direction of steps taken by the Carney government suggests that it seeks to enhance Canada’s strategic autonomy through a more multi-aligned foreign policy, a principle long practiced by India.

Key factors driving recent developments

The most obvious factor that enjoins both countries to repair bilateral relations is Donald Trump. His imposition of arbitrary tariffs, accompanied by threats to make Canada the “51st state”, created the shockwave that enabled Carney’s rise. Yet Trump levied even higher tariffs on India–25% on its goods and then another 25% ostensibly to punish its purchase of discounted Russian oil–by late August. (Modi’s unwillingness to credit Trump for brokering a ceasefire between India and Pakistan after their clash in April was the more likely trigger.)

The estimated impact on India, which the US president labeled a “dead economy”, is almost 1% of GDP in the coming year. The tariffs hit labor-intensive sectors, which employ an estimated 21 million workers, particularly hard. The reversal in U.S.-India relations stunned veteran observers given the public bonhomie between Modi and Trump over the last decade and bipartisan consensus on India’s strategic importance since the Clinton administration.

Second, since running for the Liberal Party leadership, Carney has stressed that he is a “pragmatist who knows how to get things done”. The imperative to diversify Canada’s trade partnerships, investment opportunities and supply chains inevitably compels his government to look west as the center of gravity in the global economy continues to shift to Asia. India’s status as the most populous country, largest democracy, and fifth-largest economy in the world, with one of its fastest growth rates, makes it impossible to ignore. Total bilateral trade, which reached USD$22.5 billion in 2024, is quite modest. Yet precisely for this reason, the potential to double that amount by 2030 is relatively high.

Finally, Carney leads a newly elected minority government, while Modi heads a multiparty governing coalition after holding office for over a decade. Both are relatively secure in their jobs but they face intense popular expectations to counter the Trump shock. Hence, measures introduced by Ottawa to reduce interprovincial trade barriers, simplify approvals for big national projects and reduce corporate taxes, and efforts by New Delhi to fast-track trade deals, ease for­eign invest­ment rules and mend rela­tions with China, despite persistent concerns over their contested border. India’s recent trade deals with Australia and Britain, and expectations of another with the EU by the end of 2025, reveal greater openness than in the past.

Concerns over national security, human rights and the rule of law

Critics accuse the Carney government of compromising democratic values in the pursuit of material interests on various fronts, notably in its overtures to both India and China. Yet the rapid deterioration of India-Canada relations draws particular scrutiny. The Hogue Commission stated that India’s proxy agents had influenced party nomination processes, harassed minorities and employed violence to silence dissent. Multiple police investigations into the murder of the Khalistan activist Hardeep Singh Nijjar, and a wider campaign of intimidation, extortion and violence across several provinces, are still ongoing.

Against this backdrop, Anita Anand and her counterpart, S. Jaishankar, issued a joint statement in October that reiterated their commitment to “shared democratic values, the rule of law, and a commitment to upholding the principles of sovereignty and territorial integrity”. Criticized by supporters of the Khalistan movement, who staged another protest referendum on independence in Ottawa last weekend, Carney declared Canada would stay “vigilant” against foreign interference. The change of tack pursued by Carney essentially concedes that Trudeau’s strategy to suspend diplomatic relations until the Modi government cooperated had finally reached an impasse.

It is hard to predict how each government will respond to difficulties that may arise as the tangle of political, economic and criminal narratives that define the bilateral relationship plays out, including in court proceedings. The CSIS 2025 annual report stated that Indian foreign interference remained a threat due to its “real and perceived” concerns about Khalistani extremism. However, days after the 40th anniversary of the 1985 Air India bombing, the agency noted that a “small number” of militant Khalistan groups constituted a national security risk, which India had claimed for a long time.

In September, following mounting calls from opposition politicians, the Public Safety Minister designated the Lawrence Bishnoi gang a terrorist organization. The move gave police additional powers to seize property and prosecute offences by the transnational crime syndicate. Nonetheless, a recent survey of public opinion revealed that Canadians believe restoring ties with India was “the right move” by a two-to-one margin, even if distrust remains high.

Resuming high-level dialogue between Ottawa and New Delhi will not erase contentious issues. But it is arguably the precondition for their respective authorities to find mutually agreeable solutions.

Enduring and new challenges

The potential to deepen economic ties is clear. Ottawa and New Delhi have expressed a clear desire to expand trade, investment and collaboration in various realms: artificial intelligence and digital innovation, agricultural products, clean technology and renewable energy, critical minerals, liquified natural gas and civil nuclear cooperation. India is the second-most important market for investment by Canada’s pension funds.

That said, there is a clear asymmetry in the trade relationship in terms of where each country ranks among their other partners. Agricultural liberalization remains a sensitive issue for any Indian leader given the number of laborers it employs and sectoral size relative to GDP. The dynamics of higher education reveal cross-cutting pressures too. The Carney government seeks to recruit high-profile researchers as well as skilled professionals chastened by the steep increase in H1B fees in the US. Yet lower Canadian caps on international students have dramatically reduced applications from India, leading to many program cuts.

Finally, the ruptures created by the Trump administration force other countries to diversify their partnerships. Yet the US remains the most important partner for India and Canada. Signs of rapprochement have manifested. In recent weeks, Trump stated that Modi was doing “a tre­mend­ous job”, while the latter declared he was “fully com­mit­ted to tak­ing the India-US Com­pre­hens­ive and Global Part­ner­ship to new heights”. New Delhi agreed to “a process” of reducing oil purchases from Russia and buying more from the US “at the right price”, and to a tenfold increase of liquified petroleum gas, equivalent to roughly 10 percent of its total imports.

While Carney seems in no hurry to secure an ad-hoc trade deal with Trump and has instead pivoted to protecting targeted sectors from tariffs, national economic diversification is a long-term endeavor. Both countries need to court China for trade and investment while avoiding subordination. And New Delhi and Ottawa, despite their shared commitment to multilateralism, have historically viewed the distribution of power, wealth and status in the post-1945 international order differently.

Divergences over Russia, reforming multilateral bodies and combating climate change, among other challenges, are likely to persist. Pursuing strategic autonomy through greater multi-alignment will test the skills, capacities and judgments of both governments.

Sanjay Ruparelia is Professor of Politics and Jarislowsky Democracy Chair, Toronto Metropolitan University and Senior Fellow, Asia Pacific Foundation of Canada.