Why India–Canada Trade Needs CEPA Back on the Agenda

In September 2023, when India and Canada suspended negotiations on a Comprehensive Economic Partnership Agreement (CEPA), the decision was widely seen as a political signal rather than an economic assessment. Yet trade relationship continued expand. Bilateral merchandise trade increased from $5.6 billion in 2020-21 to $8.7 billion in 2024-25, despite the absence of a formal trade framework.

As negotiations restart, the question is no longer whether CEPA should be revived, but why it further would be costly. With India’s trade balance shifting from surplus to a moderate deficit, driven by imports of food, energy, and industrial inputs rather than consumer goods, the absence of an institutional framework is increasingly difficult to justify. The case for CEPA lies not in diplomacy but in trade data.

According to data from the Ministry of Commerce and Industry, India-Canada merchandise trade has grown consistently over the past five years despite geopolitical friction and global disruptions. However, the absolute scale remains small relative to the size of the two G20 economies.

Two structural characteristics stand out. First, total bilateral trade has expanded by more than 50% since 2020-21, demonstrating persistent complementarities even without a formal agreement. Second, India’s trade position has shifted from a surplus to a moderate deficit. This shift is not due to rising imports of consumer goods imports but to increased inflows of basic commodities.

This distinction matters for policy. Deficits arising from food imports, fertilisers, fuels, minerals, and industrial raw materials reflect structural demand. These should not be seen as vulnerabilities; they are precisely the type of dependencies best managed through stable, rule-based frameworks rather than ad hoc responses.

Export and import trends show movement largely in tandem, with imports rising more quickly after 2022–23. India’s export basket to Canada reflects strengths in large-scale manufacturing, skill-intensive goods, and value-added products. Pharmaceuticals, machinery, metals, chemicals, and textiles lead the list.

Nearly 60% of India’s exports to Canada are concentrated in 10 commodity groups. These industries align with India’s comparative advantage in manufacturing scale, skilled labour, and process efficiency. Their importance has increased under tighter export controls, localisation requirements, and scrutiny of global supply chains. Pharmaceuticals and organic chemicals relate to health security considerations; engineering products and electrical equipment indicate India’s role in global manufacturing; and textiles and plastics face rules-of-origin compliance pressures and tariff increases in North American markets.

CEPA is therefore less about creating new export categories and more about securing and scaling existing ones. Aligning regulation and standards and reducing transaction friction would enable Indian companies to become more embedded rather than merely transactional exporters in Canadian and North American value chains. 

In contrast, India’s imports from Canada are concentrated in resource-intensive and strategically essential commodities.

Food inputs, fuels, fertilisers, minerals, pulp and other industrial materials make up for about 90% of imports. These are not easily substitutable in the short term, nor are they cyclical. With food exports subject to sudden restrictions, fertiliser markets volatile, and energy security increasingly geopolitical, Canada functions as an important stabilising supplier. CEPA therefore concerns not trade liberalisation as such, but the creation of a regulatory framework that minimises uncertainty for both firms and governments.

Why CEPA Matters More Now 

Three economic considerations make concluding CEPA particularly compelling today.

First, scaling trade without institutional depth is becoming more difficult. India-Canada trade accounts for less than 1% of India’s total trade, not because of weak commercial fundamentals, but due to the absence of institutional mechanisms that enable expansion. Rules of origin, tariff rationalisation, and dispute-resolution systems are essential for medium-term investment and sourcing. 

Second, deficits driven by essential inputs must be managed, not avoided. The objective in structural imports such as pulses, fertilisers, fuels, and minerals is stabilisation rather than compression. CEPA would allow phased liberalisation, safeguards, and transparency, avoiding episodic restrictions or politically negotiated exceptions. 

Third, services and investment remain disconnected from goods trade. Currently, dominated by education and travel, services trade could expand into IT, professional, and digital services, alongside Canadian investment in infrastructure, clean-energy and financial services. Integrating services with goods trade is key to building long-term economic integration.

Resuming CEPA talks must be seen not as a diplomatic overture, but as an economic recalibration. Any further delay risks leaving the relationship at a fragile, commodity-dependent equilibrium while global supply chains fragment.

According to data from the Ministry of Commerce and Industry, the India-Canada trade relationship is growing, complementary and economically logical, yet institutionally incomplete. CEPA is the missing institutional architecture. Without it, trade will continue to rise, but sporadically and below its potential. With it, both countries can convert trade volumes into strategic depth in food security, energy transition, health supply chains, and manufacturing.