Canada’s trade minister, Maninder Sidhu, is in India this month with nearly 300 business delegates--the largest Canadian trade delegation to India in more than three decades. The visit follows the fifth round of negotiations on the Comprehensive Economic Partnership Agreement (CEPA), held in Ottawa from October 5 to 9. Both governments want to conclude the agreement by year-end, and Prime Minister (PM) Mark Carney has said PM Narendra Modi is expected to visit Canada in December. For Indian manufacturing, the key question is straightforward: will the agreement make production more competitive and help firms sell more in Canada?
Canada wants to diversify trade away from its heavy dependence on the United States, while India is looking for more reliable export markets and competitively priced industrial inputs. But how significant the agreement is for the country’s manufacturing depends on which goods receive additional market access, whether it leads to a substantial reduction in input costs, and whether it simplifies technical regulations and standards. All in all, the standard tariff-cut argument cannot capture how much this CEPA holds for India’s manufacturing sector.
Bilateral merchandise trade between India and Canada, not manufacturing alone, was $ 7.95 Bn in 2025-26, 8.2% below the previous fiscal year. India’s imports decreased to $ 3.28 Bn from $ 4.44 Bn in 2024-25, but its exports to Canada increased to $ 4.67 Bn, implying a trade surplus of $ 1.39 Bn for India.
Compared with the size of both economies, however, the longer view shows that the relationship is still modest. While Canada’s share of Indian exports has decreased from 1.5% to 1.0%, India now makes up about 1.2% of Canada’s imports, up from 0.35% in 2000. Approximately 0.5% of Canada’s overall exports go to India, and these shares vary greatly from year to year.
{{/usCountry}}Compared with the size of both economies, however, the longer view shows that the relationship is still modest. While Canada’s share of Indian exports has decreased from 1.5% to 1.0%, India now makes up about 1.2% of Canada’s imports, up from 0.35% in 2000. Approximately 0.5% of Canada’s overall exports go to India, and these shares vary greatly from year to year.
{{/usCountry}}The two economies also bring different strengths to the negotiating table. India exports a range of manufactured goods, while Canada supplies resources and industrial inputs (see Figure 1). Their export baskets overlap relatively little, with much of the overlap in gems, machinery and electrical goods. India’s imports from Canada have also shifted: edible vegetables, mostly pulses, accounted for 36.1% in 2015 but only 11.1% in 2025, while mineral fuels rose from 4.5% to 36.1%.
Intermediate goods account for about 75% of India’s imports from Canada and 58% of its exports to Canada, a pattern known as supply-chain trade (OECD Trade in Value Added (TiVA) data). Businesses exchange inputs and components used in production, rather than just finished products. Because more than half of what India sells to Canada is used in Canadian manufacturing, the agreement’s rules of origin are particularly important. This is where the CEPA’s strongest argument for Indian manufacturing lies.
On the export side, data suggests that domestic value added in India’s manufactured exports to Canada fell from 86% in 2000-02 to 70% in 2020-22. Put simply, imported inputs now account for a substantial share of the value of these exports. These inputs come from many countries, not only Canada, but Canada is a significant supplier of some of them, from fuels and fertilisers to wood pulp and metals. Their price and availability, therefore, directly affect the cost, quality and competitiveness of goods made in India.
In fact, India’s own tariff structure reinforces the case for focusing on inputs. Its average trade-weighted applied tariff on Canadian goods (UNCTAD TRAINS data, accessed through WITS) has fallen from 17.6% to 4.8%, but the rates vary considerably by product. India charges 0.5% on mineral fuels and iron and steel, 2.5% on ores and 4.4% on wood pulp. The rates are higher on paper (10%), electronics (8.4%), plastics (8.2%), optical and medical instruments (8.0%) and machinery (7.6%). This pattern indicates a policy choice: certain finished goods may be given more protection while inputs may face lower duties (an approach known as tariff escalation). However, these taxes on parts, components, or materials can directly raise production costs for manufacturers.
When applicable to local manufacturing, India could provide earlier or more substantial tariff reductions on inputs that its manufacturers use, such as fertilisers, wood pulp, and ores. Finished goods are a different story. After 2018, tariffs on electronics, machinery, plastics, and paper increased once more under production-linked incentive programs and Make in India (MII) initiatives. As a result, it makes sense for New Delhi to look for long phase-out periods or exclusions for specific products where domestic manufacturing capability is still being developed.
Even though pulses lie outside manufacturing, the swings in their duties, from temporary waivers to the return of tariffs, show how frequent policy reversals make it difficult for suppliers and buyers to plan. Where agricultural inputs are relevant to food processing, a predictable arrangement such as a tariff-rate quota, allowing a fixed volume to enter at a lower duty, would be more useful than repeated short-term changes.
The composition of India’s exports to Canada is changing. Pharmaceuticals surged from 6.8% to 12.1% of India’s exports to Canada over the last ten years, while electrical machinery expanded from 2.4% to 5.0%. Currently, vehicles make up 3.1%. Clothing and made-up textiles, on the other hand, decreased from 17.1% to 8.6%. These changes imply that Indian businesses are not dependent on a single export category and that the agreement must consider different barriers that various industries face.
For sectors already entering Canada at near-zero tariffs, further tariff cuts may deliver little. Regulations pertaining to product approvals, electrical certification, testing requirements, and vehicle norms may present more significant challenges. A CEPA should, therefore, include practical cooperation to streamline procedures and, where appropriate, recognise equivalent standards. Otherwise, nominally open markets may remain difficult for smaller Indian manufacturers to enter.
Canada’s average tariff on Indian goods fell from 7.7% in 2000 to 3.1% in 2023. But the average hides the barriers particular manufacturing industries face. As India’s exports have shifted towards products that already enter duty-free, the trade-weighted average gives less weight to products that face high tariffs, partly because those tariffs suppress trade in the first place.
Textiles and apparel are a clear example. Apparel and made-up textiles still face Canadian tariffs of 15.75% to 16.8%, around five times the average and barely changed since 2010. These products support manufacturing clusters and small and medium-sized enterprises in places such as Tiruppur, Ludhiana and Panipat. Bangladesh enters Canada duty-free as a least-developed country, while Vietnam benefits from preferential access through the CPTPP. That disparity is difficult to close in a price-sensitive market, as evidenced by the fact that over the last ten years, the share of this category has almost halved in India’s exports to Canada.
Removing this disadvantage should be a central objective for India. Duty-free access could improve price competitiveness, support orders and help labour-intensive manufacturing clusters expand exports. Even on gems and jewellery, Canada has increased tariffs from 0.8% to 3.2%, possibly reflecting a shift towards finished pieces – this too deserves some attention.
A workable agreement for manufacturing would combine lower prices for some industrial inputs along with improved access for India’s exports. For textiles, this entails duty-free access for HS 61, 62 and 63, subject to ROOs that Indian manufacturers can meet, as a tariff reduction is meaningless if exporters cannot qualify for it. In return, Canada could gain lower duties on inputs that Indian industry needs, such as pulp and ores. Above all, regulatory cooperation should also be part of the core agreement rather than left for later.
The sequencing of concessions matters. Immediate tariff reductions on finished goods may encounter domestic pushback, specifically in sectors India is still building under the MII initiative. Thus, negotiators should lock in the core priorities first: Duty-free access for Indian textiles in exchange for reduced levies on the industrial inputs Canada supplies. Without a credible textile outcome, the agreement would offer marginal gains to one of India’s most labour-intensive industries.
(The views expressed are personal)
This article is authored by Sugandha C Huria, assistant professor, Great Lakes Institute of Management, Gurugram and Aishwarya Harichandan, assistant professor, Indian Institute of Management Sirmaur, Himachal Pradesh.