MUMBAI — After pumping billions of dollars into India in recent years, some of Canada’s biggest public pension funds are asking Ottawa to push New Delhi for a deal that will protect their investments on the subcontinent.

Bilateral-investment treaties are meant to encourage business between countries by preventing countries from favouring their own businesses and investors over those from their partners, and letting firms seek international arbitration for disputes over government policies or actions that break the rules.

Ottawa and New Delhi originally launched negotiations on a Foreign Investment Promotion and Protection Agreement (FIPA) in September 2004, with the most recent round in November 2017. This March, International Trade Minister Mary Ng and Indian Commerce Minister Piyush Goyal agreed to “promote and protect bilateral investment,” including by ramping up talks on a treaty. They also relaunched negotiations on a trade deal. 

Despite the lack of a deal, Canadian annual direct investment in India grew from $684 million in 2014 to nearly $2.9 billion in 2021, according to data from Statistics Canada. Over that same period, the value of Canadian portfolio investment in India increased from $7.25 billion to $33.97 billion; those assets include stocks and bonds in companies that investors don’t control.    

The Caisse de dépôt et placement du Québec (CDPQ)—which invests funds for provincial public retirement and insurance plans and is Canada’s second-biggest pension manager with $420 billion in net assets—has built a portfolio worth over $7 billion in India, including infrastructure and stakes in technology companies and funds. “I want to see that deal done; there’s no question about it,” said Saurabh Agarwal, managing director of CDPQ India, in an interview with The Logic. 

He also called for the Indian prime minister’s office to establish an investment unit focused on large foreign investors. “If [we] can get a clear forum where we can take our issues [that] is able to make decisions and make calls to sort them out, we can make faster investments,” said Agarwal, noting that it could also attract more capital to the country.

Former federal officials say Canadian institutional investors have asked Ottawa to move forward with a treaty. “There’s a limit [to] what they’re willing to invest in another country like India, if [it] is not willing to sign a foreign-investment protection agreement,” said Julian Ovens, who was chief of staff to two Liberal trade ministers between January 2017 and December 2019. Completing the FIPA would be a “a way for India to show they’re really serious” about bilateral trade with Canada. 

CDPQ is one of several major pension funds backing the deal. OMERS, which manages the retirement savings for Ontario municipal workers and has $121 billion in net assets, is “supportive of the dialogue between the governments of Canada and India regarding trade and investment agreements to enhance the economic relationship between our countries,” said spokesperson Neil Hrab, noting that increasing its investments on the subcontinent is part its diversification strategy. In February 2019, it paid ₹8.7 billion ($160 million) for a 22.4 per cent stake in IndInfravit Trust, which operates toll roads in India. OMERS also owns 21.4 per cent of Azure Power, a New Delhi-based solar generator in which CDPQ has a majority stake.  

The Ontario Teachers’ Pension Plan (OTPP), British Columbia Investment Management Corporation and Alberta Investment Management Corporation, which together represent nearly $610 billion in assets under management, each told The Logic they support agreements that facilitate trade and investment, including between India and Canada.

Brookfield Asset Management, which reportedly has over US$20 billion in Indian assets, did not respond to requests for comment. The Canada Pension Plan Investment Board (CPP Investments), which has a $19-billion portfolio on the subcontinent, declined to comment, as did PSP Investments.

“Negotiators have been consulting with Canadian institutional investors throughout negotiations with India,” said Chris Zhou, a spokesperson for Ng.

Indian officials have welcomed Canadian investment. “Canadian pension funds were the first ones to start investing directly in India,” Prime Minister Narenda Modi said in a speech to a bilateral-investment conference in New Delhi in October 2020, citing sectors like highways, logistics, telecom and real estate. “They are looking at expanding their presence and finding new areas to invest.” But his government’s positions on investment protections could limit the treaty’s benefits to such investors. 

In addition to the infrastructure projects and majority shares in businesses they own in India, some Canadian pension funds have also bought public-market equities and minority stakes in tech unicorns, issued private credit, and invested as limited partners in venture funds. As The Logic first reported last week, “coverage of portfolio investment” was one of four oustanding FIPA issues on which Indian officials told their Canadian counterparts on a June 2021 call they had “little flexibility.” Canada’s FIPA framework, published in May 2021, protects these investments; India’s model bilateral-investment treaty, adopted in December 2015, explicitly excludes them. 

The issue of portfolio investment is sensitive because of the difficulty of establishing a “bright line” on what should count as such assets under investor-protection rules, said Matthew Kronby, a Toronto-based partner at the law firm Borden Ladner Gervais. In negotiations with New Delhi, Ottawa will likely be trying to establish that line “with the protection of investors like the big Canadian pension funds in mind.”

India and Canada have completed three rounds of trade negotiations to date. The two countries have not yet addressed coverage of portfolio investment or the other outstanding FIPA issues, according to a senior Canadian government official who spoke with The Logic on condition of anonymity because they were not authorized to disclose details of the talks. Ottawa is also waiting to see what investment protections India agrees to in ongoing negotiations with the U.K.

“What we’ve been seeing is a much improved understanding and posture [from] India,” said the official, noting that there is now “a recognition on the Indian side” that investment protection is “a huge interest” for Canada and that it will “need something” in order to proceed with a deal. Ottawa and New Delhi have not yet determined whether those provisions will be included in the overall trade deal they’re negotiating, or a separate agreement.

The government believes investment-protection rules would give large Canadian pension funds “a higher level of comfort” and may prompt them to invest incrementally more on the subcontinent, but they are already very active there, the official said. Ottawa hopes a deal will spur “s​​maller organizations and institutions” to enter the Indian market and participate in supply chains.