Yes, PIO is the option for the canadian baby, when the parents are P.R. holders. You can download, complete and remit the fees via mail to the Indian consulate and the PIO card (like a passport, with 6-8 pages for stamping) will be mailed back to you.
PM me if you need to know more details. I have gone through this few months ago and have had no issues flying baby to India on his canadian passport alongwith PIO.
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