India-Canada Row: How the Diplomatic Rift Will Affect the Start-Up Ecosystem

The India-Canada rift is intensifying, with both countries expelling top diplomats. On October 14, India withdrew its High Commissioner Sanjay Kumar Verma and other senior diplomats from Canada. This matter is connected with regards to the killing of pro-Khalistan activist Hardeep Singh Nijjar.

As per Canada Prime Minister Trudeau, the issue was raised by his government after the police found allegations that India was involved in the murder of Nijjar. He admitted that there is no hard evidence to support this claim, while India has denied the allegations, calling them "preposterous."

Read: India-Canada Diplomatic Row: No Impact On Bilateral Trade In Goods So Far

Amid the deteriorating situation, every area, including trade and commercial ties, are being re-evaluated, and the start-up ecosystem is no exception. Just to give some context, Canada pension funds invest heavily in Indian start-ups. The fund invested around Rs 21,440.5 crore as of September 2023 in several Indian start-ups, as per data platform Tracxn. Some of the start-ups in which the fund invested include Acko, Byju’s, VerSe, Flipkart and Delhivery. Canadian investment in India has focused largely on areas including real estate, infrastructure, financial services and renewable energy. 

Experts suggest that the funds may proceed with caution due to the current geopolitical challenges. “While the current geopolitical climate might introduce some caution, I believe the long-term appeal of the Indian market remains strong. The situation is still in its early stages, so it’s too soon to make any definitive comments,” says Milan Sharma, Founder and MD, 35North Ventures.

Read: India-Canada Tension Rise: Will Diplomatic Rift Affect Trade Ties? 

Another area of concern has been with regards to the Canada start-up visa program that gives a leeway for entrepreneurs who want to establish business in Canada. In May this year, there were reports that the program imposed a cap application. The Immigration, Refugees, and Citizenship Canada (IRCC), a federal agency of Canada, highlighted that more priority will be given to start-ups that are associated with Canada's Tech Network (a network of 27 innovation hubs across Canada). Additionally, the cap means that the IRCC will process permanent residence applications for up to 10 start-ups per designated organisation each year. The reason pointed out by the IRCC for this is to “reduce the backlog and bring down wait times.” 

Canada's start-up visa program provides several advantages such as easy access to funding and extensive networking opportunities. It also allows entrepreneurs to immigrate to Canada to start a new business. Through the program, a start-up can receive seed funding of approximately $14,500. 

However, immigrants have to show that they have an original idea and can compete on a global scale. 

Now, the question that arises is: Will the cap restriction increase for India amid the ongoing situation?

“Given the current tensions, Canada’s start-up visa program may face more hurdles. Indian entrepreneurs looking to expand to Canada could face tighter regulations,” says Sandiip Bhammer, Founder and Managing Partner, Green Frontier Capital. However, this may encourage start-ups to shift focus towards regions which offer comparable opportunities, adds Bhammer.

Start-ups Should Consider a Diversified Approach: Experts

Amid the ongoing scenario, experts feel that many start-ups might look at other avenues for business. “While the current geopolitical landscape between India and Canada presents some uncertainties, Indian start-ups should consider a diversified approach to their market strategy. Exploring opportunities in other regions, such as Southeast Asia, the Middle East, or Europe, can help mitigate risks and capitalize on emerging markets,” adds Milan. 

Further, pursuing domestic funding or building strategic partnerships can lessen dependence on the Canadian market. Expanding into new regions or partnering with local businesses allows start-ups to reach new customer bases and strengthen their overall resilience, add experts. 

Several areas of concern at this moment for start-ups are the fear about how the current diplomatic relationship might strain getting visas or work permits. “Many Indian start-ups, especially in technology, have partnerships with Canadian companies in fields like AI, fintech, and clean energy. Diplomatic tensions could put these collaborations at risk, delaying joint projects or stopping new partnerships from forming,” says Raju Sinha, Chief Business Officer at Fship. 

What needs to be noted now is that, as of now, experts suggest that bilateral trade between the two countries won’t be impacted, as per the Global Trade Research Initiative (GTRI). As per a PTI report, the bilateral trade between the two countries grew from $8.3 billion in 2022–23 to $8.4 billion in 2023–24. GTRI Founder Ajay Srivastava reportedly said, “the resilience of trade between India and Canada highlights an important lesson: diplomatic tensions, while damaging, do not always spell disaster for economic ties." However, as the dispute drags on, the countries need to be more cautious and manage a full-blown economic blowout, added Srivastava.

Additionally, Canada is the 18th largest foreign investor in India as per the National Investment Promotion & Facilitation Agency (Invest India). The cumulative investment of the country from 2020-21 to 2021-23 has been $3.31 billion. Amid the ongoing situation, in an official statement, MEA spokesperson Randhir Jaiswal said, “The responsibility for the damage that this cavalier behavior has caused to India-Canada relations lies with Prime Minister Trudeau alone.” Given the diplomatic fallout, it will be a matter of waiting and watching for the Indian start-up ecosystem as a whole.