A Budget that can Transform India’s Startup Ecosystem
India’s startup ecosystem has emerged as a global force, ranking third in the world with 138,000+ startups and 115+unicorns. This thriving entrepreneurial landscape is a testament to the ingenuity and resilience of Indian entrepreneurs, who have built an ecosystem worth $550 billion today despite limited domestic support. Much of this growth has been fueled by foreign capital, which accounts for 85% of the funding in the sector.
To establish a self-reliant and globally competitive ecosystem, the government must take bold steps in the 2025-26 UnionBudget. Strategic investments, regulatory simplification, and inclusive policies can unlock the immense potential of India’s startups, driving sustainable economic growth and job creation.
Proposed Initiatives for the 2025-26Budget
1. Deep Tech Fund Managed by SBI
To bolster India’s R&D capabilities, the government must establish a ₹10,000 crore Deep Tech Fund under the stewardship of SBI. This fund would target frontier technologies, including artificial intelligence, quantum computing, robotics, and genomics, ensuring adequate resources for early-stage and growth-stage startups focused on breakthrough innovations.
2. Separate Fund for WomenEntrepreneurs
Empowering women entrepreneurs is crucial for an inclusive startup ecosystem. A ₹5,000 crore fund, managed by SIDBI, must be earmarked to support ventures led by women. This fund will provide much-needed financial backing and foster a culture of innovation and leadership among women in high-growth sectors.
3. Strategic Startups Fund
To ensure India’s leadership in emerging industries, the government should establish a ₹35,000 crore Strategic StartupsFund to be disbursed over five years. This fund will prioritize strategic sectors such as electric vehicles (EVs), robotics, green energy solutions, and space technology. By nurturing startups in these strategic domains, India can secure its position as a global leader in innovation and address critical economic and environmental challenges.
4. Reforming Taxation onESOPs
ESOPs are vital for attracting and retaining top talent in startups. However, the current taxation framework, which taxes ESOPs at the time of exercise, creates financial burdens for employees. By shifting the taxation point to the time of sale, the government can alleviate this pressure, incentivizing employees to remain invested in the success of their companies. This reform would align India’s policies with global best practices and strengthen the talent pipeline for startups.
5. Deepening RegulatoryReforms for Startups
India’s startup ecosystem is hindered by regulatory bottlenecks and inconsistent policies, which need urgent reform to foster growth and investor confidence. A prime example of regulatory overreach is the Reserve Bank of India’s (RBI) handling of Alternative Investment Funds(AIFs). In December 2023, the RBI issued a circular effectively barring banks and NBFCs from investing in AIFs linked to regulated entities’ debtors, regardless of materiality. This measure caused banks and NBFCs to write off over ₹12,000 crore and disrupted investments; the government sponsored SWAMIH fund is also stuck due to this. A subsequent amendment limiting investments toAIFs dealing only in equity shares—excluding equity securities—further restricted private equity and venture capital funds, sidelining critical financing avenues for startups.
The startup ecosystem is burdened by a relentless stream of regulatory updates. SEBI, for instance, issued 167circulars in a single year, creating an environment of uncertainty. Startups and funds are forced to allocate more resources to compliance than innovation, stifling their growth potential.
The disparity in treatment between AIFs and mutual funds further exacerbates the issue. Mutual funds enjoy more favourable conditions, while Category III AIFs face higher ticket sizes and unclear taxation policies, reducing their appeal to investors. Addressing these challenges requires a consultative and transparent regulatory framework that promotes stability and fairness across the ecosystem.
The Need for Inclusive and SustainedSupport
India’s startup ecosystem has demonstrated remarkable resilience and innovation, but its growth remains uneven. By focusing on inclusivity—supporting women entrepreneurs and fostering startups in Tier II and Tier III cities—the government can ensure that the benefits of entrepreneurship reach all sections of society.
Additionally, simplifying access to capital and incentivizing private investment through funds-of-funds and co-investment models can catalyze significant growth. Incentives like tax breaks on R&D expenditure and reduced compliance costs can further enhance the competitiveness of Indian startups.
Investing in the Future
Startups are the new engines of India’s economic growth, driving innovation, creating jobs, and generating wealth. The initiatives proposed for the 2025-26 Budget present a unique opportunity to transform the startup ecosystem into a self-reliant and globally competitive force. By addressing key challenges—such as regulatory complexities, limited domestic funding, and inadequate support for women entrepreneurs—the government can lay the foundation for sustained growth and innovation.
As India aims to become a $10 trillion economy, its startup ecosystem will playa pivotal role in achieving this vision. Strategic investments and reforms today will ensure that India not only retains its entrepreneurial edge but also emerges as a global leader in innovation and economic development.
