India’s startup ecosystem awaits key policy boost in Interim Budget 2024-25

India has already secured its place as the third-largest startup ecosystem globally. Yet, standing at a critical juncture, this interim budget will play a pivotal role in furthering our startup ecosystem’s growth, aligning with the ambitious goal of contributing to the country’s $5 trillion economy.

Sector priorities and funding programs to nurture the startup ecosystem

While the Government has taken many initiatives, such as tax benefits and regulatory reforms, and identified key sectors for development, like EV, DeepTech and SpaceTech, we look forward to an encouraging budget announcement from the FM this year.

We anticipate a strategic budget focusing on improving digital infrastructure for better financial services and inclusion, particularly in rural areas, promoting the financial services/fintech startup sector. Furthermore, like the Agriculture Accelerator Fund, it will provide an additional boost to the startup industry if the Government creates dedicated funding programs to support climate/cleantech startups. Such funds can be formed by partnering with key stakeholders/banks/PSUs/private sector players, encouraging PPP models to serve as catalysts. Such initiatives would be crucial in achieving the Government’s net-zero emissions target by 2070, paving the way for a sustainable and greener future.

A clear AIF framework and incentives for startup investments

The Reserve Bank of India’s recent circular has imposed restrictions on banks investing in AIFs to prevent the evergreening problem associated with bad assets. Instead of imposing restrictions on AIF investments, we anticipate having a well-defined framework and clear clarification for dealing with bad or doubtful assets. Stakeholders may look for measures to simplify and streamline regulatory processes, making it easier to set up and operate AIFs. We also expect new policies to encourage AIFs to invest in startups and innovative ventures, potentially through tax incentives or other supportive measures. Offering incentives or tax breaks for AIFs investing in critical sectors like infrastructure, startups, or other sectors will augment the country’s growth.

LTCG tax reduction as a catalyst for domestic funding

In terms of investors, a reduction in the Long-Term Capital Gains (LTCG) tax would significantly promote domestic investments in the sector. The growing involvement of family offices and individuals in startup funding signals a positive trend, and we believe that a reduction in LTCG tax will further enhance the investment landscape.

A forward-thinking budget that eases compliance burdens will empower startups and position India as a global innovation hub, fostering sustainable growth and job creation. With the Lok Sabha election due next year, this year’s interim budget will present a strategic opportunity to catalyse the continued success of our vibrant startup community.