India doubles down on state-backed venture capital, approving $1.1B fund

In a bold move to bolster its startup ecosystem, India has approved a substantial $1.1 billion venture capital initiative aimed at channeling government resources into innovative startups via private investors. This program marks a significant commitment to funding high-risk sectors, particularly those related to artificial intelligence and advanced manufacturing, often categorized under the deep tech umbrella. First proposed during the January 2025 budget address by the finance minister, the ₹100 billion fund received cabinet approval this week, paving the way for its implementation over a year after the initial announcement. The previous version of this initiative, launched in 2016, allocated ₹100 billion to 145 private funds, which have since invested over ₹255 billion (approximately $2.8 billion) across more than 1,370 startups, according to official statistics shared recently. Designed as a fund of funds, this new program aligns with a common venture capital strategy where governments support startups indirectly by investing in private firms. It aims to adopt a more focused approach than its predecessor, specifically targeting deep-tech and manufacturing startups that require longer investment timelines and larger capital inflows. Additionally, it seeks to support early-stage entrepreneurs, extend investments beyond urban centers, and strengthen India’s domestic venture capital landscape, particularly for smaller funds. During the announcement, IT Minister Ashwini Vaishnaw emphasized the remarkable growth of India's startup scene, noting that the number of startups has surged from under 500 in 2016 to over 200,000 today. A presentation highlighted that more than 49,000 startups were registered in 2025 alone, marking the highest annual total on record. This cabinet approval coincides with recent regulatory changes in India aimed at alleviating pressures on deep-tech firms. Notably, the government has extended the classification period for startups from 10 to 20 years and increased the revenue cap for startup-specific tax benefits and grants from ₹1 billion to ₹3 billion (about $33 million). The timing is significant, as this announcement comes just before the India AI Impact Summit, where global AI leaders such as OpenAI, Anthropic, Google, Meta, Microsoft, and Nvidia will converge, alongside major Indian corporations like Reliance Industries and Tata Group. As the world's most populous nation and a major internet market with over a billion online users, India has become a focal point for global tech firms seeking to expand their reach. However, securing private investment has become increasingly challenging, with the startup sector raising $10.5 billion in 2025—a decline of over 17% from the previous year—alongside a nearly 39% drop in funding rounds to 1,518, as reported by Tracxn. Vaishnaw assured that the new venture capital initiative would maintain flexibility, emphasizing that extensive consultations with stakeholders have shaped its development.