With the Union Budget 2024 on the horizon, we are closely watching for measures that could shape the future of India's startup landscape. The past few years have been transformative, but not without significant challenges. As investors, our expectations are focused on creating a more supportive environment for startups, particularly through enhanced regulatory and tax policies.
One of the foremost challenges startups face today is raising capital. The upcoming budget could significantly alleviate this issue by offering incentives for investors to support innovative ideas with clear profitability paths. A critical step in this direction would be to encourage Indian institutional investors to become significant LPs in local VC funds. This shift would not only reduce the time it takes for local funds to raise meaningful amounts but also catalyse the fast-growing startup ecosystem in the country.
Specific sectors like deeptech, fintech, and climate tech are particularly poised for growth. Within climatetech for instance, India’s ambitious carbon emission reduction goals require substantial government support in areas like clean mobility, renewable energy, and energy efficiency. Policy clarity on battery standardization and a revisit of GST on electric vehicles, batteries, and components would greatly benefit this sector.
From a deeptech perspective, increasing investment in fundamental and applied science research at leading academic institutions and research labs is crucial. Such investments would lay the groundwork for disruptive tech Intellectual Property creation, which can then be commercialized through deep tech startups with global ambitions. Given the nascency of the spares provision of grants & subsidies and introduction of Public private partnership can accelerate the pace of innovations. The government’s focus on this sector is essential for sustaining the economic growth we’ve seen despite numerous challenges.
Policies that would help increase the penetration of financial services in the country are also need of the hour. We hope to see incentives for companies building in sustainable financing like solar and EV lending, MSME lending, and other priority sector lending. We also hope to see some benefits for tech enablers in terms of priority treatment when it comes to dealing with traditional financial institutions and balanced regulatory and compliance adherence to foster innovation while also ensuring consumer protection.
Tax incentives for venture capitalists investing in fintech, climate tech, and deep tech startups could further bolster the ecosystem. Additionally, higher budgetary allocations for startup incubators and accelerators would transform the startup landscape, fostering faster economic growth.
The political landscape also plays a significant role in shaping the startup ecosystem. A stable government that pushes through policy initiatives to sustain economic growth will create medium and long-term value. The upcoming Union Budget is expected to outline the roadmap for Modi 3.0, with GDP growth projected at 8% for FY25. There is a need for a capex-led growth strategy, increased health and education expenditure, large-scale livelihood generation, and accelerated tax reforms. These steps, combined with consensus-building for next-generation reforms at state and concurrent levels, are pivotal.
The recent downturn in startup funding has highlighted the need for supportive policies. From a peak of $35 billion in 2021, startup funding dropped to $24 billion in 2022 and further to $10.8 billion in 2023. The first quarter of 2024 has shown some easing in capital flows, with differentiated businesses selectively accessing growth capital. This resilience signals investor optimism for India’s medium-to-long-term prospects.
As India strengthens its global position, we hope the government will simplify regulations and compliance procedures for startups, making it easier to start and run businesses in new sectors. Ensuring access to funding opportunities will position India as a hotbed for unicorn startups across various sectors.
The Union Budget 2024 presents a critical opportunity for the government to introduce measures that foster a more robust startup ecosystem. By addressing key challenges and incentivizing investments, it is possible to ensure that India remains a global leader in innovation and entrepreneurship.