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

India Launches $1.1 Billion State-Backed Venture Capital Program to Support Startups

India has recently approved a $1.1 billion state-backed venture capital program aimed at providing financial support to startups in high-risk sectors such as artificial intelligence, advanced manufacturing, and other deep tech industries. The program, first introduced in the January 2025 budget speech by India’s finance minister, has received cabinet approval after more than a year of deliberation, allowing the government to move forward with its implementation.

The fund, totaling ₹100 billion, will be channeled through private investors to provide funding to startups in need of capital. This initiative builds upon a previous program launched in 2016, which allocated ₹100 billion to 145 private funds that have since invested over ₹255 billion (approximately $2.8 billion) in more than 1,370 startups across the country.

Structured as a fund of funds, the program focuses on supporting deep-tech and manufacturing startups that require substantial capital and longer time horizons. By partnering with private investment firms, the government aims to boost early-stage founders, expand investment opportunities beyond major cities, and strengthen the domestic venture capital industry, particularly smaller funds.

During the announcement, IT minister Ashwini Vaishnaw highlighted the significant growth of India’s startup ecosystem, noting that the number of startups has surged from under 500 in 2016 to over 200,000 today. In 2025 alone, more than 49,000 startups were registered in India, marking the highest annual total on record.

The cabinet approval comes in the wake of recent regulatory changes aimed at supporting deep-tech companies. New policies extend the startup classification period to 20 years and raise the revenue threshold for tax benefits to ₹3 billion (around $33 million), up from ₹1 billion previously.

As India emerges as a key player in the global tech market, attracting major players like OpenAI, Google, Microsoft, and Nvidia, the government-backed India AI Impact Summit is set to bring together leading AI companies and Indian corporates to explore collaboration opportunities. With over a billion online users, India offers a lucrative market for tech companies seeking to expand their reach.

Despite the growth potential, securing private capital has become more challenging for Indian startups. In 2025, the country’s startup ecosystem raised $10.5 billion, a slight decrease from the previous year, as investors became more selective and reduced the number of funding rounds. The number of transactions fell by nearly 39%, signaling a shift in investor sentiment.

Minister Vaishnaw emphasized the flexibility of the new venture capital program, noting that extensive consultations have been conducted with stakeholders to ensure its effectiveness in supporting India’s thriving startup ecosystem.