The approval of a R100 billion ($1.1 billion) state-backed fund-of-funds to channel capital into AI, advanced manufacturing, and other deep-tech startups signals a strategic shift toward long-horizon innovation.
India’s cabinet has approved a R100 billion ($1.1 billion) venture capital program aimed at strengthening financing for artificial intelligence, advanced manufacturing, and other high-risk sectors grouped under “deep tech.”
First outlined in the January 2025 budget speech, the initiative now moves from policy intent to execution. Structured as a fund of funds, the government will allocate capital to private venture firms, which will in turn deploy it into startups, according to TechCrunch.
The model allows New Delhi to influence sectoral priorities while relying on market-based fund managers to evaluate risk and select companies.
The move comes at a pivotal moment for India’s innovation economy: startup formation is accelerating, yet private capital has become more selective, particularly for capital-intensive ventures with longer development cycles.
From Consumer Internet to Frontier Technologies
The new program builds on a 2016 fund-of-funds initiative that committed R100 billion to 145 private funds, which have collectively invested more than R255 billion in over 1,370 startups, according to official data.
This iteration, however, has a sharper mandate. Rather than broadly supporting early-stage digital startups, it prioritizes sectors that require sustained research and heavy upfront capital — including semiconductor design, robotics, aerospace, climate technologies, and AI-enabled industrial systems.
Such sectors often face a structural funding gap in emerging markets. Private investors tend to favor asset-light, fast-scaling consumer internet models, where returns can materialize quickly. Deep-tech ventures, by contrast, may take years before reaching commercial viability, making them more dependent on patient capital.
By extending the startup classification window to 20 years and raising the revenue threshold for eligibility for tax and regulatory benefits to R3 billion, the government is aligning policy with the realities of hardware and research-driven innovation. These changes recognize that revenue generation does not necessarily signal maturity in deep-tech industries.
The broader objective appears to be reducing India’s reliance on imported advanced technologies while fostering domestic intellectual property in areas that intersect with national competitiveness.
A Buffer Against Slowing Private Capital
The approval also reflects shifting venture capital dynamics. India’s startup ecosystem raised $10.5 billion in 2025, down just over 17% from the previous year, while the number of funding rounds fell nearly 39% to 1,518 transactions, according to Tracxn data.
The decline signals not a contraction in entrepreneurial activity but a recalibration in investor appetite. Global interest rates, tighter liquidity, and risk re-pricing have made venture capital more disciplined. Late-stage mega-rounds have slowed, and early-stage funding has become more selective.
Against this backdrop, the state-backed program serves two purposes. It cushions early-stage and deep-tech startups from cyclical funding shocks and provides anchor capital that can crowd in private investors. Government participation in a fund-of-funds structure often improves fundraising prospects for emerging venture firms, particularly smaller domestic managers outside major metropolitan hubs.
IT Minister Ashwini Vaishnaw highlighted the rapid expansion of India’s startup base, which has grown from fewer than 500 recognized startups in 2016 to more than 200,000 today. More than 49,000 startups were registered in 2025 alone, the highest annual total on record.
The geographic diversification component is also significant. By extending investment beyond Bengaluru, Delhi-NCR, and Mumbai, policymakers aim to broaden participation in the innovation economy and reduce the regional concentration of capital.
Strategic Positioning in the Global AI Race
The timing of the approval, just ahead of the government-backed India AI Impact Summit, underscores the geopolitical dimension of the initiative. Global AI leaders, including OpenAI, Anthropic, Google, Meta, Microsoft, and Nvidia, are expected to participate, alongside Indian conglomerates such as Reliance Industries and Tata Group.
India’s scale — more than a billion internet users and a rapidly digitizing economy — makes it a critical market for global technology companies. Yet policymakers have increasingly emphasized domestic capability in strategic sectors, particularly AI infrastructure and advanced manufacturing.
The fund-of-funds model enables India to develop a stronger indigenous venture ecosystem, reducing dependence on foreign capital and encouraging local expertise in frontier technologies. It also aligns with broader industrial policy goals aimed at building resilient supply chains and fostering homegrown innovation.
Vaishnaw said the program would remain flexible and noted that “extensive consultations have taken place with all stakeholders.”
Ultimately, the initiative represents more than a financing mechanism. It signals an evolution in India’s startup strategy — from supporting digital entrepreneurship broadly to deliberately shaping the next generation of high-technology firms.
