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

India has approved a $1.1 billion government-backed venture capital initiative that will route public money into startups through private fund managers, reinforcing New Delhi’s push to finance high-risk, long-horizon areas such as artificial intelligence, advanced manufacturing, and other categories commonly grouped under “deep tech.”

The ₹100 billion program was first flagged in the finance minister’s January 2025 budget speech. Cabinet sign-off came this week — more than a year later — clearing the way for the government to begin deploying the capital. Officials also pointed to the earlier version of the scheme, introduced in 2016, which committed ₹100 billion to 145 private funds. Those funds have since been invested in more than ₹255 billion (approximately $2.8 billion) in over 1,370 startups, according to official figures released Saturday.

Structurally, the new initiative is set up as a fund of funds—a familiar venture capital model in which the government doesn’t invest directly in startups but instead commits capital to private VC firms, which then deploy it. The Indian government says this iteration will be more targeted than the 2016 program, with a stronger emphasis on deep-tech and manufacturing startups t, which typically require larger checks and more time to reach commercial scale. The government also said the design aims to support early-stage founders, expand capital access beyond major metro hubs, and strengthen India’s domestic venture capital base, with particular attention to smaller funds.

Announcing the approval on Saturday, IT minister Ashwini Vaishnaw highlighted how quickly India’s startup ecosystem has grown. He referenced a presentation slide stating that the number of startups has risen from fewer than 500 in 2016 to more than 200,000 today. The same slide said more than 49,000 startups were registered in 2025 alone, marking the highest annual total on record.

The cabinet decision follows recent updates to India’s startup policy framework aimed at reducing pressure on deep-tech firms. New Delhi extended the period during which deep-tech companies can be classified as startups to 20 years and raised the revenue cap for startup-specific tax, grant, and regulatory benefits to ₹3 billion — about $33 million — up from ₹1 billion previously.

The green light also arrives just ahead of the government-backed India AI Impact Summit, where global AI players, including OpenAI, Anthropic, Google, Meta, Microsoft, and NVIDIA, are expected to participate alongside Indian conglomerates such as Reliance Industries and the Tata Group. India — the world’s most populous country and one of the largest internet markets, with more than a billion people online — has become an increasingly attractive growth market for major tech companies seeking to expand their user base.

At the same time, fundraising from private investors has become tougher. Indian startups raised $10.5 billion in 2025, a drop of just over 17% from the previous year, as investors became more selective and sharply reduced deal activity. The number of funding rounds fell nearly 39% to 1,518 transactions, according to Tracxn data.

Vaishnaw said the new program would be designed to stay adaptable, adding that “extensive consultations have taken place with all stakeholders.”