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

India has cleared a $1.1 billion state-backed venture capital program that will channel government money into startups through private investors, doubling down on its effort to finance high-risk areas such as artificial intelligence, advanced manufacturing and other sectors broadly referred to by the industry as deep tech.

First outlined in the January 2025 budget speech by India’s finance minister, the ₹100 billion fund won cabinet approval this week (more than a year after the speech), allowing the government to move ahead with deployment. A previous iteration of the program, launched in 2016, committed ₹100 billion to 145 private funds that have invested more than ₹255 billion (about $2.8 billion) in over 1,370 startups, according to official data released on Saturday.

The program is structured as a fund of funds, a common venture capital model in which governments back startups indirectly by committing capital to private investment firms. It is designed to take a more targeted approach than its 2016 counterpart, focusing on deep-tech and manufacturing startups that typically require longer time horizons and larger amounts of capital, while also backing early-stage founders, expanding investment beyond major cities and strengthening India’s domestic venture capital industry, particularly smaller funds, per the Indian government.

At the announcement on Saturday, IT minister Ashwini Vaishnaw highlighted the scale of India’s startup expansion, pointing to figures shown on a presentation slide indicating the number of startups has grown from fewer than 500 in 2016 to more than 200,000 today. The slide said more than 49,000 startups were registered in 2025 alone, the highest annual total on record.

The cabinet approval follows recent changes to India’s startup rules aimed at easing pressure on deep-tech companies. New Delhi doubled the period for which such firms are classified as startups to 20 years and raised the revenue threshold for startup-specific tax, grant and regulatory benefits to ₹3 billion, or about $33 million, up from ₹1 billion previously.

The approval comes just ahead of the government-backed India AI Impact Summit, where global AI companies including OpenAI, Anthropic, Google, Meta, Microsoft, and Nvidia are set to participate alongside Indian corporates such as Reliance Industries and Tata Group. India, the world’s most populous country and one of its largest internet markets with more than a billion online users, has become an increasingly attractive arena for global tech companies looking to expand their user base.

At the same time, private capital has become harder to secure. India’s startup ecosystem raised $10.5 billion in 2025, down just over 17% from a year earlier, even as investors grew more selective and sharply reduced the number of deals. The number of funding rounds fell nearly 39% to 1,518 transactions, according to data from Tracxn.

Vaishnaw said the new venture capital program would remain flexible, adding that “extensive consultations have taken place with all stakeholders.”