Budget 2025 to accelerate entrepreneurship, boost consumption, say startup leaders

The government's proposal to allocate an additional Rs 10,000 crore to Sidbi Fund of Funds will be a big shot in the arm for the ecosystem, startup leaders say

India's top startup pioneers welcomed the government's various initiatives announced in Union Budget 2025 on February 1, aimed at bolstering the country's startup ecosystem.

These measures will accelerate the pace of entrepreneurship, spur innovation across sectors, and provide a much-needed boost to consumption in both urban and rural India, these leaders told Moneycontrol in a post-Budget virtual panel discussion.

Prashanth Prakash, Founding partner at Accel, said that India's startup landscape is undergoing a transformation in the nature of startups themselves, and it is heartening to see that the government has recognised the next phase of the Indian startup journey is for local entrepreneurs to aspire to move up the global innovation ladder.

"If you need to go up the global innovation ladder, it's important that we prioritise IP development and areas such as artificial intelligence (AI)" he said.

Prakash, who was recently conferred the prestigious Padma Shri, India's fourth-highest civilian honour, also noted that the government's plan to set up a dedicated Fund of Funds (FoF) for deeptech startups complements what was already done with the Centre's AI Mission.

"Deeptech investments are not like typical venture investments. You need to invest ahead of the time, the results come later, so there's a long gestation period. So, this is the right area where the government should intervene and they have intervened" Prakash said.

The deeptech FoF could galvanise and catalyse the ecosystem where many private players will now come in and participate in areas such as semiconductors, quantum, precision manufacturing, and spacetech, areas that are critical for India's Atmanirbhar Bharat and Viksit Bharat ambitions, he said.

While the government is yet to disclose the contours of the deeptech FoF, Prakash suggested that it would require a minimum allocation of Rs 10,000 crore, similar to the Small Industries Development Bank of India (Sidbi) Fund of Funds for Startups that was first launched in 2016. He expects private capital to participate, potentially at three to four times that amount.

The proposed 10,000 fellowships under the PM Research Fellowship Scheme to support technological research at the IITs and IISc over the next five years will also complement this initiative, he said.

"I think this will have a two-fold impact: One, there will be research that can be translated into fundamental models and other things in startups, which is required when you're talking about cutting-edge deep tech tech areas. The second benefit is the number of people who would stay back in the country and work on these areas, because there is now capital and support for them through the research fellowship in the top institutes to pursue these research activities" Prakash said.

Kunal Bahl, co-founder of Titan Capital and Snapdeal, lauded the government's proposal to allocate an additional Rs 10,000 crore to Sidbi Fund of Funds, saying that it will be a big shot in the arm for the ecosystem.

"A large majority of the capital still flowing into the startup ecosystem is foreign, not domestic. In order for us to have a stable bedrock for the startup ecosystem, where we are not subject to things like the funding winter in other parts of the world, we will need to have more domestic capital participation" he said.

Read: Union Budget 2025: Startup ecosystem hails Rs 10,000 crore fresh allocation to Sidbi Fund of Funds

Tax relief to boost consumption

Bahl also stated that the Union Budget's tax relief measures, which put more money in the hands of the Indian middle class, will generate "significant momentum in consumption going forward".

"There is a clear slowdown in the market. In our own company, Unicommerce, which processes a billion orders across several digital selling categories, we are seeing a plateauing across many categories over the past few quarters" he said.

When people have additional money in their hands, they will not only be able to spend more on necessary healthcare and education but also on discretionary spending to upgrade their lifestyle, Bahl said.

Read: Budget likely to boost consumption, spur retail investments in stock markets

Rohit Kapoor, CEO-food marketplace, Swiggy, also concurred with this sentiment, stating that the budget has put the ball in the court of the private sector and consumers.

"The (new tax) slabs affect the younger consumers - first time jobbers, and people who are in the early phase of their careers - a lot more. It puts money in their hands, and I think a large part of that money does go into consumption. So, it is a definite kick for consumption," he said.

Kapoor stated that he hopes to see more progressive reforms in taxation, where the government lightens the tax burden, particularly for salaried consumers in India.

 Indian AIFs get parity

In a move to ease tax uncertainty amongst Alternative Investment Funds (AIFs), the government has also clarified that the income generated by Category I and II Alternative Investments Funds (AIFs) will be treated as capital gains. Going forward, all the income generated by Category I and II AIFs shall be treated as capital gains taxed at 12.5 percent.

Siddarth Pai, Founding partner at 3one4 capital, mentioned that this move will be a massive boost to capital formation in India through SEBI-regulated and IFSC-regulated AIFs.

"The AIF industry has long been advocating for two important components - parity as well as clarity. Give us parity with foreign investors, and give us clarity on our operations and make sure they are actually reflected in law. Now, because we've gotten this parity as of now, we are on equal footing with foreign funds," he said.

Read: AIFs get clarity and parity on longstanding asks

What was missed in Budget 2025

Bahl said lack of reforms around employee stock option plan (ESOP) taxation was a key miss in the Budget 2025. "It is as broad-based an impact that a piece of regulation - or rather, deregulation - can have. Currently, ESOPs taxation is highly disadvantageous to ESOP holders".

Kapoor echoed this concern, calling the ESOP taxation for holders of ESOPs as "highly egregious in India".

"It needs a re-look at all kinds of elements, including when you exercise your (stock) options, the amount of dry tax you pay, and then the amount of uncertainty you carry on top of that, to the lack of parity compared to holding other asset classes which are similar in nature," he said.

This is critical since "a lot of dreams have been made out of ESOPs, and these are people who have come out of middle-class homes... This will be a huge force reckoner," Kapoor said.

Pai called for the Inter-Ministerial Board (IMB), set up by the Department of Industrial Policy and Promotion (DIPP) to certify startups for tax-related benefits, to either be abolished or fundamentally reformed.

"Out of the 1.5 lakh DPIIT-registered startups, only about 3,000  have an IMB registration. That is a dismally low rate of acceptance from the IMB. The IMB has systematically denied any of the tax benefits given on the Income Tax Act to all sorts of startups," he said.

Pai added, "If the startup receives funding from a SEBI-registered or IFSC-regulated entity, that should vouch for the innovation of the business model. However, having a group of bureaucrats or people decide what is innovation or not actually flies in the face of all the reforms that the government has promised"