Finance Minister Nirmala Sitharaman reinforced the government’s commitment to India’s startup ecosystem in Union Budget 2025-26. Key announcements included an expansion of the Fund of Funds for Startups (FFS), a dedicated deep tech Fund, both aimed at infusing crucial capital into emerging businesses, and enhancement of credit guarantee scheme.
The startup sector, projected to contribute $100 billion to India’s GDP by 2030, stands to gain significantly from these measures.
Strengthening the Fund of Funds
Sitharaman announced a ₹10,000 crore Fund of Funds for startups, in addition to the existing allocation designed to support early-stage ventures. Instead of directly investing in startups, the scheme channels capital through SEBI-registered Alternative Investment Funds (AIFs), which subsequently deploy funds into high-potential Indian startups via equity and equity-linked instruments.
Siddarth Pai, Founding Partner and CFO of 3one4 Capital and Co-Chair of the Regulatory Affairs Committee at IVCA, highlighted the significance of the ₹10,000 crore Fund of Funds, which has already catalysed over ₹90,000 crore in investments for Indian startups. “This move will increase domestic capital participation and accelerate entrepreneurial activity in India,” he said.
Prashanth Prakash, Founding Partner at Accel India, echoed similar sentiments. “The Union Budget lays a strong foundation for Viksit Bharat, driving transformative reforms that will redefine India’s economic and entrepreneurial landscape. With this Fund of Funds, the government is fortifying India's startup ecosystem for exponential growth,” he noted.
To further support startups, Sitharaman also announced an enhancement of the Credit Guarantee Scheme, increasing the guaranteed coverage from ₹10 crore to ₹20 crore, while moderating the guarantee fee to 1 percent for loans in 27 focus sectors identified under Atmanirbhar Bharat.
Rajesh Rathi, Managing Director of GasTech, speaking at a CII roundtable in Bengaluru, welcomed the increased allocation. “This move nearly doubles the existing fund size, and the enhancement of the credit guarantee from ₹5 crore to ₹10 crore will provide further financial support to startups,” he noted.
Access to credit has been a persistent challenge for startups, given that many remain unprofitable in their early years. According to Pai, the expansion of the Credit Guarantee Scheme, increasing coverage to ₹20 crore, could incentivise banks to underwrite startup loans, thereby reducing their dependence on equity dilution.
Deeptech Push and Credit Support
Sitharaman also emphasised the government’s commitment to deep tech innovation—a move that industry stakeholders hailed as crucial given AI’s rapid evolution. The budget introduced a deep tech-focused Fund of Funds with an allocation of ₹20,000 crore, designed to accelerate advancements in critical technologies such as AI, quantum computing, and semiconductor research.
Prakash welcomed this development, stating, “The exploration of a deep tech Fund of Funds is an exciting step towards fostering innovation in critical technologies. This move aligns with India’s vision to lead the global innovation curve and ensures that homegrown startups can compete on an international scale.”
The government also announced 10,000 fellowships for technological research in IITs and IISc, with enhanced financial support under the PM Research Fellowship scheme. This initiative aims to strengthen India's research and innovation pipeline. “This will foster a new generation of deep-tech entrepreneurs, enabling India to build world-class, tech-first startups that are not just solving local challenges but also shaping global markets,” Prashanth added.
Pai emphasised that the deep tech Fund of Funds will provide the long-term capital needed for deep tech companies to scale in India. “If structured effectively, this will be a huge boost to R&D in India, fostering fundamental research and its eventual commercialisation,” he said.
Anirudh A. Damani, Managing Partner at Artha Venture Fund, stressed the importance of structuring the deep tech Fund as a Fund of Funds to empower professional fund managers in high-risk, high-reward sectors. “A long-term capital commitment will boost R&D, fundamental research, and commercialisation in India,” he noted.
Future Vision for Startups
The Union Budget 2025 outlines a transformative vision for India's startup ecosystem. The ₹10,000 crore infusion through FFS will enhance access to capital, particularly benefiting startups in emerging sectors. Meanwhile, the emphasis on Centers of Excellence (CoEs) and deep tech investments will further bolster India’s position in cutting-edge technology development.
Archana Jahagirdar, Founder and Managing Partner of Rukam Capital and Director at Bootstrap Incubation and Advisory Foundation, emphasized the need for a holistic approach. “Going forward, we hope the VC ecosystem is considered alongside the startup ecosystem, as risk capital availability is integral to India's goal of becoming the world’s leading startup hub,” she said.
The government’s deep-tech push aligns with the ₹1 lakh crore innovation outlay announced last year. Pai noted that artificial intelligence (AI) falls under this umbrella, and targeted policies under the Indian AI Mission could further accelerate growth in this domain.