Budget 2025: What Indian Startups Want From FM Nirmala Sitharaman

Caught in a whirlwind of capital drought, mass layoffs and shutdowns in 2022 and 2023, the Indian startup ecosystem emerged somewhat stronger in 2024. Funding numbers improved last year as investors, albeit cautiously, began reposing their faith once again in the world’s third-largest startup ecosystem.

The valuation bubble of 2021 was effectively non-existent as new-age tech founders focussed more on growing their ventures sustainably and profitably. Under the shadow of this waning funding winter came the once-in-a-lifetime disruptor – generative artificial intelligence (GenAI) – and, unsurprisingly, the homegrown new-age tech ecosystem has latched on to this opportunity like never before. 

Now, as finance minister (FM) Nirmala Sitharaman is all set to present her eighth consecutive Union Budget on Saturday (February 1), the Indian startup ecosystem is looking intently towards her to announce measures to give it a further boost.

But before we dive into what India’s new-age tech ecosystem wants from the government on the D-Day, let’s take a little detour and see what the Economic Survey 2024-25, tabled in the Parliament a day before the budget, had to say about the state of India’s digital economy. 

In line with the trend, AI featured in the Survey, too, with it highlighting the need for rapid adoption of the technology in sectors such as banking, finance, healthcare, telecom, retail and transport.

The Survey also called on the government to increase spending on R&D in advanced battery technologies (such as sodium-ion and solid-state batteries) to spur India’s transition to electric vehicles (EVs).

Besides, it also noted that the country has reduced its dependence on smartphone imports, with 99% of these phones being manufactured in India now. It added that more than 4.6 Lakh 5G Base Transceiver Stations (BTSs) have been installed across the country. 

Making note of the government’s regulatory and financial push for women entrepreneurship, the Survey said more than INR 3,000 Cr have been invested across 149 women-led startups through alternative investment funds (AIFs).

That said, the Indian startups are hoping that the FM would provide sops and cut tax rates to rejuvenate the ecosystem and spur consumption.

To understand what the startup ecosystem wants from the budget, Inc42 spoke to founders across sectors and segments. A key demand across the board is streamlining regulatory compliances and fostering innovation.

That said, just like every year, we, at Inc42. will bring you live updates and startup perspectives on this year’s budget. This will be Inc42’s 10th edition of #Budget4Startups.

So, without further ado, let’s dive right into the wishlist of Indian startups from FM Sitharaman.

Spurring Consumption To Boost Economy

Just like every year, Indian startups continue to bat for rationalising GST slabs. 

Besides, from deeptech to chip makers, stakeholders want the government to reduce import duties on semiconductor-grade inputs. This, they believe, would catalyse growth for homegrown tech companies and pave the way for a vibrant innovation ecosystem. 

Then, there is the gaming sector which has been rueing the 28% GST on first-time deposits made by registered users, which is applicable uniformly to both skill-based and chance-based games. Industry insiders told Inc42 that the sector expects the government to revisit its current stance and lower the GST rate on skill-based games to 18%, aligning it with the tax framework applied to other service sectors.

Meanwhile, another key demand of the ecosystem is instituting sweeping measures to stimulate consumption for the new-age economy. This comes in the backdrop of consumption being sluggish for several quarters.

As a result, sectors dependent on the digital economy, especially consumer services and ecommerce, are now vocal about “long overdue” tax relief, which are essential to drive disposable incomes and consequently boost consumption. 

Alongside, industry watchers also want the Centre to increase spending on job creation, especially by way of production linked incentives (PLIs), employment schemes and infrastructure development.

What Do Chip Makers Want?

India’s burgeoning semiconductor ecosystem wants higher allocation of subsidies under the PLI scheme and higher monetary support for the design ecosystem.

The India Electronics and Semiconductor Association (IESA) has urged the finance ministry to extend the PLI scheme beyond the current allocation of INR 76,000 Cr (about $10 Bn), with an additional provision of $20 Bn for the next five years.

Besides, the players in the space also believe that lower import and GST levies on indigenously manufactured components, as well as zero to low interest funding for domestic companies, can catalyse growth for home-grown semiconductor manufacturers.

There are also demands from semiconductor industry bodies for a separate INR 10,000 Cr budget allocation for targeted R&D initiatives for the ESDM (Electronics System Design and Manufacturing) sector on a PPP model to improve product creation and intellectual property (IP).

What’s On The Anvil For Manufacturers & Deeptech Players?

The manufacturing industry contributes around 17% to the nation’s GDP. As such, it expects the central government to make some important announcements in the Budget 2024-25 to boost the renewable energy sector, micro, small and medium enterprises (MSMEs), and electronics manufacturing industry.

Industry stakeholders want the government to expand the PLI scheme for manufacturing in deeptech, including green energy, advanced materials, and semiconductors. 

The budget could also see the government increase its focus on building technology for defence via increased allocation for aerospace manufacturing and custom duty rationalisation. In addition, the Centre may also earmark additional outlay for credit support for MSMEs to push domestic manufacturing companies in EVs, renewable energy, components and other supply chains.

On top of this, the industry is also expecting the Centre to introduce a new scheme focussed on R&D in deeptech sectors such as AI, robotics, and advanced weapon systems.

Within deeptech, EV players continue to press the government to reduce the GST rate on EV charging services and lithium-ion batteries from 18% to 5%.

“The (EV) sector is hoping for some level of rate rationalisation to reduce interpretative issues and litigations. The EV ecosystem urgently needs scalable infrastructure, including widespread deployment of EV charging stations, battery-swapping hubs and integration with renewable energy sources,” said Mehta Equities in a report.

But, beyond sops and incentives, manufacturing startups also want the government to prioritise focus on upskilling the country’s large labour force, which they believe will benefit the manufacturing sector in the long run. 

Tax-Laden Gaming Startups Seek Relief

Grappling with mounting regulations and rising tax load, India’s online gaming ecosystem expects the FM to address the GST and retrospective taxation issues. These steps, the industry believes, would provide much-needed clarity and create an environment conducive to further growth and innovation in the sector. 

Alongside, the online gaming ecosystem will closely watch the budget announcements related to industries such as AI and semiconductors, which have a direct bearing on game development and their hardware capabilities. 

“We hope to see measures that accelerate the growth of India’s gaming and esports industry. Incentives for semiconductor design and manufacturing could bolster the tech ecosystem and elevate gaming hardware standards. Similarly, tax relief for middle-income groups could boost disposable income, creating opportunities for studios to develop India-centric gaming IPs,” Akshat Rathee, cofounder and managing director of NODWIN Gaming, said.

The industry is also pitching for the upcoming budget to include provisions for reduced customs duties on gaming hardware, tax incentives and investments in digital infrastructure to enhance accessibility and affordability for gamers across the country.

In addition, they also want the government to prioritise sops for IP creation, reduction in TDS on digital platforms, and tax benefits for gaming and esports companies to develop the country as a gaming and esports hub. 

Startups Bat For ESOP Tax Relief

Employee stock option plans (ESOPs) have become a key talent retention tool for startups. But, these stock options continue to be a bittersweet pill to swallow for employees as they are yet to come on par with the conventional capital gains from the market. 

Liable to pay taxes on two different occasions – once when they exercise the option and when they sell them, employees are saddled with a heavy taxation approach towards ESOPs. 

Advocating for a more employee-friendly ESOP taxation framework, founders want the tax on ESOPs to be deferred until employees sell their shares, rather than being levied at the time of exercise. 

“In the upcoming budget, I anticipate tax reforms to tackle these hurdles – simplifying ESOP taxation, streamlining capital gains tax structure across asset classes or introducing tax exemptions for angel investors and aligning them with global standards to encourage greater inflows of private capital into the startup ecosystem,” said Ashwani Singh, managing director of 35 North Ventures.

Another critical demand is revising the turnover threshold for startups eligible for tax benefits, as only startups with an annual turnover of less than INR 100 Cr qualify for a tax holiday. As per industry stakeholders, increasing this limit would allow more startups to access tax relief, thereby fostering a more supportive environment for innovation and talent retention.