With the key ministry positions and the council of ministers now finalised for Prime Minister Narendra Modi’s third term, the Indian startup ecosystem is looking at real action to address long-held concerns.
Startups have laid down their expectations from the government even before the interim Budget was released earlier this year. And with no major changes to the key portfolios, the ministers in charge would also be well-versed with what the ecosystem wants.
For instance, those in the fintech sector sought much-needed relief from the high regulatory and compliance burden, while startups across sectors want angel tax to be taken off the table. And these issues continue to persist.
The key points raised by others include a broader focus on domestic artificial intelligence (AI) development and IP creation, as well as clearer directions on subsidies for EV and semiconductor manufacturing. There were also some expectations such as creating new policies specifically for AI as well as a new fund for seed startups.
What Startups Want From Modi 3.0
With the cabinet ministers in the Modi 3.0 government expected to submit their 100-day plan for each portfolio, startups will once again be looking for improvements in the ease of doing business in specific sectors as well as other reliefs.
Based on our conversations with founders and investors before the interim budget earlier this year and close to the General Election results, here is the wishlist of Indian startups from the Modi 3.0 government’s first 100 days.
The below list is in no particular order.
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Repeal Angel Tax Altogether And Dispose Of Pending Cases
Angel tax has been a constant blot in what has otherwise been a bright decade for India’s startup ecosystem. “The opposition included its removal in their manifesto, despite being the ones to introduce it. The Modi government should repeal the law to eliminate angel tax,” T.V. Mohandas Pai, the former CFO of Infosys and partner at Aarin Capital, told Inc42 a day after the election results.
Pai also believes that the government must resolve all disputes promptly and refrain from harassing people with unnecessary complications.
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Establish INR 50,000 Cr Fund Dedicated To Emerging Technologies
Highlighting that subsidies have been extended to farmers and MSMEs, key stakeholders such as Pai have questioned the lack of discussion over a new fund for startups. “We must establish an INR 50,000 Cr fund through various entities in the next five years. With the economy at $3.6 Tn this year, we’re lagging behind in AI and other frontier technologies due to inadequate investment,” the Aarin Capital partner added.
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Improve Commercialisation Route For Indian R&D In Climate Tech
Climate tech is one sector that is seeking a major impetus from the government as the VC ecosystem continues to remain hesitant about backing Indian companies in a big way. As a result, India’s rich R&D culture and talent pool is migrating overseas, taking value and IPs with them.
The government needs to enable a culture of R&D that has outcomes and a scope of commercialisation within India. This will have a major impact on the country’s role in the fight against climate change and its ability to meet the Sustainable Development Goals of 2030.
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Focus On Agri Food Life Sciences To Boost Food Production
Climate resilience is a major focus area for the agriculture industry, as food production is expected to be impacted by climate change. To solve this, the Indian government needs to encourage adoption of cutting-edge agri food life sciences (AFLS) to increase food production in a sustainable manner.
Encouraging crops and agri techniques that have a lower carbon footprint is an essential first step, along with backing R&D in crop genetics, low-water agriculture methods and creating better market linkages.
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Modi 3.0 Needs To Expand Startup India Seed Fund Scheme
Initially introduced in April 2021 with a corpus of INR 945 Cr, the Startup India Seed Fund is set to conclude in 2025 and key ecosystem stakeholders want significantly larger allocation for the fiscal year FY26, compared to the INR 175 Cr seen in FY25.
Stakeholders believe the total fund size needs to be doubled to cater to the fast-growing startup ecosystem. Besides, early-stage founders say credit guarantee schemes will help fill the gap when it comes to VC funding, as many business models have an impact on grassroots growth, which is not always the focus of VCs.
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Specalised Funds For Untapped Sectors Like Semiconductor Manufacturing
Launched in December 2022, the India Semiconductor Mission (ISM) is poised to become a major focus for the government over the next five years, and a roadmap for the ISM’s evolution needs to be a priority for the government, according to several stakeholders that we have spoken to over the past few months.
The Modi 3.0 government will have to ensure that the INR 76,000 Cr ($9 Bn) incentive package announced for the ISM is deployed in the right manner, and does not become a barrier for startups in the field. While the overall allocation is encouraging, founders and investors believe that a dedicated seed or startup fund needs to be carved out from this allocation to enable semiconductor and ESDM startups.
A similar approach is needed for robotics and EV component manufacturing, where startups typically have to toil away for years before investors are ready to back them. A government-backed fund would fill the capital gap at the right stage and accelerate growth and innovation, which is critical to building long-term value.
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Regulatory Oversight To Protect Limited Partners
Given some of the major lapses when it comes to governance practices at venture capital firms and due diligence of investments, many limited partners (LPs) and investors in funds have called for a mechanism or framework that protects the interests of LPs, just like SEBI does for the public markets.
As more funds come into the market, it widens the base of LPs and increased transparency on individual partner performance is only going to strengthen the case of startups as an investment asset for the future. This is no different from various fund managers of public market mutual funds being under the scanner individually.
Besides this, other ecosystem stakeholders believe that as a regulator, SEBI could step in to bring more transparency in commercial agreements between partners in a fund, which are shrouded in secrecy. The terms of these agreements can lead to conflict within the leadership of a VC firm, and this directly impacts the portfolio as well as the LP’s investment in the fund.
PE and VC industry insiders believe that AIFs need to disclose agreements between partners that can have a material impact on investments by LPs. For example, LPs often don’t know whether the partner is actively involved in deal evaluation and sign-off, and there’s also secrecy around management fee sharing and carry sharing, which often are the root cause of conflicts inside a fund.
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Resolve Issues In The Ministry Of Corporate Affairs Portal
Several startups have struggled with their compliance requirements due to technical challenges with the Ministry Of Corporate Affairs’ website. This has resulted in delays in financial disclosure, uploading board resolutions and key documents needed for fundraising.
While the government launched MCA 3.0 to solve the challenge of catering to lakhs of startups, the portal has routinely suffered from outages, weeks-long issues in uploading filings and loss of precious manhours. Startups would hope that the Ministry of Corporate Affairs, which falls under Finance MInister Nirmala Sitharaman, would spruce up the website in keeping with the times.
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Promoting Self-Regulation In AI To Preserve Innovation
AI regulations will become a major theme for the Indian government — as it has for other authorities around the world — in the coming year. As seen at Inc42’s recent The GenAI Summit, the industry has called for broader frameworks and a self-regulation approach rather than sweeping regulations banning certain models and AI products.
“Startups cannot wait for regulations because that will take its due course of time. Instead, the idea should be to practise responsible AI development and self-regulate so that innovation can keep happening,” said Tanuj Bhojwani, head of People+ai, which is looking to create digital public infrastructure around AI.
While the threat of regulations has spooked some startups already, the industry would be hoping that the government is in alignment with the self-regulation push so that existing businesses and new startups are not hurt. “If a national AI agenda is set – similar to Digital India, Startup India, and Make in India – we are sure to see Indian startups rally and make this a success,” noted 3one4 capital partner Pranav Pai.
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Curb Disproportionate Response To Minor Transgressions By Startups
“Make regulatory agencies less coercive in nature, every small default does not indicate fraud. With the collection process of TDS, PF, ESI, GST becoming so strict… when receivables are delayed due to genuine reasons, there should be a lenient approach of nominal fines with no future repercussions as long as the default is of a short period of time,” said Amit Prasad, founder and CEO of SatNav Technologies.
He added that at times the language of government communication is alarming. Even minor violations or routine inquiries are called show-cause notices or demand notices, which creates a lot of panic among younger founders.
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Clear Ambiguity For Ecommerce Marketplaces With Dedicated Policy
For years, ecommerce marketplaces have become targets of protests and antitrust cases filed by retailer bodies. Despite 15-plus years of operational history in India for Flipkart and 10-plus years for Amazon India, both marketplaces continue to be accused of bias for large sellers, favouritism for private labels and generally outpricing retailers. With the ONDC, the government has looked to break this duopoly but that has not had a large impact as yet.
Many expect that 2024-25 will bring about a change that can not only soothe the woes of retailers but also eliminate ambiguity for Flipkart, Amazon and other marketplaces, which have foreign investments. Besides these two giants, even Reliance Retail — with JioMart, Tira, AJIO and other marketplaces — will benefit from clarity in this matter.
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Review Key Concerns In Personal Data Protection Act
While the Indian startup ecosystem has welcomed the DPDP Act, many have highlighted that it falters on the potential loopholes in implementation and the high compliance burden for startups.
The implementation fine print of Europe’s GDPR seems to be missing from the DPDP Act, 2023. “One significant consequence of this Act could be an increase in the expenses related to implementation and compliance, potentially demanding more resources and a heightened level of awareness,” said fintech startup Niro’s founder Aditya Kumar.
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Enforce Rules For Financial Disclosures By Private Companies
While founders have complained about the problems with the MCA website and filing paperwork, investors bemoan the lack of transparency when it comes to startup financials. Well-publicised cases such as the delay in BYJU’S FY23 filings and other instances have only sharpened these concerns.
Investors believe that not all shareholders have the same information rights which leaves some of them on unequal footing when it comes to their portfolio. To solve this, investors are seeking more stringent enforcement of late fees and other penalties for the violating startups.
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Higher Government Spending To Boost Agritech Adoption
Agritech startups have been knocking on the government’s doors for many quarters looking for improved credit access to farmers, which would in turn boost the adoption of agritech products and services to increase crop yield, supply chain and reduce wastage.
In the 2023 Union Budget, the central government provided a gift of sorts to agritech startups by announcing an agriculture-focused accelerator fund to encourage such startups in the rural parts of the country. But tax incentives, which many players were hoping for, was given a skip by the finance minister. While no such incentives were announced in February, startups are hoping the issue will be taken up once again in July when the next Budget is presented.
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More Clarity On FAME-III Subsidies For EV Startups
Among the biggest expectations is the extension of the existing FAME scheme and clarity on which parts of the EV ecosystem the scheme would apply to.
For instance, while vehicle manufacturing and charging infrastructure companies could reap the benefits of FAME thus far, the expectation now is for the same enablement for battery and ancillary component manufacturing, reducing import duties, GST rates, and introducing demand incentives or incentives to increase EV penetration.
Many in the industry believe that it would be revised to increase focus on electric buses, trucks, and electric cars, while electric two and three-wheelers might take a backseat. The government’s push to electrify large commercial vehicles might manifest through Fame-III whenever it is announced.
In a recent interview with Inc42, G20 sherpa for India, Amitabh Kant, said the EV sector would need the government’s support till 2030. “The INR 10,000 Cr subsidy under FAME-II pushed the EV sales growth. Hence, there is a need to continue subsidies and incentives under FAME-III, with a focus on public transport and charging infra for the next five years,” Kant said.
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Incentivising Domestic Investments In EV Infrastructure
With subsidies for EV manufacturing proving ultra successful for two-wheelers, many in the EV ecosystem want a similar approach to component manufacturing as well as new investments in manufacturing facilities and plants.
“Ola has launched a massive Gigafactory in Tamil Nadu for its own manufacturing but boosting manufacturing of key components would allow the ecosystem to grow faster through collaboration. Startups would also require lower capital for manufacturing if such a collaborative environment is fostered,” a mobility-focussed investor told Inc42.
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Incentivising Global OEMs To Partner With Homegrown Players
In a similar vein, companies want the government to not just court foreign OEMs such as Tesla and others to manufacture in India but also incentivise partnerships with Indian players. Joint ventures between global and Indian companies would allow for knowledge sharing and would help create new IPs that will belong to Indian entities.
While investments in EV manufacturing will have a linked exemption in import duty, encouraging partnerships will be more beneficial for the Indian EV players and the larger manufacturing industry in India.
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GST Standardisation For Charging, Battery Swapping Models
Currently, the EV original equipment manufacturers have to pay a 5% GST on the sale of vehicles while the GST rate on batteries and certain services continues to be 18%. The industry had kept its demand earlier as well for making a 5% GST standard for all EV players, which has remained unfulfilled.
Varun Goenka, CEO and cofounder of Chargeup, told Inc42 earlier, “We expect the government to reduce GST applicability on EV products and services, and to include the EV as well as battery development, charging networks, and allied services in the priority sector lending list. This would open the doors for investments in the ecosystem, and accelerate India’s EV adoption.”
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Improve Drone Adoption By Formalising Drone Loan Frameworks
Despite the rise of drone tech startups, the industry is plagued by lack of adoption as businesses are unable to get loans and working capital advances for drone-based operations. The industry as a whole is seeking lower interest rates for loans to procure drones as well as service-linked incentives besides incentivising production.
Just like EV loans are a problem area that many companies are looking to solve, the drone tech industry is hoping for innovative lending and underwriting models that will help increase the loans for drones. In this regard, government guidance will become key, particularly the RBI, which has heavily regulated lending tech operations in the past few years.
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Expedite Approvals For Mobility And Aviation Applications
Drone tech startups are also seeking further simplification of the rules and faster approval processes for drone operations, especially those pertaining to urban air mobility solutions which encompass use cases such as food and medicine deliveries.
“In the context of urban air mobility, drone startups may also expect regulatory support for testing and implementing urban air mobility solutions. This could involve collaboration with urban planning authorities and the development of appropriate infrastructure,” Prateek Srivastava, founder and managing director, DroneAcharya told Inc42 in January this year.
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Lower GST On Drone Components To Boost Domestic Manufacturing
Just like the EV ecosystem, India’s drone industry has also benefitted from the push for local manufacturing. The ban on import of drones or knock-down kits brought in some challenges but pushed the industry in the right direction.
In line with this, startups have also pitched for an extension of the production-linked incentive (PLI) scheme for drones and drone components.
The central government’s Ministry of Civil Aviation disbursed INR 30 Cr to manufacturers of drone and drone components under the PLI scheme in FY23 out of a total allocation of INR 120 Cr between FY23 and FY25. Now, startups seek a bigger piece of the national expenditure in the upcoming budget in July.
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Modi 3.0 Can Streamline Disparate Labour Laws For Startups
Contrary to popular perception, labour law compliance for startups is not just about ensuring fair working conditions for employees. In fact, with ESG (environmental, social and governance) goals and new business models, startups need to think deeper.
For instance, the rise of quick commerce has brought establishment compliances into the picture for consumer startups. Factory and plant compliances will become key for D2C brands, semiconductor makers as well as the host of EV and electronics manufacturers coming up. Environment, health and safety compliances vary from business to business and new startups often fall short on some of these aspects.
Given the proliferation of startups, it would be prudent for the government to look at a single-window clearance pertaining to labour law for many of these sectors, which would not only increase ease of doing business by several degrees, but also promote growth of new ventures.
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Increased Tax Benefits To MSMEs For Ecommerce Participation
India’s MSMEs are seen as the backbone of the economy — not just for the present but also for the future, given the government’s big focus on boosting exports. While ecommerce adoption has driven exports, startups believe there is a lot more value that the government can extract by enabling MSMEs to scale up without operational overheads.
For instance, Zameer Malik, the CEO of Kaya Kalp, is seeking a bigger allocation from the government for the ‘Raising and Accelerating MSME Performance’ (RAMP) scheme, which is built around tech adoption.
“This would help MSMEs upgrade their technology, adopt digital solutions, improve quality standards and access new markets. Measures to promote ecommerce among MSMEs such as simplifying the regulatory framework, providing tax benefits, and creating infrastructure for logistics and digital payments will be welcome,” Malik told Inc42 earlier.
He also expects that MSMEs can scale up while keeping operational costs low if there is enough incentive to continue using digital tools. The introduction of ONDC was one such policy, and startups argue that the government could incentivise MSME digital transformation leveraging ONDC’s reach.
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Ease On-Ground Logistics Hurdles In Ecommerce Value Chain
Logistics is one of the biggest drains on brands leveraging ecommerce. Government initiatives such as PM Gati Shakti and the National Logistics Policy have made it a lot easier to ship across India and out of India, but on-ground hurdles and nagging issues persist. These issues have to be cleared to bring in MSMEs to the ecommerce fold and make online selling more sustainable for smaller operations.
While so far the government has looked to increase expenditure on ports, roads and digitisation, it has not had as big an impact on intracity or intercity logistics as expected. A lot of the logistics development is designed to connect large cities and India to other countries, but connectivity to smaller towns is still patchy, which limits the reach of ecommerce deliveries.
While delivery companies claim to have a wide network, most deliveries to smaller towns go through two or three players, which hurts the sentiment of consumers in markets where ecommerce needs to build trust the most.
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Ease Taxation Rules For Startups Reverse Flipping To India
In March 2024, commerce minister Piyush Goyal said Indian startups mulling reverse flipping will have to bear tax liabilities. The government’s view is that it would be difficult to justify exemptions for certain startups or companies from paying taxes, solely because they are moving back to India.
While most startup founders may find this a bitter pill to swallow, what they would seek is some water to go with it. For instance, after redomiciling to India, PhonePe’s CEO Sameer Nigam said the taxes can become a huge burden for a startup that is still early and not scaled enough to handle the costs. “It [taxes] worked for us because we have very long-term investors. We have people like Walmart and Tencent and other balance sheet investors who can take a multi-decade view. But we have about 20-odd unicorns who (have) already reached out to us asking us how we can get this changed,” Nigam said.
After PhonePe, a bunch of companies have decided to reverse flip to India, but their plans have been delayed as they look to minimise their tax burden. For instance, founders claim that startups should be allowed multiple fiscal years to settle the taxes instead of a one-time expense which can be a major overhead. Will the Modi 3.0 government ease the path back to India for startups that cannot afford the big tax bill?
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Bolster GIFT City Physical And Financial Infrastructure
India’s maiden IFSC (international financial services centre) at GIFT City, Gujarat, has created a lot of buzz in the past couple of years as the newfound hub for alternative investment funds (AIFs), fintechs and a diverse range of international financial services. But as Inc42 reported, it’s not all smooth sailing for businesses coming to GIFT City.
Sumir Verma, the head of Merisis Opportunities Fund (a Cat I AIF) and founder & managing director of Merisis Advisors, said, “GIFT IFSC has been successful so far and will continue to be, given it’s a new enterprise. But certain issues must be addressed to provide better clarity to AIFs and boost the project’s overall impact in promoting economic growth. There can be challenges galore such as inadequate [physical] infrastructure, difficulty in INR conversion, long settlement periods or stringent rules around certain overseas transactions. Again, meeting all regulatory requirements may take time and delay operations.”
Plus, despite being an IFSC, GIFT is currently subject to many local laws that are not considered business-friendly, including the lack of open alcohol sales in Gujarat as well as high-speed rail connectivity to major metros, which is important to ensure high levels of employment in the city. Authorities are still working to resolve some glaring conflicts, but this is bound to be a time-consuming process, which many startups and investors would be hoping gets accelerated in the next few months.
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Clarity On RBI Action Against Fintech Players
In line with the call for transparency in regulations, several fintech players have called for RBI to reduce the opacity of its actions. The months-long saga involving Paytm in early 2024 created panic in the fintech ecosystem, leading to unwanted speculation and fears.
Since then, founders have asked for transparency from the RBI and other regulators when taking action against fintech players. Many feel that the RBI needs to allow startups more time to course-correct in case there are issues in their models or compliance. And others pointed out that it can be painstaking to deal with regulators once any official action is taken.
At the same time, fintech ecosystem stakeholders are also increasingly realising that startups cannot just focus on customers, but also need to align with regulators too. As Siddarth Pai, founding partner of 3one4 Capital, said at a recent event in Delhi, founders should not treat regulatory entities as their enemies, and that startups need to be more cognisant of the relationships they have with the regulators and their consumers.
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Final Clarity On RBI’s Stance On Cryptocurrencies
Even though the finance ministry has imposed taxation on cryptos, the Reserve Bank of India (RBI) remains a steadfast opponent of digital currencies. Citing financial risks associated with cryptos, the top officials of the central bank have multiple times called for a ban on them.
However, the government has so far not cleared its stance on the sector. As a result, there is a cloud of uncertainty hanging over cryptos, and startups want this to be addressed as soon as feasible. As they see it, regulations will only serve to encourage crypto startups and their customers instead of the grey status quo.
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Reduce TDS From 1% On Crypto Transactions And Virtual Assets
Another long-standing demand from the crypto ecosystem: reduce the TDS on crypto transactions to spur on investments and economic activity. Manhar Garegrat, country head, India and global partnerships at Liminal Custody Solutions, 1% TDS in 2022 has led to an estimated loss of $420 Mn in government revenue in FY23, primarily due to migration of Indian crypto traders to overseas platforms.
Crypto exchanges also believe that since TDS is a way for the government to monitor the number of transactions, a lower levy would also suffice. However, the crypto ecosystem has been waiting for changes in taxation for more than two years with no success. Will this change under the Modi 3.0 government?
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Create Fraud Protection Frameworks For Crypto Exchanges
Crypto fraud is still a major challenge and only expected to grow with the rise in crypto trading activity. As Inc42 reported recently, India’s crypto startups are on the cusp of another major surge, and this calls for regulations and frameworks to protect investors and exchanges.
Many believe that bringing crypto startups under a regulatory umbrella will serve investors better than spending years unearthing money syphoned off via crypto fraud — just like SEBI regulates public markets and trading platforms to protect investor interest.
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Relief From Retrospective GST Collection From Online Gaming Players
When talking about sectors hit badly by regulations, online gaming is not far behind the crypto industry. The clarity around 28% GST on the full entry fee paid by users in real money gaming has changed the fortunes of the industry. Many believe that while the government is unlikely to change its view on the GST levy going forward, it needs to pay heed to the industry’s demands in relation to retrospective taxation.
Gaming giants like Dream11 and Games 24×7 have received tax notices for thousands of crores, adding complexity and uncertainty to the tax landscape for these entities. Hence, the industry is seeking clarity on the taxation policy now.
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Push Game Development Ecosystem Through Grants, Talent
The online gaming industry is not just about entertainment, but it actually offers job opportunities across content development, game design, animation, programming, engineering, testing, UI & UX design, analytics, marketing, and sales.
One of the reasons why game development hasn’t taken off in India is the shortage of talent across all these areas, especially as startups in other sectors can compete on the basis of VC money, unlike game development.
Consequently, gaming cos are seeking the announcement of skill-building programmes with a focus on the industry in the upcoming budget. “The government should create a SEZ for game development with special incentives to promote and assist skill-building programmes in game design and development,” Nitish Mittersain, MD and CEO of Nazara Technologies, told us in Feb.
Mobile Premier League COO Namratha Swamy believes that dedicated courses in universities and colleges that seek to position gaming as a lucrative career opportunity will help the Indian ecosystem a great deal. MPL runs game development studio Mayhem. “These courses will play a pivotal role in nurturing the next generation of game developers and professionals, ensuring a steady supply of skilled talent to fuel the industry’s growth,” she said.
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Follow Through On Budget Allocation For Animation & Special Effects Industry
The Animation, Visual Effects, Gaming, and Comic (AVGC) task force was constituted in April 202 as part of the National AVGC Mission and had a dedicated budgetary outlay to promote the sector. The task force was said to be looking at sweeping changes to develop the burgeoning sector, but there has been no further update on this for the past two years.
Naturally, AVGC startups, including game development studios, are again seeking clarity and allocation of funds for the AVGC sector in the upcoming Budget in July, once again to be delivered by Nirmala Sitharaman.
Reacting to the lack of action on this front Games24x7 CFO Rahul Tewari told Inc42 in February, “We anticipate the government will continue its support for the burgeoning online gaming industry, in line with previous commitments such as the formation of the AVGC task force. This backing is crucial for fostering innovation in game design and development in addition to nurturing a pool of globally competent resources coming out of India.”
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Opening Up Path For Public-Private Partnerships For Edtech Platforms
The government cracked down on educational institutes, colleges and universities partnering with edtech companies. The University Grants Commission and the All India Council for Technical Education (AICTE) barred colleges from running quasi-franchises through edtech platforms.
While both the bodies had issues with quality control, edtech platforms had called for regulated partnerships rather than a complete bar. With the market for K-12 learning being more or less dead from an edtech point of view, most companies are left with test prep and skill development as the only viable verticals.
Many want to add higher education courses from Indian universities which would be a lot more affordable for students than the current situation where platforms offer courses of overseas universities through their platforms.
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Introduce Production-Linked Incentive Schemes For Spacetech Manufacturing
The space tech Industry wants to borrow the PLI playbook that has worked so well for electronics, EVs and drones. Specifically, startups have called for policy and schemes that would boost manufacturing of space-grade components in India, which would also eliminate supply chain hurdles for current players.
Plus, while Indian space tech is already renowned to be ultra efficient, PLI schemes would help reduce import dependencies by encouraging domestic manufacturing either by global giants or Indian players.
Ahead of the interim budget in February, some industry stakeholders told Inc42 that besides PLI, the government can boost spacetech by extending GST exemption to all rocket vehicles, satellites, and ground equipment manufacturing.
