India Approves $1.1 Billion State-Backed VC Fund to Fuel Deep Tech and AI Startups

The Indian government has approved a $1.1 billion state-backed venture capital program to invest in high-risk deep tech sectors like artificial intelligence and advanced manufacturing.

This fund of funds will channel government capital through private investors, targeting early-stage startups and expanding beyond major cities.

Building on Proven Success

A similar program launched in 2016 committed ₹100 billion to 145 private funds, resulting in over ₹255 billion invested across more than 1,370 startups.

India's startup ecosystem has exploded from fewer than 500 companies in 2016 to over 200,000 today, with a record 49,000 registrations in 2025.

Addressing Funding Challenges

Despite the growth, startups raised only $10.5 billion in 2025, a 17% drop from the prior year, with funding rounds falling nearly 39% to 1,518 transactions.

Private capital has grown more selective, making government intervention crucial for high-risk deep tech ventures that require longer horizons and larger investments.

Recent rule changes extend the startup classification period for deep-tech firms to 20 years and raise the revenue threshold for benefits to ₹3 billion.

Future Boost for Innovation

IT Minister Ashwini Vaishnaw emphasized the program's flexibility following extensive stakeholder consultations.

The initiative aims to strengthen domestic VC firms and support founders in tier-2 and tier-3 cities, positioning India as a global deep tech hub.

Coinciding with the upcoming India AI Impact Summit, it signals deeper collaboration with tech giants like OpenAI, Google, and Reliance Industries.

This strategic move could catalyze India's ambition to lead in AI and manufacturing amid a challenging global funding landscape.