Viewpoint: India's Budget 2025 lays foundation for deep tech innovation

Viewpoint: India's Budget 2025 lays foundation for deep tech innovation

Pranav Pai, Managing Partner, 3one4 Capital

The author is the founding partner at early-stage investment firm 3one4 Capital.

India’s Union Budget 2025-26 introduces several measures to significantly support India’s fast-growing economy. It emphasises enhancing the spending power of the middle class, promoting inclusive growth, and encouraging private investment.

Key highlights include raising the nil tax slab threshold to Rs 12 lakh ($14,000) per annum and recalibrating tax slabs and rates, aiming to boost consumer demand.

The Government anticipates a nominal GDP growth of 10.1% and a fiscal deficit of 4.4% of GDP for 2025-26, so the growth support remains a clear priority. The proposed measures also focus on boosting agricultural output, establishing a National Manufacturing Mission, and a national framework to help states promote Global Capability Centres (GCCs) and enhance the availability of talent and infrastructure in tier II cities. It also introduces incentives and funds to support startups, small firms, and manufacturing, with priorities on infrastructure development, regional air connectivity, and critical minerals development.

In short, this is a broad-based and well-articulated foundation for many more reforms to be implemented in a cascade that can have a radically accelerating impact on several critical technological sectors.

Tax reforms and their implications

A notable aspect of the Budget is the recalibration of personal income tax slabs, with the nil tax slab threshold raised to Rs 12 lakh annually. This move is expected to increase disposable incomes, thereby stimulating consumer demand—a positive signal for tech startups targeting the middle-class demographic. Enhanced consumer spending can lead to higher adoption rates of tech products and services, providing startups with a broader market base.

Support for deep tech and innovation

The Budget acknowledges the pivotal role of deep tech in driving future growth. Industry bodies like Nasscom and venture capital firms like 3one4 Capital have advocated for the creation of a central deep tech fund to support startups specialising in areas such as artificial intelligence, machine learning, cybersecurity, advanced robotics, and more.

Such a fund would provide essential risk capital stimulus, enabling startups to innovate and scale their operations. Additionally, the establishment of AI research centres and the launch of upskilling programmes are anticipated to bridge the talent gap in the sector, positioning India to compete globally in AI technology. Given the lead of the larger economies like the US and China, there is an urgent requirement to unify a National Mission for AI and Frontier Technologies, and this budgetary allocation could be the spark to do this.

Infrastructure development and digital connectivity

The Budget’s focus on infrastructure development, including regional air connectivity and critical minerals development, indirectly benefits tech startups by improving logistics and supply chain efficiencies. Enhanced infrastructure facilitates smoother operations for startups, particularly those involved in hardware manufacturing or distribution. Improved connectivity also opens up new markets, allowing startups to expand their reach to previously inaccessible regions.

Considerations for further reform

While the Budget introduces several supportive measures, challenges remain. The effectiveness of the proposed measures will depend on their implementation and the ability of startups to access these opportunities. Continuous dialogue between the Government and the startup community will be essential to target emerging challenges and ensure sustained growth. Even when the Budget announces financial support, we need urgent follow-up policy that is deliberate in its focus to address critical concerns in every technological vertical.

For instance, to ensure that the Indian EV industry has the right foundational platform from the Government to succeed, we need a dual policy strategy on manufacturing and critical material procurement.

  1. Support for domestic manufacturing:

Post-Budget policies are required to continue to boost domestic manufacturing, including incentives for local production of EV components. This move must focus on the reduced reliance on imports, particularly from China. We have not seen Government support at the scale and timeline as it has been extended in the US and China, so the Government of India has to accelerate this priority. Top line announcements are insufficient—we have to see urgent action on the ground. We need to relax the gating of deployment of these subsidies and incentives, or risk losing global competitiveness in this sector.

  1. Critical materials procurement and diversification:

The Economic Survey acknowledged the importance of critical minerals for EV batteries and the Government has to now support plans to secure access to these resources. This could involve exploring partnerships with countries that have reserves of these minerals, like Australia, Chile, and Argentina, which have abundant reserves of lithium, cobalt, and other critical minerals. We need urgent action to establish long-term supply agreements and joint ventures in this domain, just like we have for oil and coal.

The Government must also accelerate domestic exploration. A deliberate and focused policy for exploration of critical minerals within India is essential to allow local innovation to be globally competitive. The Government must Invest in geological surveys and mining infrastructure to identify and extract these resources. Excessive controls and regulations in this sector have to be made redundant to allow rapid development of indigenous material supplies.

Another vital component is incentivising materials recycling and urban mining. By incentivising the development of recycling technologies to recover critical minerals from spent EV batteries, we can reduce dependence on primary sources and create a circular economy for these materials.

Through tax reforms, support for deep tech, and infrastructure development, the government has signalled its commitment to support the country’s technological progress. This is a great step forward in the right direction, but more policy and intentional public-private collaboration is required to firmly establish India as a formidable competitor in global technology and innovation.

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