Startups Feel Left Out as Budget Bets Big on Infra Over Innovation

The Union Budget 2026-27 has reinforced India’s intent to scale in manufacturing, digital infrastructure, and MSMEs. But for the country’s startup ecosystem, particularly AI and deep tech founders, the silence has been striking. 

Despite repeated assertions that innovation will power India’s next growth cycle, the Budgetoffered no direct roadmap for startups building frontier technologies, raising questions about whether fiscal targets actually align with state-level ambition and private-sector momentum. The omission is even more stark given that state governments, from Karnataka to Tamil Nadu, rolled out startup and AI policies over the past year, promising access to computing resources, innovation grants, and regulatory support.

However, Budget 2026 made no explicit mention of AI startups, deep tech investments, or early-stage innovation funding. The finance minister offered no clarity on tax incentives, restoration of weighted R&D deductions, or how startups are expected to access compute infrastructure, now a foundational input for AI development.

Infra Gets Money, Startups Get Silence

The contrast between intent and execution has not gone unnoticed. “For India’s startup ecosystem, this Budget is largely silent,” says Sagar Vishnoi, director and co-founder of think-tank Future Shift Labs, during a post-Budget discussion with AIM. 

While acknowledging the government’s focus on infrastructure, he notes that investment in startups and research was absent. “There are a lot of announcements, whether related to semiconductors or data centres, but not touching the investment part towards funnel funds, or putting more research funds into pushing the startups,” he adds.

The Budget, however, did make buzz with large headline allocations. The Electronics Components Manufacturing Scheme (ECMS) outlay was nearly doubled to ₹40,000 crore, a move widely welcomed by the industry. “The near-doubling of the semiconductor outlay… strengthens core tech infrastructure, reduces import dependence, and positions Indian innovators to compete credibly in the global technology race,” Vishnoi tells AIM, in a separate statement. 

But founders argue that while such investments build the supply-side backbone, they do little to address the immediate constraints startups face at the application and model layers.

The Missing Pieces

For AI and deep tech startups, access to compute is the single largest bottleneck. Training models, running simulations, and deploying AI systems require capital-intensive infrastructure controlled by a handful of global cloud providers and coming at an ever-increasing price tag amid the weakening rupee. 

Yet Budget 2026 made no reference to compute credits, GPU access schemes, or subsidies for early-stage startups. “There is no announcement regarding compute capacity,” Vishnoi notes. “No announcement regarding more resources for research, or even pushing more funds for the fund of funds for startups.” 

This gap becomes more glaring when viewed against global trends. Governments in the US, EU, and parts of Asia are actively underwriting AI infrastructure, either through direct subsidies or preferential access to national compute facilities. In India, founders are being asked to compete globally without comparable support, even as policymakers stress the importance of AI sovereignty.

Several ecosystem leaders acknowledge that the Budget does improve conditions for growth-stage enterprises and MSMEs. “This year’s Budget gets the MSME playbook right by moving beyond short-term relief to structural reform,” says Sai Pramodh, VP of investments at BlackSoil, citing the ₹10,000-crore SME Growth Fund and expanded credit mechanisms. 

However, these measures primarily benefit businesses with revenue visibility and considerable cash flows, not startups still in the experimentation and R&D phase.

“While it’s encouraging to see initiatives like the SME Growth Fund and enhancements to TReDS (Trade Receivables Electronic Discounting System, designed for MSMEs), the Budget leaves a notable gap when it comes to supporting deep tech and AI-led innovation at a national scale,” highlights Vaibhav Poonekar, CTO of tech consulting firm Decimal Point Analytics. 

Deep tech startups often operate on long development cycles with delayed commercialisation. Without targeted fiscal support through R&D incentives, patient capital, or compute access, they risk either stagnation or relocation. 

According to a recent ET report, over 100 Indian deep tech startups are either planning to or have moved base to the US over the past couple of years.

“Policies at the state level show that there is appetite and understanding for fostering deep tech ecosystems,” Poonekar asserts. “But without a coordinated national roadmap, scaling cutting-edge innovation remains challenging.” 

Budget Builds Capacity, Not Confidence

The Budget’s silence on tax reform has further added to founders' unease. While the removal of angel tax in 2024 was seen as a positive step, compliance complexity and lack of fresh incentives continue to weigh on startups. 

“Startups nurture when compliances and barriers are removed,” Vishnoi stresses. “There should have been more efforts towards removing those barriers… so they can develop their product and [get] access to [an open source database].” 

In contrast, established IT services companies received clearer signals. Measures such as streamlined Advanced Pricing Agreements and greater tax certainty for cloud service providers were welcomed by industry leaders. 

Priyanka Aeron, co-founder and CEO of Thrive Global AI, notes that while these measures reflect India’s intent to lead as a digital innovation centre, AI startups require more than stability; they need capital funding and policy guidelines governing compute, data, and cross-border operations.

The gap between infrastructure creation and innovation enablement is wider than ever. The Budget leaned heavily into data centres, content creation labs, IT, and software development—areas where large corporations and global players are already committing billions. 

“Big Tech is already investing,” Vishnoi notes. 

This concern is amplified by the need to accelerate AI research from India. While the US and China dominate AI output, India accounts for only a fraction of frontier research, ranking 14th in publishing top-tier conference papers, according to a Change Engine study. This imbalance, founders say, cannot be corrected without sustained public investment in early-stage innovation. 

The Budget’s lack of a three-to-five-year vision for AI startups, they argue, leaves too much uncertainty. “What is the bigger vision for the next three or five years regarding emerging tech and AI?” Vishnoi asks. “Such outlays should have been there within this budget.”

Some policymakers and ecosystem leaders maintain that the Budget creates indirect momentum. BV Naidu, chairman of the Karnataka Digital Economy Mission (KDEM), says the continued emphasis on digital infrastructure and MSME enablement would support startup-led innovation over time. Meanwhile, Padma Reddy Sama of indigenous public cloud provider BharathCloud argues that increased AI adoption across enterprises could eventually drive demand for deep tech solutions.

But for many founders, indirect benefits are not enough. As Vishnoi puts it during the post-Budget discussion, the concern is not whether India can educate engineers or build infrastructure, but whether it can show a clear path for students, researchers, and entrepreneurs to build a globally competitive company at home.