– By Rahul Garg
The startup ecosystem has cemented itself as the heart of India’s flourishing economy in recent years. In 2022, the sector attracted a substantial US$ 42 billion in funding, reflecting its transformative potential. As we enter 2025, these startups still hold the key to India’s long-term economic expansion. According to the Confederation of Indian Industry (CII), Indian startups are set to generate 50 million new jobs and add an astounding US$ 1 trillion to the economy by 2029-30 (FY30). This momentum positions startups as critical players in India’s pursuit of becoming a global manufacturing powerhouse. The approaching Union Budget, set to be presented on February 1, 2025, offers a unique opportunity to drive India’s manufacturing future with a clear focus on the startup ecosystem.
Prioritizing Major Emerging Sectors: A Focus on the Semiconductor Sector
One of the most effective strategies to help the manufacturing startup ecosystem flourish is by expediting the progress of emerging industries with the highest potential. India’s blossoming semiconductor industry comes at the very top of this list. With transformative programs such as the India Semiconductor Mission in action, semiconductor startups already have a strong foundation for success. And with commitments to future projects, the India Electronics and Semiconductor Association (IESA) has proposed extending the PLI scheme with an additional allocation of US$ 20 billion over the next five years.
The Budget 2025 can reduce India’s dependency on other nations and allow local production to grow by focusing on the expansion of this sector even further. Opportunities in this sector include allocating funds for developing fabs and packaging facilities, nurturing talents with fresh ideas and innovative approaches, and introducing additional incentives and tax benefits for exports of semiconductor and electronics products. Ultimately, this can help India reach its ambitious goal of a 20-25% share in the global semiconductor value chain by 2047.
Targeted Incentives and Policy Reforms
One of the most effective ways to boost the manufacturing startup ecosystem is through targeted incentives. Focusing specifically on this sector, the government can offer incentives such as tax breaks on R&D spending in high-value areas such as robotics, automation, and AI. Similarly, subsidies can be provided for startups adopting innovative solutions and strategies such as 3D printing, IIoT, advanced materials, and sustainable manufacturing. The government can also promote collaborations between emerging startups and large manufacturers to foster resiliency and mutual growth. This can be incentivized through co-development grants or tax benefits.
On a similar note, changes to existing policies and regulations can improve the ease of conducting business. This creates a more conducive environment for the development of manufacturing startups. The first step is to acknowledge existing structural issues that impede manufacturing growth, such as high tariffs and complex business regulations. With the Budget 2025, the government has the opportunity to eliminate customs tariffs on essential materials such as aluminum, silicon, lithium, steel, copper, and more. This can massively reduce costs for Indian startups, giving them a boost to compete in global markets. It can also lead to the easier production of electronics on a larger scale. Similarly, by simplifying regulatory compliance and labour laws, operational hurdles for manufacturing startups can be significantly reduced.
Finally, after making policy reforms and regulatory changes, the next step is to track their effectiveness. To ensure the success of budgetary allocations and policy measures aimed at benefiting the manufacturing startup ecosystem, robust monitoring and evaluation frameworks are critical. These frameworks need to assess metrics like fund utilization, job creation, and export growth in real time to promptly suggest interventions and course corrections.
Promoting Funding in Manufacturing: Overcoming Declines and Lowering Taxes
Another approach to fostering a vibrant manufacturing startup ecosystem can be addressing the funding decline and promoting investments. In the first nine months of 2024, funding among Indian startups declined by 7%. To counter this drop, the government has already announced the abolishment of angel taxes and the extension of the tax holiday. Now, the government can double down on this support with a key focus on India’s manufacturing sector.
Unlike sectors such as fintech and cybersecurity, manufacturing startups often struggle to attract the same capital due to their perceived risks. The government can help bridge this funding gap by announcing dedicated funds to support manufacturing startups during their nascent stages. This strategic funding can be used for low-interest loans or grants. The government can even offer further tax incentives to angel investors and venture capitalists backing the manufacturing industry.
Developing Infrastructures to Support Emerging Startups
One more effective way to support emerging manufacturing startups and existing industry players alike is by strengthening key infrastructures. To effectively export Indian goods to the world, improving the country’s ports can be the most essential area to target. Currently, India has an installed port capacity of only 2.6 billion tonnes. However, with the goal of becoming an alternate option to China, India needs to expand its port capacity exponentially.
The Budget can bolster the shipping infrastructure by adding measures to enhance PM Modi’s “Maritime Amrit Kaal Vision 2047.” This can lead to higher port efficiency and easier logistics. Similarly, the Budget can also include plans to expedite the construction of the new gigantic port being built on the Maharashtra coast. By supporting the shipping infrastructure, the Budget 2025 can propel the country’s manufacturing base and empower emerging startups.
Skill Development for Manufacturing Growth
A thriving manufacturing startup ecosystem requires a skilled workforce equipped to handle the latest technologies and platforms. Investing in skill-building initiatives based on advanced manufacturing technologies is essential to fostering a workforce ready to meet the sector’s evolving demands. With the Budget 2025, the government can boost partnerships between business leaders and academic institutions to construct effective incubation programs and entrepreneurship courses focused on manufacturing. These programs can provide students with critical information about the modern manufacturing industry, empowering budding entrepreneurs to turn ideas into the next unicorns.
What’s more, skill development programs can give young leaders a comprehensive idea of global trade dynamics. By carefully analyzing geopolitical shifts and supply chain realignments, Indian manufacturing startups can position themselves as key players in emerging global markets. This can help leaders identify export opportunities, adapt to evolving business requirements, and leverage trade policies for success. Ultimately, this significantly uplifts startups and drives the manufacturing sector’s progress.
The Budget 2025 presents a unique opportunity to propel India’s manufacturing ambitions by fostering a vibrant startup ecosystem. By prioritizing infrastructure development, addressing funding declines, offering targeted incentives, and focusing on skill development, the government can bring India’s manufacturing renaissance to life.
(Rahul Garg is the Founder & CEO of Moglix.)
(Disclaimer: Views expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproducing this content without permission is prohibited.)