As finance minister Nirmala Sitharaman prepares to present the Union Budget on February 1, there’s an unusual mix of urgency and maturity bubbling in the Indian startup ecosystem.
The conversation has moved decisively beyond tax holidays or symbolic incentives. Instead, founders and investors are calling for structural interventions that determine whether India retains ownership of innovation or continues to lose value as startups scale.
Entrepreneurs and investors tell AIM that while personal tax relief and consumption-led growth will dominate popular attention, the real test of Budget 2026 lies in how it treats technology, manufacturing, and innovation as long-term economic infrastructure.
From Innovation to Infrastructure
Several founders argue that India must rethink how it categorises emerging technologies, especially AI. “As India stands at the cusp of an AI revolution, the upcoming Union Budget must pivot from viewing AI as a mere software vertical to treating it as strategic national infrastructure, akin to power or telecom,” says Amit Kumar Tyagi, co-founder and CEO of business intelligence solutions company TrueReach AI.
Tyagi points to a fundamental mismatch: while Indian startups are expected to compete globally, the country spends only about 0.7% of GDP on R&D, far below the global average of nearly 2%. He urges the restoration of the 200% weighted tax deduction for R&D, particularly for deep tech startups that operate on long development cycles and delayed revenue realisation. Without this, he argues, India risks remaining an AI consumer rather than a creator.
The weighted deductions were phased out in 2021 under Section 25 of the Income Tax Act. Currently, startups can qualify for a 100% tax deduction for both in-house and outsourced research, capital and revenue costs combined.
Compute access has emerged as another pressure point. In its Budget expectations, Deloitte noted that high infrastructure costs, especially for GPUs and advanced hardware, are constraining domestic AI development even as global investment in the sector accelerates.
Tyagi proposes a national compute credit scheme and a 3–5 year customs duty holiday on critical AI hardware such as GPUs and TPUs, warning that without affordable access to the physical backbone of AI, Indian startups will remain structurally disadvantaged.
That concern resonates with other founders. Ankush Sabharwal, founder and CEO of conversational AI startup CoRover, says startups are watching closely for targeted AI R&D funding and infrastructure investments that align India with global trends.
“The technology sector is poised to contribute over $1 trillion to the global economy by 2030, but India faces a shortage of nearly two million AI professionals,” he says, adding that investments in skilling and infrastructure must move in tandem to build a sustainable ecosystem.
At the operating level, founders building from India say cost and access matter more than headline schemes. Paramdeep Singh, co-founder of Shorthills AI, notes that while government initiatives such as IndiaAI Mission and subsidised GPU access help, many mature startups still rely on hyperscalers like AWS and Azure for speed and scale.
“Quick access to technology would definitely be welcome,” Singh highlights, but adds that predictability and execution matter more than announcements when building enterprise-grade AI systems.
Scaling Without Losing Ownership
A deeper anxiety is plaguing India’s startup ecosystem: who owns innovation once companies begin to scale.
Prem Barthasarathy, founder and managing partner at UK-India VC fund Pontaq, frames this as a structural failure rather than an execution gap. As companies move from validation to deployment, founder ownership often falls sharply, from nearly 80% at inception to below 20% by the Series C round. For several large Indian technology platforms, foreign ownership has already crossed 70%, Barthasarathy stresses.
“This is not a failure of ambition,” he says. “It is a financing gap at the most value-accretive stage.” He argues that the Union Budget presents an opportunity to formally recognise mass commercial deployment as a distinct financing phase and enable regulated, non-dilutive instruments such as revenue-linked or cash-flow-based financing.
Coordinated regulatory pathways across SEBI, RBI, and IFSCA could unlock long-term capital from global pension funds and sovereign wealth funds seeking predictable yield, while allowing Indian startups to retain IP and strategic control.
Without such frameworks, he warns, India risks creating innovation domestically but exporting economic value abroad.
Founders building hardware and manufacturing-led startups echo this concern. Shishir Gupta, co-founder and CEO of IoT-focused Oakter, says the Budget must decisively move India beyond assembly-led production. “For companies building products from concept to scale in India, the priority must be design-linked incentives, deeper component localisation, and easier access to working capital,” he says.
Gupta adds that refining and expanding production-linked incentive support for original design manufacturer (ODM)-led manufacturing, alongside targeted incentives for batteries, power electronics, IoT hardware, and semiconductor-linked supply chains, could significantly improve India’s global competitiveness. He also points to operational bottlenecks that erode margins, calling for stable GST structures, faster input tax credit refunds, and infrastructure support for automated factories.
Data, Markets, And the Role of the State
Beyond capital and infrastructure, founders increasingly see the state as a potential market-maker rather than just a regulator. Priyanka Aeron, co-founder of Thrive Global AI, says AI startups face friction in accessing large customers.
“Reduced compliance frameworks and stronger public-private collaboration will help startups gain access to markets faster,” she says, adding that responsible AI governance must evolve alongside innovation to build trust and global credibility.
Agritech founders also have similar concerns about last-mile execution. Anand Chandra, co-founder and executive director of Arya.ag, points to near-farm infrastructure such as micro-warehousing and scientific storage as interventions that have already improved farmer incomes and reduced distress sales.
He hopes the Budget will continue supporting decentralised infrastructure, inclusive finance, and stronger farmer-producer organisations, while recognising the role startups play in deploying drones, AI-based grading, and climate advisories at scale.
For AI startups like Shorthills AI, access to data remains a sensitive but critical issue. Co-founder Pawan Prabhat argues that India’s data protection norms, while necessary, limit even anonymised data access for legitimate innovation. He suggests that a structured, anonymised data-sharing framework, similar in spirit to public digital infrastructure initiatives, could be a game-changer for domestic AI development.
Prabhat also believes government departments could play a stronger role as early anchor customers. Simplified procurement mechanisms, pilot-friendly frameworks, and partnerships involving academic institutions could help startups demonstrate value without navigating prolonged tendering processes.
What sets Budget 2026 apart from earlier years is the sophistication of expectations for startups. Founders are calling for targeted interventions, R&D-linked tax incentives and affordable compute access.
The post Compute Credit, R&D, Capital: Inside Startups’ Budget 2026 Wishlist appeared first on Analytics India Magazine.