Tracxn: Union Budget 2026–27 Signals Long-Term Capacity Building for India’s Startup & Tech Ecosystem; Indian Startups Funding Moderated Down To 13% Y/Y
FinTech BizNews Service
Mumbai, 5 February 2026: Tracxn has released its key highlights of the Union Budget 2026–27, highlighting a clear policy shift from consumption-led stimulus toward supply-side enablers, digital infrastructure, and long-term capacity creation. The budget emphasises fiscal discipline and execution while continuing to back innovation-driven sectors that underpin India’s position as the world’s third-largest startup ecosystem.
Highlights:
Capital expenditure has been proposed at Rs12.22 lakh crore (4.4% of GDP), despite constrained tax inflows and a rising interest burden that now absorbs nearly 49% of net tax revenues. According to Tracxn, this reflects the government’s continued prioritisation of infrastructure-led growth, with private capital expected to complement public spending to achieve the targeted 10% nominal GDP expansion.
From a startup lens, the policy direction aligns with an ecosystem that is maturing toward capital efficiency and durable innovation. Tracxn data shows Indian startups raised an estimated $11B in 2025, even as funding moderated down to 12–13% year-on-year, with investors increasingly favouring defensible IP, sustainable unit economics, and deep-tech capabilities over rapid scale alone.
Artificial intelligence emerges as a horizontal productivity driver across sectors. Tax benefits for foreign companies establishing data centres in India until 2047, higher IT and telecom allocations of Rs74,560 crore, and expanded Safe Harbour provisions collectively strengthen domestic compute capacity and reduce regulatory friction. Tracxn data indicates that India already hosts 483 AI infrastructure companies that have raised $404M, alongside 207 cloud infrastructure startups and 64 data-centre-focused companies, signalling growing specialisation across the compute stack.
Deep-tech enablement forms a second pillar of the budget. A proposed Deep Tech Fund and the rollout of ISM 2.0 aim to strengthen full-stack Indian intellectual property across semiconductors, AI, biotech, defence, and advanced manufacturing. India’s semiconductor ecosystem alone comprises nearly 3,000 active startups that have raised about $930M in the last five years, with funding accelerating sharply in 2025. The design-linked incentives and fiscal support for fabs and compound semiconductors are expected to further catalyse domestic capability.
The government’s Bharat-VISTAAR initiative integrates multilingual AI with Agri-Stack infrastructure, embedding AI directly into agriculture. This aligns with an agritech ecosystem of over 5,000 companies that have collectively raised approximately $4.8B across 1.28k rounds, with increasing public-market exits, underscoring growing maturity.
Clean energy and sustainability also receive significant attention. Allocations include Rs20,000 crore for Carbon Capture, Utilisation and Storage (CCUS), a tenfold increase in viability gap funding for battery storage, and Rs22,000 crore for rooftop solar expansion. Tracxn tracks around 425 active green-energy startups that have raised $1.01B over the past five years, reflecting strong investor confidence in India’s decarbonisation opportunity.
Strategic sectors such as defence and space continue to see higher capital commitments, with defence capital outlay rising to Rs2.19 lakh crore and space tech funding at Rs10,397 crore. These moves coincide with an expanding private ecosystem: approximately 230 defence-tech startups have raised $622M, while nearly 240 space-tech companies have attracted close to $600M in funding. Policy measures such as MRO customs duty exemptions and support for dual-use technologies are expected to strengthen domestic manufacturing and reduce import dependencies.
For the broader startup and SME base, the budget introduces structural liquidity and capital access reforms. Liberalised NRI/PIO investment norms, securitisation of TReDS receivables, a Rs10,000 crore SME Growth Fund, extended startup tax holidays until 2030, and fast-track mergers collectively reduce financing constraints and regulatory complexity. These measures support what is increasingly described as India’s “Orange Economy” — driven by knowledge, technology, and innovation rather than traditional factor inputs.
“Union Budget 2026–27 reflects a structural approach to growth, where execution and long-term capacity building take precedence over short-term sentiment management,” said Neha Singh, Co-founder, Tracxn.
Overall, Tracxn’s analysis indicates that the budget prioritises foundational capability creation across compute, capital, energy, and strategic technologies. While near-term funding cycles may remain measured, these supply-side enablers position India’s innovation ecosystem for sustained and execution-led growth over the next decade.
