What’s In Store For The Indian Startup Ecosystem?

Indian investors are of the opinion that Donald Trump’s second term as the President of the US could bring with it a greater US investor interest in Indian startups

A key factor behind Indian startup ecosystem growth over the years has been fresh capital infusion from US-based hedge funds, VCs and private equity players

Trump’s previous stint as President also led to what some might call stronger relations between the Indian government and US policymakers

After a landslide victory for Republican candidate Donald Trump in the US Presidential elections, all eyes are on how the Trump 2.0 administration will deal not only with geopolitical issues but also the US trade relations and investments in India. 

For India, Trump’s previous stint as President led to what some might call stronger relations between the Indian government and US policymakers. With India’s prime minister Narendra Modi being one of the first leaders to congratulate Trump on his victory, pundits expect a similar trajectory of diplomacy between the countries. 

In the past four years, when Trump was not in the Oval office, India has seen its domestic business landscape grow exponentially primarily due to the Indian startup ecosystem gaining steam. For perspective, the country’s startup ecosystem has grown from just a mere 450 startups in 2016 to a whopping 1.4 Lakh in 2024. 

A key factor behind this growth has been capital from US-based hedge funds, VCs and private equity players. In the last year of the previous Trump administration, the US Federal Reserve adopted the low interest rate and then zero interest rate fiscal policy to boost economic activity during the pandemic. This led to several major US investors loosening the purse strings and backing Indian startups in a big way. 

For context, Indian startups netted over $42 Bn in 2021. However, the momentum subsided as the US Federal Reserve increased the interest rates to curb inflation in the country. The past two years have been relatively calmer after the storm of 2021. 

Will the Trump 2.0 administration reverse this trend? Investors Inc42 spoke to are optimistic that India could once again see a big swing under Donald Trump.

Trump’s Oval Office To Improve Global Tech Scenario?

While Trump will take the spotlight, US vice president-elect JD Vance has a background in the VC world. Being a part of investment firm Revolution LLC, Vance was tasked to find investment opportunities outside of the preferred American startup investment hubs like Silicon Valley and NYC in 2017. Besides Vance, another key figure likely to join the Trump brigade is SpaceX and Tesla CEO Elon Musk. 

“I believe that the landscape for startup opportunities in cross-border markets is likely to thrive with the new US administration. The inclusion of technocrats at the helm of the government is likely to drive the growth of the IT sector and a robust startup ecosystem,” venture capitalist firm Prime Venture Partners managing partner Sanjay Swamy told Inc42. 

Taxation Cuts To Bring Back Funding Levels?

Another key factor is the potential changes in taxation to favour large corporations. 

According to a report by the Associated Press, Trump will be looking to extend his 2017 tax overhaul along with changing the corporate income tax rate to 15% from the current 21%. 

Swamy believes that such changes might have a trickle-down effect on the Indian startup funding landscape. However, the returns might take their time to come in. “While startup investments may take time to yield returns, they hold great potential for delivering significant value, particularly for US stakeholders. The future looks promising for those who navigate this evolving landscape,” he added. 

While there is optimism around the said tax cuts, Playbook Partners’ managing director Dushyant Singh is of the opinion that the Indian market will largely remain untouched by the developments that happen in the US. 

The primary factor is the fact that Indian markets are approaching a stage of maturity. The Indian public markets have largely been on a bull run in recent months. 

In the past six months, the BSE SENSEX has grown about 8%. Plus, this year has seen about 74 IPOs till date and more are expected to come in by the end of 2024. 

“The growth of most Indian businesses is fundamentally driven by robust local demand, a thriving digital economy, and supportive domestic policies. While a buoyant U.S. economy may provide favourable conditions for SaaS companies targeting American businesses, the core attractiveness of India’s domestic market will remain unaffected by political changes in the US,” Singh said. 

However, he observed that the domestic markets are still bullish on the Trump administration. This positive market sentiment is likely to drive an increase in investments in India, as one of the most attractive growth markets should see an increased inflow of growth capital.

China+1 Strategy To Intensify? 

Arguably the most critical element of Trump’s election rhetoric was his emphasis on US-first philosophy for the economy, and moving away from Chinese imports. 

This could potentially see stricter immigration policies as well as a crackdown on illegal immigration. Trump has also been vocal about his distrust of world markets that are harmful to American interests. 

He proposes tariffs of 10% to 20% on foreign goods, specifically targeting China. Trump has even pledged to block purchases of “any vital infrastructure” in the US by Chinese entities.

This could spur the China+1 strategy that has already seen India receive a chunk of investments for manufacturing, besides other developed nations. US-based manufacturers like Apple among a host of other major conglomerates have increased their production capacity in India on the back of this push.

While the contours of the US policy on China is anybody’s guess at the moment, Indian VCs expect more investments in manufacturing, electronics systems and chemicals industries. 

Swamy observed that the manufacturing push will have a trickle-down impact on other industries as well. “To remain competitive, manufacturing will need an upgrade in technological infrastructure, fostering both domestic production and cross-border collaborations. This will lead to trickle-down growth prospects for entities in the tech layer as well,” he said.  

In his previous presidency, Trump has been bullish on cutting down on costs for healthcare for the American public. 

While the focus on healthcare is expected to be similar, Auxano Entrepreneur Trust managing partner Brijesh Damodaran believes that combined with a more pronounced corridor for India-US trade, this could potentially lead to heightened investor interest in the healthtech and biotech sector of India. 

A major difference this time around is likely to be a complete move away from clean energies. Trump has pledged to halt renewable energy projects on his first day in office and has sent shockwaves through the industry.

Needless to say, the anti-renewable energy sentiment sent shares of multiple companies on a downward spiral in America. US-based climate tech VC firm Green Frontier Capital’s founder Sandiip Bhammer believes that while this could be bad news for US-native entities it could benefit Indian startups.

“Under Trump’s admiration, there exists the potential for a lesser focus on green technology. However, Indian startups prioritising innovation in critical areas such as manufacturing, industrial technology, and infrastructure could still benefit,” he added.