Budget is very good for startups but more funds should have been allocated, says Mohandas Pai

Former Infosys board member and Aarin Capital Co-founder TV Mohandas Pai has stated that while the Budget is excellent for startups, the government’s Rs 10,000-crore allocation for the startup fund is not enough if India wants to become a leading player in artificial intelligence (AI) and GenAI.

The Union Budget for 2025-26 allocated an additional Rs 10,000 crore for the startup fund, alongside the announcement of a dedicated deeptech fund. These measures were welcomed by the startup community as a step in the right direction.

However, Pai, in an interview with YourStory, emphasised that these provisions should have been much more. “As a nation, we need to have bigger ambition on AI and this can be driven only by startups,” he stated.

Edited excerpts from the interview:

YourStory [YS]: What are your views on Union Budget vis-a-vis startups?

Mohandas Pai [MDP]: The Budget was very good for startups. The Rs 10,000 crore fund is a good move, but it should have been Rs 50,000 crore, because the Rs 10,000-crore fund came in 2016, but now the size of the ecosystem is much bigger. Also, the Rs 50,000 crore fund is not much for the government as its annual budget is around Rs 50 lakh crore.

I say Rs 50,000 crore because such money is required if India has to compete in the age of AI and digitisation. China invested $835 billion (from 2014 to 2024) and the US invested approximately $2 trillion. India has allocated only $150-160 billion. So, we need this money to get that confidence. In fact, every state government across India should set aside a Rs 1,000-2,000 crore fund to foster entrepreneurship and startups, and create jobs.

We are currently a $4 trillion economy and going to become a $10 trillion one, so we must aim higher. Even the deeptech fund is small, which is not enough to build an AI company. This bigger ambition will have to be led by startups and the government needs to step up by providing funding and grants, rather than just managing or doing programmes.

YS: How do you see the progress made by Indian AI startups?

MDP: We need money. If you want original work, you need money. Who is giving money? Are there any large funds? Our universities don’t have money to invest in research. We don’t have any public funds except for the startup fund. Are the big IT companies putting up money? No. Why not? Because it is very risky. Why should you do it? They want to copy. They want the easy way out. DeepSeek has shown the way that one does not need large amounts of money to build AI models. We need to focus on building AI solutions for specific industries.

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YS: Do you see India playing a critical role in the world of AI?

MDP: Absolutely. In use cases of vertical AI, Indian startups will be very good players. There are only three countries which can work on that—the United States, China, and India.

For example, all the Indian SaaS companies have become AI first. The mentality has changed. That means AI has become horizontal, and everybody will use it. We have got large databases. Now the question remains on the use cases and how they are going to deploy.

YS: Is it necessary to have our own AI foundational models?

MDP: Well, I think that’s required, because, you know, if you use ChatGPT, all the learning goes to them. It makes them more powerful and us vulnerable. So, we need our own foundational AI model, which can work at 90% of ChatGPT. But that again requires money. That’s exactly what we should do as a public foundation. We need something like Aadhaar to create a public AI platform and it is for others to build their revenue model on this. But who’s going to get the money for them? They have to raise money, and the government has to say it is willing to fund. The government has to say, if you come up with a viable model, it will give 20-30% of funding and the remaining amount can be raised by other sources.

YS: Why are Indian IT companies not investing in AI models?

MDP: They have invested in AI. Each Indian IT company is investing in vertical AI and they’re investing to make their offerings better. They’re becoming more productive. They’re training the people. They are users of technology, not creators. Startups are the creators of technology. India will have the largest number of people who are trained in use cases of AI and AI implementation in the world. The work is already happening in a big way, and all indications are that India will be the largest. But let’s not confuse the issue. Their (IT companies) focus is on business as they are service companies. They’re not creators of technology. Product companies are creators of technology.

YS: What is your view on Indian startups going public?

MDP: Many companies are lining up to go public. Now, going public has become mainstream and startups are saying they want liquidity, which is very good. That means the public markets are able to give capital. So one problem of capital shortage can be attacked, and when the public market gives capital, the existing investors can cash out and recycle the capital, which is very good. That’s very important for India. But the key thing is all the startups now realise that IPO pricing has to be reasonable. If they price highly, the market will be unforgiving, and if they show signs of lack of growth, they’ll be beaten up. You saw what happened to many of the big companies that didn’t grow as much as expected. And the market is very sensitive, very volatile. You can fall 20% in a day and 40% in a week. I think it’s important for people to understand that what matters in an IPO for startups is not your listing price but what happens to that price in two or three quarters. Startups need to make sure that the price is reasonable. Investors come to make money not because they think you are the greatest company on earth or you are the greatest entrepreneur on earth. They don’t care a damn. They say, am I going to make money? That’s all they want. This is the economic model.

YS: Are you for Indian startups going public given the high level of scrutiny?

MDP: Of course. I’ll encourage everybody to go public because the ultimate test of a company is the public market. The public markets evaluate you. They value you. They give you capital. They glorify you; they destroy you. It is a test of your management skills and entrepreneurial ability. In a private market, it is a transaction among a small group of people but in the public markets, there are hundreds of investors. It is an open market with the free flow of information and evaluated by hundreds of people and then they decide to buy or sell. That is the real market, which is a challenge for you as an entrepreneur. That is where it will test your character in terms of the authenticity of your business model and management capability.