‍The Economics Behind: Leveraging Startup Grants 

‍Introduction

In the Union Budget 2025, Finance Minister Nirmala Sitharaman announced the establishment of a new Fund of Funds (FoF) with an additional corpus of ₹10,000 crore, supplementing an earlier contribution of the same amount. This move is expected to provide a substantial impetus to the startup ecosystem in India.

Since the inception of the StartUp India Initiative, the government has largely upheld its commitment to fostering innovation, promoting economic growth, and generating employment through support for this emerging asset class. The equitable distribution of funding, along with this recent infusion of ₹10,000 crore, serves as a strong endorsement of that vision.

While this announcement garnered significant attention on Budget Day, it is by no means the only initiative available to startups. A range of government schemes and programs continue to offer support and opportunities for growth within the sector.‍

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The Universe of Government StartUp Schemes

According to the official StartUp India portal, the Government of India has introduced a comprehensive framework of 60+ distinct schemes aimed at supporting and nurturing the country’s burgeoning startup ecosystem. These initiatives span a wide spectrum of incentives and facilitative measures, including access to equity and debt funding, tax exemptions, intellectual property rights (IPR) rebates, and enhancements in the overall ease of doing business.

The objective of these schemes is to create a robust and enabling environment for startups to innovate, scale, and contribute meaningfully to India’s economic growth and employment generation goals. The government’s multi-pronged approach underscores its recognition of startups as a vital component of India’s future economy and its strategic intent to foster entrepreneurship across sectors and regions.

A detailed list and description of these government schemes can be accessed through the following link:

Government Schemes for Startups – StartUp India Portal

Government Schemes Supporting Startups in India to Look Out for

India's dynamic startup ecosystem continues to receive substantial backing from both central and state governments. Numerous targeted schemes have been introduced to nurture innovation, facilitate access to capital, and remove traditional barriers to entrepreneurship. Below is an overview of key schemes currently available to startups:

1. Startup India Seed Fund Scheme (SISFS)

Launched in 2021, the Startup India Seed Fund Scheme (SISFS) is designed to provide early-stage startups with critical financial support for proof of concept, prototype development, product testing, and market entry. The objective is to enable startups to reach a level where they can attract investments from angel investors or venture capitalists, or secure loans from commercial banks and financial institutions.

Key Benefits:

• Financial assistance of up to ₹20 lakh for proof-of-concept development.
• Up to ₹50 lakh for product development, validation, and scaling operations.
• Non-dilutive funding provided through grants, debt instruments, or convertible securities.
• Reduces financial stress on entrepreneurs, allowing a sharper focus on innovation and market validation.

Eligibility Criteria:

• The startup must be recognized by DPIIT and incorporated not more than two years prior to the application date.
• Must propose a viable product or service with a demonstrable market fit and potential for scalability.
• Core offering must involve the use of technology in product, service, business model, or distribution methodology.
• Preference for sectors such as social impact, healthcare, defence, mobility, agriculture, energy, and biotechnology, among others.
• Should not have received over ₹10 lakh under any other Central/State Government scheme (excluding competition prize money and support services).
• Minimum 51% shareholding by Indian promoters at the time of application to the incubator.

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2. Credit Guarantee Scheme for Startups (CGSS) - Recently expanded by the Government

The Credit Guarantee Scheme for Startups (CGSS) addresses the issue of limited access to institutional credit by offering collateral-free credit guarantees to startups through participating banks, NBFCs, and Alternate Investment Funds (AIFs).

In the month of May 2025, the Government notified the expansion of the CGSS scheme. The revised scheme significantly enhances guarantee coverage and reduces associated fees, in a bid to ease access to debt funding for early-stage companies.

Key Benefits:

• Credit guarantees up to ₹10 crore previously, which has now been enhanced to ₹20 Cr, per eligible borrower.
• The extent of guarantee coverage has also been revised to 85% of the amount in default for loan amounts up to ₹10 crore and 75% for amounts exceeding that limit.
• The scheme also offers a reduced Annual Guarantee Fee (AGF) for startups operating within 27 identified Champion Sectors. The AGF for these sectors has been halved from 2% per annum to 1%, in a move designed to encourage innovation in areas critical to India’s manufacturing and services ambitions under the ‘Make in India’ initiative.
• Collateral-free loan support in various formats including working capital, term loans, debentures, and convertible debt instruments.

Eligibility Criteria:

• The startup must be DPIIT-recognised and financially viable with a demonstrable capacity to repay.
• No record of loan default or classification as a Non-Performing Asset (NPA).
• Member lending institutions must certify the borrower’s eligibility.
• Business must show stable revenue with audited financials for at least 12 months and be suitable for debt financing.

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3. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

Established in 2000 in collaboration with SIDBI, CGTMSE provides collateral-free loans to Micro and Small Enterprises (MSEs) through member lending institutions, including public, private, and foreign banks.

Key Benefits:

• Loans of up to ₹5 crore without the need for collateral or third-party guarantees.
• Annual Guarantee Fee (AGF) is nominal, especially for small ticket loans (up to ₹10 lakh).
• Supports working capital and capital expenditures, as well as investments in technology and infrastructure.

Eligibility Criteria:

• Available to new and existing MSEs engaged in manufacturing, trading, or services (excluding agriculture and SHGs).
• No prior loan defaults with any lending institution.
• Compliance with the MSME classification criteria under the MSMED Act, 2006.

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4. Stand-Up India Scheme

The Stand-Up India Scheme, launched in 2016, aims to foster inclusive entrepreneurship by supporting women and SC/ST entrepreneurs in establishing greenfield ventures in manufacturing, services, and trading sectors.

Key Benefits:

• Loans ranging from ₹10 lakh to ₹1 crore, covering up to 85% of the project cost.
• Collateral-free loan coverage through the Credit Guarantee Fund for Stand-Up India (CGFSI).
• Handholding support including training, mentorship, and application assistance.
• Access to institutional credit and convenient banking tools such as Rupay debit cards.

Eligibility Criteria:

• Applicant must be a woman or belong to a Scheduled Caste or Scheduled Tribe.
• The business must be a greenfield enterprise—i.e., a new venture and not an expansion.
• No history of loan defaults.

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5. Space Startup Fund

A new addition to the government schemes, approved in October 2024, the Space Startup Fund provides financial and infrastructural support to early-stage space technology startups to enhance India’s competitiveness in the global space economy. The initiative is managed by IN-SPACe (Indian National Space Promotion and Authorization Center).

Key Benefits:

• Funding for satellite development, launch vehicle systems, and space research projects.
• Access to infrastructure, mentorship, and technical guidance from ISRO and IN-SPACe.
• Facilitation of international collaborations and market access.

Eligibility Criteria:

• Indian DPIIT-recognized startups focused on space-related technologies.
• Must present a viable business model with technological feasibility and market relevance.

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6. Karnataka Startup Policy – State-Specific Initiatives

The Karnataka Startup Policy 2022 aims to position the state as a premier hub for innovation and entrepreneurship, offering targeted support for startups through financial incentives and ecosystem development.

Key Benefits:

• Patent Reimbursement: Up to ₹2 lakh per Indian patent and ₹10 lakh for foreign patents (on the same subject matter), disbursed in two stages.
• Marketing Incentives: Reimbursement of 30% of international marketing expenses (up to ₹5 lakh per company per year).
• GST Reimbursement: For goods purchased by startups incubated in government-supported facilities.

Eligibility Criteria:

• Registered as a private limited company or partnership under Indian laws.
• Turnover not exceeding ₹100 crore in any financial year since incorporation.
• Recognized as a startup for up to 10 years from incorporation.
• Must demonstrate innovation and potential for employment generation and wealth creation.

Note: Specific eligibility requirements [mentioned under key benefits above] may vary across individual incentive programs under the Karnataka Startup Policy.

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Conclusion

India’s startup ecosystem is rapidly advancing, supported by a strong framework of government schemes that provide funding, ease of doing business, and sector-specific support. These initiatives not only foster innovation and entrepreneurship but also contribute significantly to job creation and economic growth.

For startups, leveraging these schemes can be a key driver of success. As the ecosystem matures, continued collaboration between the government and entrepreneurs will be crucial in positioning India as a global leader in innovation.

If you are interested in exploring any of the aforementioned schemes or have any questions regarding how to avail them, please feel free to reach us at richard@3one4capital.com. Let us make the most of the benefits that the Government of India has made available to us.