India's startup engine at risk? Rs 91,500 crore, 2.45 lakh jobs under threat from digital rules, says report

A shift towards a more restrictive digital regulatory environment could cost India's startup ecosystem nearly Rs 91,500 crore in annual venture capital (VC) investment and result in 245,000 fewer startup jobs by 2035, according to a report by Oxford Economics commissioned by Digital Prosperity Asia (DPA).

The report, titled Digital Regulations and the Startup Ecosystem in India, warns that while regulation is essential to build trust and manage risks, poorly designed digital rules could significantly slow innovation, investment and startup growth.

Based on a survey of 550 ecosystem participants including 350 startups, 100 venture capital firms and 100 incubators the report found that 88% of startups believe digital regulations impose operational constraints, while 72% of startups and VC firms said resources are increasingly being diverted from research and innovation towards compliance-related activities. Nearly 68% of startups also reported greater uncertainty over future returns because of evolving digital regulations.


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Oxford Economics' modelling estimates that if India moves away from its current broadly enabling regulatory approach towards a more restrictive framework between 2026 and 2035, startup formation could decline by 20%, translating into roughly 2,130 fewer startups being created every year.

Such a scenario could also reduce annual venture capital investment by 25%, equivalent to a loss of around ₹91,500 crore each year, while supporting 245,000 fewer startup jobs in India by 2035, the report said.

In contrast, adopting a more enabling regulatory framework could increase startup formation by 7%, boost annual venture capital investment by 9%, or around Rs 30,400 crore, and support an additional 80,000 startup jobs by 2035.

The report recommends a risk-based and proportionate approach to digital regulation, particularly in emerging technologies such as artificial intelligence, along with greater alignment across regulatory frameworks to reduce duplication and compliance burdens. It also advocates consultative policymaking that incorporates feedback from startups, investors and other ecosystem stakeholders.

"In an emerging market like India, maintaining proportionate, principles-based regulatory frameworks can support startup scaling, attract investment, accelerate technology diffusion and strengthen the country's innovation ecosystem," said Bali Kaur Sodhi, Lead Economist at Oxford Economics.

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The report noted that India currently benefits from a broadly enabling digital regulatory environment, especially in areas such as AI governance and cybersecurity. However, as digital regulations expand, policymakers will need to strike a balance between managing risks and preserving an environment that encourages innovation, investment and long-term economic growth.