Digital regulations are increasingly shaping the trajectory of India’s startup ecosystem, with the design and implementation of regulatory frameworks having significant implications for innovation, investment, and job creation, according to a new report by Oxford Economics for Digital Prosperity Asia (DPA).
Titled “Digital Regulations and the Startup Ecosystem in India”, the report draws on a survey of 550 ecosystem participants—including 350 startups, 100 venture capital firms, and 100 incubators—as well as expert interviews and quantitative economic modelling to assess the impact of digital regulations on India’s innovation economy.
According to the report, 88% of startups report that digital regulations impose operational constraints, while 72% of startups and venture capital firms say resources are being diverted away from research and innovation towards compliance-related activities. Nearly seven in ten startups (68%) report increased uncertainty around future returns as a result of digital regulations.
The report’s economic modelling suggests that a shift from India’s current broadly enabling environment towards a more restrictive digital regulatory environment could result in:
• A 20% decline in startup formation between 2026 and 2035, equivalent to approximately 2,130 fewer startups being created annually;
• A 25% reduction in annual venture capital investment, representing a loss of approximately ₹91,500 crore each year; and
• 245,000 fewer startup jobs supported in India in 2035.
Conversely, an even more enabling regulatory approach could boost startup formation by 7%, increase venture capital investment by 9%, and support an additional 80,000 startup jobs in 2035. The report also highlights three key principles that can help strengthen India’s startup ecosystem while maintaining trust and accountability:
• Risk-based and proportionate regulation, particularly in emerging areas such as artificial intelligence;
• Greater coherence and alignment across regulatory frameworks to reduce duplication and compliance burdens; and
• Consultative and iterative policymaking that incorporates feedback from startups, investors, and 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. She also added, “By continuing to foster enabling digital infrastructure and adopting a balanced regulatory approach, India could unlock significant economic gains, including an estimated 80,000 additional startup jobs and ₹30,400 crore in annual venture capital investment over the next decade.”
The report notes that while India currently benefits from a broadly enabling digital regulatory environment, particularly in AI governance and cybersecurity, anticipated regulatory expansion makes regulatory design increasingly important. As India continues to strengthen its position as a global startup hub, the report concludes that the policy challenge is not whether to regulate digital technologies, but how to design frameworks that build trust and manage risk while enabling innovation, investment, competitiveness, and long-term economic growth.