While the Union Budget 2024-25 presented by Finance Minister Nirmala Sitharaman covered nine priority areas for the Modi 3.0 government, including agriculture, employment and skilling, inclusive human resource development and social justice, artificial intelligence (AI) didn’t find a mention.

The Budget fell short of announcing a detailed strategy for AI, leaving India’s approach to utilising the next-gen technology’s potential somewhat unclear. While the abolition of angel tax and increased R&D funding were seen as positive moves, the absence of robust AI policies and investment in AI infrastructure raised concerns.

Siddharth Chandrashekhar, Senior Standing Counsel at the Department of Revenue Intelligence and the Central Board of Indirect Taxes & Customs, warned that the absence of an AI strategy could put India at risk of falling behind in the global race.

“The Budget’s lack of an AI strategy shows a concerning lack of foresight in dealing with the major societal and economic changes AI will bring. AI has the potential to transform industries but also poses challenges like job losses and ethical issues,” he said.

“Without clear policies and strong investments in AI education and infrastructure, India risks falling behind in the global AI race. This oversight threatens economic growth and our ability to address critical issues like unemployment and data privacy,” Chandrashekhar cautioned. 

To support the key priorities of innovation, research, and development outlined in the budget, Sitharaman proposed a Rs 1 lakh crore fund to drive sector-specific research and innovation at a commercial scale.

According to the estimates provided by the Ministry of Finance, the allocation for research and development has been increased to a corpus of Rs 13,208 crore in FY 2024-2025 from Rs 12,850 crore budgeted in FY2023-2024. 

However, several SaaS startups anticipating increased investment opportunities, intellectual property (IP) enforcement, and robust AI policies to support the sector’s growth were left disappointed.

Bhaskar Majumdar, Managing Partner, Unicorn India Ventures advocated for a stronger focus on enhancing the intellectual property regime.

“This is recognition of the growing need for a deeptech economy. However, alongside the R&D Fund, the government should look at the Intellectual Property regime. The much overdue Patent Policy needs to come out soonest to enable maximisation of the R&D Fund,” Majumdar said.

Pratap Daruka, Chief Financial Officer, Tredence welcomed the abolition of the angel tax but recommended a more focused approach to AI. 

“The abolition of the angel tax is a welcome move for many new-age startups, alleviating a significant financial burden. However, to fully realise AI’s potential and ensure India captures a larger share of global AI investments, a more focused approach is necessary,” Daruka said.

“Further emphasis on R&D grants and tax credits is essential. These steps will catalyse the development of cutting-edge solutions and significantly impact employment by creating millions of new jobs and transforming existing roles,” he added. 

While the government’s initiatives are promising, Daruka further noted that a “concentrated effort” in AI could help India maintain a competitive edge in the global AI and analytics field.

There were some silver linings for SaaS and AI startups. Founders applauded the abolition of angel tax and the increased R&D funding, viewing these measures as opportunities for growth and innovation in the sector.

Arjun Prasad, Co-founder of QX Lab AI, believes that slashing the angel tax will be a major boost to the AI sector. 

“The abolition of the angel tax for all classes of investment is a monumental step towards fostering a vibrant startup ecosystem in India. This move will boost the entrepreneurial spirit and drive innovation, giving startups greater access to essential capital, particularly in the AI sector, which is expected to be a game changer for businesses and economies,” Prasad says. 

Raj K Gopalakrishnan, Co-founder and CEO of AI startup KOGO, believes the increased funding will help support incubators, and advance new technologies in IT and ITeS. 

“The budgetary allocation of Rs 1,148.25 crore towards the improvement of the startup ecosystem is a step in the right direction to move the needle on AI innovation, research and development in the country,” Gopalakrishnan said. 

“What this will also do is support startup incubators by creating specialised ‘Electropreneur parks’, advance the development of new technologies like AI by encouraging proof-of-concepts, prototypes, and products, and boost efforts to launch new startups in the IT, and ITeS sector,” he added. 

While presenting the pre-election interim Budget, the Finance Minister had announced a new scheme to boost deeptech in the defence sector, including a Rs 1 lakh crore corpus offering 50-year interest-free loans for startups and deeptech companies.

Earlier in March, the government had also approved the IndiaAI Mission with a Rs 10,000 crore Budget over five years to boost AI technology startups, including initiatives like IndiaAI Compute Capacity, IAIC, and IndiaAI Datasets Platform.

Policies for AI governance and security continue to remain on the sector’s wishlist.

Sandeep Agarwal, Global MD and CTO of Visionet, said, “To truly harness AI’s power, the government must establish comprehensive policies for AI governance, security, and ethical use, ensuring that innovation is balanced with robust protections against data breaches.”