Tighter digital rules may hit startups: Report

New Delhi: A more restrictive digital regulatory environment could slow India's startup momentum, reducing new venture creation by 20%, cutting annual venture capital investment by 25% and resulting in 245,000 fewer startup jobs by 2035, according to a report by Oxford Economics commissioned by Digital Prosperity Asia (DPA).The report, Digital Regulations and the Startup Ecosystem in India, is based on a survey of 550 ecosystem participants, including 350 startups, 100 venture capital firms and 100 incubators, along with interviews and economic modelling.According to the study, 88% of startups said digital regulations impose operational constraints, while 72% of startups and venture capital firms reported diverting resources away from research and innovation towards compliance-related activities.

Nearly seven in ten startups said growing regulatory requirements have increased uncertainty around future returns, making fundraising and expansion more difficult.Oxford Economics estimates that if India shifts from its current relatively enabling regulatory framework to a more restrictive one between 2026 and 2035, it could lead to around 2,130 fewer startups being created every year. The report also projects an annual loss of about Rs 91,500 crore in venture capital investment during the period.

The findings come at a time when India is positioning itself as one of the world's fastest-growing startup ecosystems and is seeking to attract global technology investment across sectors such as artificial intelligence, digital public infrastructure and deep technology.The report argues that overlapping regulations across areas such as artificial intelligence, data governance and cybersecurity risk increasing compliance costs and creating regulatory fragmentation, particularly for early-stage companies with limited resources.At the same time, it says an enabling regulatory approach could strengthen the ecosystem. Oxford Economics estimates that a more supportive policy environment could increase startup formation by 7%, raise annual venture capital investment by 9% and support an additional 80,000 startup jobs by 2035.The report also recommends adopting risk-based regulation for emerging technologies, improving coordination across digital regulatory frameworks and ensuring greater consultation with startups, investors and other ecosystem stakeholders while framing new rules. Such measures, it says, would help balance innovation with accountability without imposing unnecessary compliance burdens on young companies.