Increased investments, AI policies, and computing capacity: SaaS sector’s Budget 2024 wishlist

Ever since OpenAIreleased ChatGPT in late 2022, GenAI (generative artificial intelligence) is no longer a vague concept. Today AI extends far beyond large language models (LLMs), offering much more than simply generating responses to user queries.

India ranks fifth as one of the key research locations for GenAI around the world, according to a report titled Patent Landscape Report - Generative Artificial Intelligence (GenAI) by WIPO (World Intellectual Property Organization).    

Several SaaS firms in India have entered the fray, enhancing their offerings to meet growing consumer demand.

Union Finance Minister Nirmala Sitharaman is set to represent the Union Budget 2024 on July 23, 2024. In a big push to embrace AI for technology startups in India, the government approved the IndiaAI Mission with a Budget allocation of over Rs 10,000 crore in March this year.

The infusion, which is planned over the next five years, aims to fuel growth in various segments, such as IndiaAI Compute Capacity, IndiaAI Innovation Centre (IAIC), IndiaAI Datasets Platform, among others. 

However, industry experts suggest that while this initiative is promising, more needs to be done to leverage the new technology across the sector. Building infrastructure, establishing AI governance policies, and implementing regulatory frameworks to ensure data integrity are crucial for fueling sustainable growth in India's AI ecosystem.

As the country prepares for the upcoming Budget, here’s what industry leaders and experts expect:

Prioritisation of robust IP protection frameworks

Several SaaS startups expect the upcoming Budget to focus on Intellectual property (IP) enforcement, streamlined patent processes, and incentives for R&D investments, says Vishal Puri, Co-Founder, Spalba.  

According to Puri, these factors will be pivotal in fostering a secure environment for technological advancements and sustainable growth.

“Unless IP protection is ensured, startups would be forced to register IPs outside the country leading to continued loss of precious Intellectual Capital," he adds. 

Priyanka Agarwal Chopra, Managing Partner, IIMA Ventures highlights the importance of supporting startups in pursuing innovation driven by intellectual property. 

“As the Indian ecosystem evolves, there is a dire need to encourage startups to pursue IP-led innovation which may include high technological complexity and innovation, intricate regulation, lengthy market penetration processes, and tangible product offerings,” Agarwal says.

Increased investments

Pratap Daruka, Chief Financial Officer at Tredence, believes that India's share of global AI investment is only 2.5%, and calls for the need to fully capitalise on the technology’s potential for economic growth. 

"As several studies suggest, AI could add up to $957 billion to India's economy over the next decade. The Indian government's initiatives in the last Budget, including establishing Centers of Excellence for AI, the Data Governance Policy, and various efforts to promote AI, underscore its commitment to this sector,” says Daruka. 

He believes this may include R&D grants and tax credits to incentivise firms to develop cutting-edge solutions, where AI can impact employment by creating millions of new jobs and re-mould existing roles.

“We cannot rely on traditional methods; this demands a dedicated task force and appropriate Budget allocation for faster execution," he adds. 

Another startup in the hospitality sector strikes a similar chord. Sibasish Mishra, Founder and CEO, BookingJini says incentivising investments and providing infrastructure is crucial for growth. 

Anand Jain, Co-founder and Chief Product Officer of CleverTap, proposes revisiting tax policies for unlisted companies to boost investor interest amid a slowdown in startup funding.

“Recognising that small businesses are the backbone of our nation, the Budget should focus on accelerating the growth of startups and the MSME sector. Currently, publicly listed shares are taxed at 10%, while unlisted shares face a 20% tax,” he says. 

The industry expects streamlined regulations, tax benefits for early-stage companies, and easier access to capital, says Khadim Batti, Co-founder and CEO, Whatfix.

"Robust digital infrastructure with high-speed internet and data centres are also critical for SaaS operations, and continued investment is essential to bolster the ecosystem. The Budget should prioritise the expansion of the angel tax to foreign investors, as foreign investment is a significant driver of growth and innovation," says Batti.

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More allocation for computing capacity 

The IndiaAI Mission has planned to establish a scalable AI computing infrastructure by deploying over 10,000 Graphics Processing Units (GPUs) through public-private collaborations in the next 18-24 months, S Krishnan, Secretary, Ministry of Electronics and Information Technology (MeitY) said earlier this year.

The greater the push for AI capabilities, the bigger the need for computing infrastructure. Approximately Rs. 4,568 crore have been allocated under the IndiaAI mission to enhance compute capacity nationwide.

However, KOGO’s CEO Raj K Gopalakrishnan, says the government needs to do more in terms of resources. 

“According to the Department of Science and Technology, the National Supercomputing Mission (NSM), has a total compute capacity of 24.83 petaflops, which costs Rs 1,218 crores. The national target of 10,000 GPUs is conservative even compared to the capacity of individual companies, making it important to allocate more resources to build computing capacity in the country,” he says. 

Petaflops, in simpler terms, measures how fast a computer can do maths and is used to describe the speed of supercomputers. 

The founder sees budgetary allocation towards R&D, particularly through schemes like the Startup India Seed Fund Scheme (SISFS) as a crucial asset. 

As challenges for deeptech remain inevitable, Manas Pal, Co-Founder, PedalStart, believes fund allocation and prioritisation of key areas in the sector remain crucial. 

Beyond infrastructure, talent acquisition and development are paramount, according to Batti.

"Skilling the workforce remains a top priority. The current gap in qualified AI professionals necessitates government initiatives to bridge the tech skill gap and encourage industry-academia collaboration. Further investment in Skill India Digital can enhance workforce capabilities, fostering innovation in emerging technology," he says.

Policies for AI governance

Sandeep Agarwal, Global MD & CTO, Visionet says that the government must implement policies for AI governance and security. 

“The 2023-24 Budget has already laid the groundwork by fostering AI adoption across various sectors and funding AI research through initiatives like the Startup India Seed Fund Scheme (SISFS). However, 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,” he explains. 

Moreover, the founder believes the Budget should incentivise the establishment of Global Captive Centres (GCCs), which can boost local employment and technological advancement. Streamlined processes and quick patenting procedures can attract multinational investments, driving economic growth.

“Equally important is the commitment to sustainability. Offering tax benefits to startups and tech firms developing eco-friendly solutions can propel India towards a greener future. Promoting investment in clean energy, waste management, and sustainable technologies is imperative,” he adds. 

Shree Parthasarathy, Partner–Digital, Trust, and Transformation at Forvis Mazars in India, also emphasises the importance of government regulation and adopting new cybersecurity measures to promote best practices amidst the surge in AI. 

(The copy was updated to correct style)