Startup funding, FDI inflows down in Karnataka: Report

Belagavi: Karnataka has seen a sharp decline in funding for startups, especially in Bengaluru, due to “heightened investor caution” and “valuation concerns”, according to the Mid-Year Review of State Finances tabled in the Assembly on Thursday.

Not just that, foreign direct investments (FDI) into Karnataka have decreased due to "slowdown in advanced economies" among other reasons, the report stated.

"Startup funding activity in Karnataka dropped by approximately 80 per cent ($2.8 billion), decreasing from $3.4 billion in Q1 FY23 to $0.6 billion in Q1 FY24," the report stated.

Nationally, the startup funding decreased by approximately 70 per cent ($4.7 billion) - from $6.6 billion in Q1 FY23 to $1.9 billion in Q1 FY24. "Bengaluru, renowned as India's start-up capital and home to 40 per cent of India's unicorns, is facing the impact of these challenges," the report stated.

According to the report, the private equity/venture capital sector has seen a downturn due to "amplified uncertainty caused by macroeconomic challenges and geopolitical conditions". These are influencing the global venture capital funding scene, it stated.

Things do not look good for the global economy due to the Russia-Ukraine and Israel-Hamas wars, which have "adversely impacted" the global supply chain and trade outlook, the report explained. "Monetary policy tightening has squeezed the aggregated demand resulting in a downturn in FDI," it stated.

The report stated that Karnataka witnessed a 46 per cent decrease in FDI - from $5.3 billion in the first-half of FY23 to about $2.8 billion in the first-half of FY24.

"Another significant factor contributing to the 23.9 per cent drop in FDI in India is the services and computer software market, witnessing a substantial 60 per cent decline ($4 billion)," the report stated. "Karnataka, being the IT hub of India with a majority of global IT companies headquartered in Bengaluru, amplifies the impact for the state."

The report described Karnataka's economic growth as "steady, stable and resilient" compared with other states. However, the impact of monsoon failure on agricultural production and hydroelectricity generation could pose "adverse risk" to the state's growth, it stated.

The report also lauded the five guarantees, which it said would have a "multiplier effect" on the local economy and "boost consumer spending and revenues of the state". Most households covered under the schemes belong to poor/lower-middle income sections who have "higher propensity to consume", it stated.