A survey suggests data governance emerges as the biggest regulatory concern for Indian startups

Data governance and digital trust regulations have emerged as the biggest regulatory challenge for Indian startups, surpassing concerns around artificial intelligence (AI), according to a new report by Oxford Economics for Digital Prosperity Asia.

The study surveyed 550 stakeholders across India’s startup ecosystem, including 350 startups, 100 venture capital (VC) firms and 100 incubators. It found that 44% of respondents identified data governance and digital trust regulations as their primary regulatory concern, nearly twice the 23% who cited AI regulations. Cybersecurity (20%) and platform rules (13%) followed as other key concerns.

The findings indicate that while India’s risk-based approach to AI regulation is viewed as relatively innovation-friendly, compliance requirements surrounding data governance continue to create significant operational and financial pressures for startups.

Nearly 88% of startups reported that digital regulations have imposed operational constraints, while 75% said compliance costs have increased. More than half now spend over 5% of their operating expenses on regulatory compliance, with additional investments required in legal, cybersecurity and data governance expertise.

Regulatory obligations are also influencing business decisions. Around 72% of startups and investors said resources are being diverted from research and product development towards compliance, leading to delayed product launches and slower innovation cycles. Additionally, 68% of startups and VC firms reported greater uncertainty around investment returns, making fundraising more challenging.

Talent acquisition has also been affected. More than half of startups reported higher costs of hiring compliance and cybersecurity professionals, while 63% said regulations have limited their ability to recruit foreign talent or outsource work internationally.

Despite these challenges, 42% of startups acknowledged that digital regulations have improved customer trust, particularly through stronger cybersecurity standards.

The report warns that a more restrictive digital regulatory environment could result in 2,130 fewer startups being established annually between 2026 and 2035 and reduce annual VC investment by ₹91,500 crore. Conversely, a more enabling framework focused on assurance-based data governance could add around 700 startups each year, attract an additional ₹30,400 crore in annual venture capital funding and create nearly 80,000 startup jobs by 2035.