Beyond Bengaluru: Can Karnataka’s New IT Policy Redraw The Start-up Map?

Karnataka, long synonymous with Bengaluru’s soaring tech skyline and its bustling IT corridors, is signalling a shift. The state’s new IT policy, announced in late 2025, aims to decentralise opportunity,

redistribute investment, and cultivate a broader innovation ecosystem beyond the capital. For decades, Bengaluru has drawn startups, talent, and venture capital in disproportionate measure, leaving other districts in relative neglect. Now, Mysuru, Hubballi, Mangaluru, Belagavi, and other emerging hubs may finally find a policy-backed runway to grow, scale, and attract talent.

The policy is more than a set of incentives. It represents a conscious effort to correct structural imbalances in Karnataka’s tech economy, and it comes at a time when regional development has become a pressing concern across India. For founders outside Bengaluru, the move promises more than just financial support; it signals recognition, legitimacy, and a roadmap for long-term growth in regions that have long been overshadowed.

What is Karnataka’s New IT Policy?

Karnataka has allocated over ₹445 crore to support the state’s IT ecosystem between 2025 and 2030. The package spans subsidies, tax reimbursements, infrastructure development, and skilling initiatives. It is explicitly designed to incentivise startups to expand to tier-2 and tier-3 cities, with Mysuru, Hubballi, Mangaluru, and Belagavi earmarked as emerging hubs.

At its core, the new IT policy sets out several key provisions designed to nudge startups toward tier 2 and tier 3 cities:

• Financial Incentives: Companies setting up in emerging districts are eligible for subsidies on infrastructure costs, lower operational fees, and grants for technology acquisition.
• Digital Infrastructure: The state promises high-speed connectivity, data centres, and co-working spaces outside Bengaluru, addressing one of the long-standing barriers for regional startups.
• Sector-Specific Support: Startups in AI, fintech, green technology, and health tech can access specialised accelerators and mentorship networks designed to fast-track innovation.
• Skilling and Talent Development: Partnerships with universities and local colleges aim to provide a steady supply of skilled labour, including internship programmes, workshops, and placement support.
• Regulatory Facilitation: Simplified licensing processes, tax concessions, and dedicated single-window clearances are intended to reduce bureaucratic friction for young founders.

Manas Pal who is the Co-Founder of PedalStart in Bengaluru remarks, “The policy offers incentives for startups to expand to tier-2 cities. Do you see this as a viable opportunity? For founders, this presents more than just cost advantages. It opens the door to building in less saturated markets while retaining proximity to Karnataka’s rich tech ecosystem.”

The policy, Manas shares also introduces meaningful support for women-led startups, patent reimbursements, and rental subsidies, all designed to reduce operational burdens and make expansion more feasible. If we examine the opportunity closely, the benefits for startups are clear:

1. Lower operating costs through rental and infrastructure subsidies.
2. Talent access via state-backed skilling programmes.
3. Reduced time-to-scale in less crowded cities with rising demand.
4. Support for innovation through patent reimbursements.
5. Dedicated incentives for women-led startups, enabling more inclusive growth.
6. Strategic advantage as early movers in emerging tech hubs.

Pal emphasises, “So yes, if executed well and backed by the right partnerships, this policy can be a viable opportunity for startups ready to expand, derisk costs, and tap into new markets.”

What Incentives Does The Policy Offer To Businesses?

The recent unveiling of the new policies signals a vibrant “Road Ahead” for startups and established businesses alike, focusing on aggressive growth and technological advancement. Central to this push is the Startup Policy 2025, which is designed to be a catalyst for innovation by enabling the creation of an ambitious 25,000 new startups over the next five years.

This initiative is coupled with a significant commitment to human capital development, offering to reimburse 50% of training costs for faculty focused on emerging technologies, thereby ensuring a highly skilled workforce is available to new and growing enterprises.

The long-term vision is cemented by the Spacetech Policy 2025–2030, which aims to capture 50% of the national and 5% of the global market by 2034, positioning the entire region and its emerging companies at the forefront of the high-growth space sector. These combined policies create a powerful ecosystem of financial support, skilled talent, accessible technology, and ambitious market positioning that is expected to drive exponential growth for new and existing businesses.

Can This IT Policy Benefit Startup Founders?

For many early-stage entrepreneurs, this policy represents a chance to start or expand without the usual overheads of Bengaluru. Lower rents, infrastructure support, and a less saturated market can extend runway and reduce early-stage risk.

Manas adds, “For early-stage startups, these incentives are not ‘nice to have’. They are strategic levers that can accelerate growth, delay dilution, strengthen financial discipline, and improve the likelihood of hitting the next milestone without burning out.”

Investors, meanwhile, are evaluating the potential for untapped regional opportunities. With Bengaluru’s high valuations and fierce competition, tier-2 cities now present prospects for higher returns on smaller bets.

What Are The Emerging Hubs Beyond Bengaluru?

Bengaluru’s dominance will not disappear overnight. Its ecosystem is decades in the making, built on talent density, investor networks, and an entrenched culture of innovation. Yet Pal is cautiously optimistic, “This policy can trigger meaningful redistribution of growth if startups see real, on-ground value in expanding outside the capital.” Some emerging hubs beyond Bengaluru that could offer opportunities are:

Mysuru: Leveraging its educational institutions for talent pipelines.

Hubballi: Positioned as a logistics and IT junction, attracting fintech and enterprise tech startups.

Mangaluru: Coastal city ideal for health-tech and agri-tech ventures.

Belagavi: Emerging engineering and manufacturing hub supporting tech-adjacent startups.

Investors and founders alike are watching closely. Regional hubs promise untapped talent, lower operational costs, and potentially higher returns on early-stage investments. Yet the challenge remains in translating policy into consistent, tangible benefits. The policy’s subsidies, reimbursements, and tax exemptions are significant. Pal highlights:

1. Immediate runway extension.
2. Reduced early-stage financial risk.
3. Stronger hiring potential.
4. Easier entry into new markets.

“These incentives directly impact cash flow, investor confidence, and the founder’s ability to innovate,” Manas explains. “Startups looking to begin their journey or expand from Bengaluru now have real tools to de-risk their plans.”

What Could Slow Down Expansion Beyond Bengaluru?

From a policy standpoint, Karnataka is making a calculated bet. Bengaluru remains India’s crown jewel of IT, but overreliance on a single city poses risks. By formally backing startups beyond the capital, the state is signalling that innovation can thrive elsewhere.

Infrastructure in many districts is still patchy. Internet connectivity, reliable power supply, and modern office spaces are far from uniform. Local administrative capacity to implement single-window clearances and monitor compliance varies widely. Investors may remain cautious until they see consistent results.

Moreover, talent development cannot rely solely on incentives. Universities and local colleges need to actively integrate entrepreneurship and technical skills into their curricula. Without a robust pipeline of skilled workers, the new hubs may struggle to scale effectively.

The policy also aligns with India’s broader digital vision, supporting initiatives like Digital India and regional startup schemes. Karnataka, with its proven IT leadership, could become a template for decentralised innovation if the policy is executed effectively.