India Flags Web3 Innovation Drain as Startups Move Abroad

India’s ongoing regulatory ambiguity around digital assets has started pushing Web3 startups out of the country, prompting a formal warning in the Rajya Sabha on Tuesday. Raising a Special Mention, BJP MP Dr. K. Laxman said India is witnessing a “growing innovation drain” as young blockchain companies increasingly shift their operations or headquarters to regions like Dubai and Singapore.

According to Dr. Laxman, this movement has accelerated in recent months and represents a serious threat to India’s position in emerging technologies.

• Key Concerns Raised
• Impact on India’s Tech Sector
• Why Startups Are Leaving
• What the Government Has Been Urged To Do

India has one of the world’s largest pools of blockchain developers, but the absence of a defined regulatory framework is prompting founders to incorporate overseas. Many companies continue to employ Indian talent, but relocate corporate entities to jurisdictions that offer clarity on digital-asset rules, compliance standards and licensing.

Dr. Laxman told Parliament that this shift is no longer isolated and must be treated as a structural challenge.

During Special Mention in Rajya Sabha today, I raised the growing concern of innovation drain in Indian Web3 startups caused by regulatory uncertainty. pic.twitter.com/THS6gRM5c9

— Dr K Laxman (@drlaxmanbjp) December 8, 2025

Key Concerns Raised

The MP said Web3 entrepreneurs are struggling to navigate unclear compliance requirements, fragmented oversight, and the absence of a single policy framework governing blockchain-based business models. He highlighted four specific problem areas:

• No defined compliance norms for digital-asset businesses
• Lack of registration or licensing pathways
• No dedicated consumer-protection framework for Web3 users
• No innovation-governance structure for emerging technologies.

These gaps, he argued, have created hesitation among investors and uncertainty for founders planning long-term operations in India.

Impact on India’s Tech Sector

Industry groups describe the shift as an “innovation drain,” warning that India risks losing high-value intellectual property, early-stage entrepreneurship and global competitiveness if the trend continues. Dr. Laxman echoed these concerns, noting that several “high potential enterprises” have already moved their headquarters abroad.

He said the situation could hurt India’s ambitions of building a resilient digital economy and weaken its position in rapidly developing global Web3 markets.

Why Startups Are Leaving

Regions like Dubai and Singapore have become preferred destinations because they offer clarity on:

• Licensing and operational permissions
• Compliance and reporting standards
• Digital-asset classification
• Investor onboarding rules
• Consumer-protection policies

Startups view predictable rules as essential for raising capital, operating globally and launching new products. In contrast, India’s uncertain environment forces founders to take regulatory risks they may not be able to absorb.

What the Government Has Been Urged To Do

Dr. Laxman urged the Centre to undertake a formal assessment of regulatory gaps and examine policy measures that can provide clarity and predictability to Web3 stakeholders. A stable and transparent framework, he said, would:

• Strengthen investor confidence
• Encourage startups to base operations in India
• Reduce the need for relocation
• Support India’s long-term technological goals
• Align with the national vision for Viksit Bharat 2047

He stressed that without intervention, India could miss a significant economic opportunity in one of the fastest-growing technology sectors.

The remarks mark one of the strongest parliamentary acknowledgements yet of India’s Web3 regulatory challenges. While the government has introduced taxation rules for virtual digital assets, a comprehensive policy framework is still awaited by industry players.

Dr. Laxman concluded by urging the government to “look into the matter at the earliest,” underscoring increasing political and industry pressure to prevent further innovation flight. As other global tech hubs strengthen their Web3 positions, India faces a narrowing window to retain its startup leadership and keep next-generation innovation within the country.

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