Governmental forecasts suggest that with appropriate interventions, India could secure up to three per cent of the global AVGC market by FY30. This would mean that the Indian AVGC market could balloon to a sizable $26 billion. The Karnataka cabinet recently gave approval for the revised AVCG-XR (Animation, Visual Effects, Gaming, Comics, and Extended Reality) Policy 3.0 for the period 2024-2029, to foster growth of the AVGC-XR sector.
It states that the state recognised as India’s IT hub, is also carving out a leadership position in the AVGC-XR sector. With a robust 20 per cent share of the Indian media & entertainment industry, the state hosts over 300 specialised AVGC studios and has a professional workforce exceeding 15,000, providing a strong base for industry growth. It further mentions that education plays a vital role in the state’s AVGC-XR landscape. Current statistics show that Karnataka is home to five institutes dedicated to animation, three for visual effects and 12 focused on gaming. These educational establishments make up a significant fraction of India’s 139 institutes in these specialised fields, creating a fertile training ground for future industry leaders.
The state has also set up Digital Art Centers in 27 colleges catering to 400 students and one AVGC finishing school with 842 students trained. The state government’s initiatives add another layer of credibility to Karnataka’s leadership in the sector. Not only has the state established India’s first AVGC Centre of Excellence, but it has also launched a dedicated AVGC Fund, already investing in two groundbreaking startups. These moves demonstrate Karnataka’s commitment to accelerating growth in this sector.
Significantly, Karnataka is the only state in India releasing its third five-year AVGC-XR policy, with the first policy having been initiated in 2012. The latest AVGC-XR Policy of Karnataka has been carefully designed to be futuristic, extending its vision beyond the immediate five-year window. The objective is to build a resilient and sustainable ecosystem that can adapt to future technological disruptions while continuing to foster creativity, economic growth, and social equity.
The policy is structured around six key pillars, each focusing on a different yet interrelated aspect of the AVGC and XR sectors. Those pillars are mainly: Skill Development for a Future-Ready Workforce, Creation of Sustainable Infrastructure, Empowering Startups and MSMEs, Provision for Global Market Access and Business Development; Incentives, Concessions and Financial Support for Sustainable Growth, and Focus on ‘Mobile First’ AVGC Products.
To facilitate the various objectives of the policy, a host of incentives and concessions will be applicable for the industry throughout the policy period.
The Government of Karnataka has been proactive in devising mechanisms that offer both incentives and direct financial support to businesses in these domains. One of the most prominent initiatives in this context is the Karnataka Information Technology Venture Capital Fund: KITVEN Fund-4 (AVGC).
KITVEN Fund-4 (AVGC) is a dedicated Venture Capital Fund initiated by the Department of IT, BT & ST, Government of Karnataka, in collaboration with other state government entities. With a corpus of Rs 20 crore, this fund specifically targets enterprises operating in the Animation, Visual Effects, Gaming, Comics, and other allied sectors within Karnataka. Investments typically range from Rs 50 lakhs to Rs 100 lakhs during the initial stages but based on the potential and performance of the company, this can be further augmented up to Rs 200 lakhs as follow-on investment. This fund, beyond being just a financial instrument, symbolises the state’s commitment to nurturing and scaling innovative ventures in the AVGC domain.
General eligibility for availing financial support
Only registered KAVGC companies can apply for the subsidies/incentives/grants available under this policy. A first-time applicant needs to apply for registration as a KAVGC company by completing the KAVGC registration form. There is a one-time charge of Rs 10,000 for KAVGC registration that should be paid as a demand draft in favour of ‘Managing Director, KBITS’. If the company has previously registered as a Karnataka IT-BT company, there is no charge. Instead, the company may attach a copy of the Karnataka IT-BT registration certificate along with its application.
Skill development & job creation
The initiative for skill development and job creation is structured as a partnership between educational institutions and industry. The aim is to bridge the gap between academia and the professional world by incentivising collaborative educational programs.
Incentive Details:
- Reimbursement of training fees: Up to 50 per cent reimbursement of the course expenses, which needs to be translated as a discount in student fees. The incentive is capped at Rs 7.5 lakhs per company for the policy period.
- Reimbursement of PF/ESI: Reimbursement of Provident Fund (PF) / Employees State Insurance (ESI) of Rs 3,000 per employee per month for the first year of employment. This incentive is applicable for new jobs created and capped at Rs 12 lakhs per company for the policy period.
Under the early-stage startup support program, the incentives are:
- Marketing Costs: Up to 40 per cent capped at Rs 1,00,000 reimbursement towards expenses on promotional material, participation in domestic exhibition/fair/expo (hiring of booth spaces and associated cost of travel for the participation) per company during the policy period.
- Leasing Costs: Subsidised office or co-working space rentals covering up to 40 per cent of the cost capped to Rs 2,00,000 per company during the policy period.
- Operational Costs: Up to 50 per cent reimbursement towards server space rentals for one year, capped at Rs 50,000 per company during the policy period.
- Compliance Costs: Up to 50 per cent reimbursement on legal and compliance costs incurred during company setup, capped at Rs 2,00,000 per company during the policy period.
IT Infrastructure: Up to 20 per cent of the cost incurred, capped at Rs 20 lakhs limited to five sanctions per company during the policy period. Purchases of IT Hardware equipment applicable for an AVGC-XR company. Software and licences are not eligible.
Rental Benefits: Up to 20 per cent of the cost incurred, capped at Rs 5 lakhs per company during the policy period. A company can claim this incentive either bi-annually or annually during the policy period.
The IP creation and protection incentive: Up to 50 per cent of the costs for IP filing and legal consultation, capped at Rs 20 lakhs for international IP and Rs 5 lakhs for domestic IP, per company during the policy period.
Production Grants: AVGC-XR production grants have been designed to promote both domestic and international AVGC-XR productions made within the state. In establishing these grants, the Govt. of Karnataka recognises that large budget productions and Post Digital and Visual Effects (PDV) activity contribute to the state’s overall development by providing valuable economic, employment and skill development opportunities. These grants will ensure that Karnataka remains competitive in attracting large budget productions and PDV activity from across the globe.
- Incentive for animation film: Reimbursement of up to 20 per cent of the qualified expenditure, capped at Rs 50 lakhs per company; limited to two sanctions per company during the policy period.
- Incentive for animation series: Reimbursement of up to 20 per cent of the qualified expenditure, capped at Rs 15 lakhs for 22 minutes, Rs 10 lakhs for 11 minutes and Rs 5 lakhs for six minutes series, with a maximum cap of 30 lakhs limited to five sanctions per company during the policy period.
- Incentive for VR/AR/VFX projects: Reimbursement up to 20 per cent of the qualified expenditure, capped at Rs 50 lakhs per company during the policy period; limited to three sanctions per company during the policy period.
- Incentive for game development (Mobile Gaming & Non-Mobile Gaming): Reimbursement of up to 20 per cent of the qualified expenditure capped at Rs 5 lakhs limited to two sanctions per company during the policy period.
- Incentive for international productions: Reimbursement of up to 20 per cent of the qualified expenditure, capped at Rs 1 crore per company limited to two sanctions during the policy period.
Incentive for quality assurance: Reimbursement of up to 30 percent of R&D expenses, capped at Rs 5 lakhs per company per year; limited to three sanctions per company during the policy period.
International market access: Reimbursement of up to 40 per cent of the costs incurred for participating in trade shows or expos, capped at Rs 5 lakhs per company per year; limited to three sanctions per company during the policy period.
We have tried to touch upon all the points under which the incentives are provided. However, Karnataka’s AVCG-XR Policy 3.0 mentions detailed eligibility criteria and requirements to meet to entail the benefits.
To know about the latest policy in detail, read: Karnataka’s AVCG-XR Policy 3.0.
