India’s economic rise over the past two decades has been driven by a familiar set of forces: consumption growth, an expanding services sector, broad-based entrepreneurship and rapid digital adoption. These drivers will continue to matter. But as India’s ambitions expand, the country now has an opportunity to add a more resilient growth engine – one focused on innovation, product creation, intellectual property and technological capabilities.
This distinction is crucial for global investors. An innovation-led economy is not defined by the number of startups or the proliferation of digital tools. It is defined by the ability to create original products, develop proprietary technologies, advance engineering capabilities across software and hardware, and translate research into globally competitive businesses.
The industries that matter—AI, semiconductors, robotics, defense and space technology, advanced manufacturing, climate technology, and healthcare innovation—are not just high-growth areas. They also affect productivity, industrial depth, strategic resilience and long-term competitiveness.
India is better positioned than ever before in its history to continue this transition. It is the third largest startup ecosystem in the world, with a large entrepreneurial base, deep engineering talent, and a digital public infrastructure that has substantially reduced friction across markets. UPI is a widely cited example of India’s ability to build digital systems with mass adoption and real economic utility. However, innovation ecosystems do not only emerge through private entrepreneurship. They arise when talent, market demand, institutional capacity and capital reinforce each other over time.
India’s next phase of growth will therefore be structurally more challenging than the first. Much of the country’s earlier digital expansion was driven by software, platforms and service delivery. Sectors based on innovation – especially deep technology – follow a very different trajectory. Development cycles are longer, iteration is slower, capital intensity is higher, and meaningful returns often come after a longer gestation period. Substantial capital must be provided long before commercial visibility emerges.
This is already evident across India’s innovation leaders. Space, robotics, advanced manufacturing, AI hardware, and climate technologies all require significant initial investment in infrastructure, engineering capabilities, and product development. Even scaled consumer businesses that move into manufacturing face capital commitments that run into the thousands of millions of crowns. For many innovation-driven companies, pre-commercial capital requirements can be exceeded ₹500 crore simply to create a suitable product for the market. These are fundamentally different capital profiles from those seen in traditional services or risk-backed platforms.
Agnikul’s progress required not only the development of a launch vehicle, but also the creation of specialized infrastructure, including a private launch pad and advanced manufacturing facilities. Even consumer businesses like Lenskart require significant capital to manufacture, with disclosed investments hovering around ₹1,500 crore in its Telangana facility. Companies like Miko (AI robotics), Cavli (IOT automotive), KB COL (climate) and Skyroot (space) illustrate similar patterns of spending on R&D, manufacturing and market fit for products not just in India but globally.
As a result, the funding equation changes. Debt capital works best where cash flows are predictable and ability to repay can be assessed with certainty. Innovation-based sectors rarely offer such visibility in their early years. So patient risk capital is not optional – it enables. Equity and other long-term equity funds are structurally better suited to absorb technical risk, longer development timelines, and delayed monetization.
International experience confirms this point. The US has built deep private venture and growth capital markets to support technology commercialization. Israel has combined public architecture with private capital to create a dense innovation ecosystem. China has deployed strategic capital and industrial policies to expand capacity in priority sectors. The models varied, but the common condition was clear: innovation scaled where venture capital was abundant, available at all stages, and willing to underwrite uncertainty for long periods. India, by contrast, has achieved much of its entrepreneurial progress despite a relative lack of long-term venture capital.
This brings the focus directly to capital formation. The challenge for India today is not a lack of ambition, talent or opportunity. It is the superficiality of the financing architecture for long-term innovation. Venture capital has expanded significantly over the past decade, and the recent resurgence in activity is encouraging. Even so, the pool of patient capital available early enough to support technical development and market discovery remains limited given the scope of the opportunity.
Public policy can play a catalytic role here. The government’s proposed $11 billion research, development and innovation initiative is significant not only in its direct impact, but also in its potential to mobilize additional private capital alongside it. Over time, this architecture could enable more than $20 billion to be deployed in innovation-focused sectors, helping to bridge the persistent gap between research capacity and commercial enterprise. For areas characterized by long duration and high technical risk, this kind of blended capital framework can substantially improve funding outcomes.
This means that public capital cannot be the only answer. For innovation to drive sustainable growth, India will need a deeper and more layered domestic capital base. This has become more important as global private equity has become more selective amid macro uncertainty, higher interest rates and tighter risk appetite. India already has several groups of capital that can play a much larger role over time – family offices, corporate balance sheets, corporate risk platforms, pension and insurance capital and other long-term institutional investors.
This raises a broader policy question for India’s capital markets. The country has previously used targeted incentives to accelerate capacity building in manufacturing and infrastructure. A similar approach may now be warranted for innovation-building sectors. For large Indian companies with balance sheet strength and consistent ability to pay dividends – especially in a listed market – there may be scope to design frameworks that make long-term investment in innovation more attractive, whether through co-investment structures, regulatory relief or time-bound capital incentives.
After all, this is not a debate about startups. It is a question of economic structure. Countries that fund innovation effectively do more than just create successful companies. They deepen industrial capacities, strengthen technological resilience and expand their share in the creation of global value. India already has many of the necessary ingredients. The next step is to connect them through a capital architecture that is patient, institutional and scalable.
Consumption, services and digital adoption will continue to drive growth. But if India is to increase productivity, build technological depth and create globally competitive businesses over the next two decades, innovation must become a central engine of growth. Whether this promise is realized will largely depend on India’s ability to mobilize capital that is willing to think long-term – and underwrite uncertainty in pursuit of sustainable value creation.
It is a moment of strategic choice for global and Indian investors. India’s innovation economy is no longer an early-stage experiment; it is entering a capital-intensive phase where the results will be shaped by who is willing to invest early and large amounts of patient, risk capital. The opportunity is not only to support companies, but to participate in building the next industrial and technological base of India.
Investors who get involved now – across venture, growth and long-term funds – have the chance to shape the platforms, ecosystems and category leaders that will drive global value creation for the next two decades. India is not short of ideas, talent or ambition. What it needs is capital that is prepared to think long-term, underwrite uncertainty and invest through cycles with superior financial returns. Those who do so will not only benefit from India’s growth, but help define it.
Sudhir Sethi is the Founder Chairman of Chiratae Ventures India
Key things
- India’s innovation-based economy requires long-term venture capital to thrive.
- Public policy can be a catalyst for private investment in innovation.
- India’s challenge lies in its shallow project finance architecture with a long gestation period.
