To build the future, India needs more risk capital

India’s economic rise over the past two decades has been powered 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 scale, the country now has an opportunity to add a more durable growth engine — one centred on innovation, product creation, intellectual property, and technological capability.

This distinction is critical for global investors. An innovation-led economy is not defined by the number of startups or the diffusion of digital tools. It is defined by the ability to build original products, develop proprietary technologies, deepen engineering capability across software and hardware, and translate research into globally competitive businesses.

The sectors that matter—AI, semiconductors, robotics, defence and space technologies, advanced manufacturing, climate technologies, and healthcare innovation—are not just high-growth areas. They also shape productivity, industrial depth, strategic resilience, and long-term competitiveness.

India is better positioned than at any point in its history to pursue this transition. It is the world’s third-largest startup ecosystem, with a large entrepreneurial base, deep engineering talent, and digital public infrastructure that has materially lowered friction across markets. UPI is a widely cited example of India’s ability to build digital systems with mass adoption and real economic utility. But innovation ecosystems do not emerge through private enterprise alone. They are built when talent, market demand, institutional capacity, and capital reinforce one another over time.

The next phase of India’s growth will therefore be structurally more demanding than the first. Much of the country’s earlier digital expansion was driven by software, platforms, and service delivery. Innovation-led sectors—particularly deep tech—follow a very different trajectory. Development cycles are longer, iteration is slower, capital intensity is higher, and meaningful revenues often arrive only after extended gestation periods. Significant capital must be committed well before commercial visibility emerges.

This is already evident across Indian innovation leaders. Space, robotics, advanced manufacturing, AI hardware, and climate technologies all require substantial upfront investment in infrastructure, engineering capability, and product development. Even scaled consumer businesses that move into manufacturing face capital commitments that run into thousands of crores. For many innovation-led companies, pre-commercial capital requirements can exceed ₹500 crore simply to establish product-market fit. These are fundamentally different capital profiles from those seen in traditional venture-backed services or platform businesses.

Agnikul’s progress has required not only launch vehicle development but also the creation of specialised infrastructure, including a private launchpad and advanced manufacturing facilities. Even consumer businesses such as Lenskart require significant capital for manufacturing, with disclosed investments of around ₹1,500 crore in its Telangana facility. Companies such as Miko (AI robotics), Cavli (IOT automotive), KB COL (climate), and Skyroot (space) illustrate similar patterns of spends in R&D, manufacturing, and establishing product market fit not just in India but globally .

As a result, the financing equation changes. Debt capital works best where cash flows are predictable and repayment capacity can be assessed with confidence. Innovation-led sectors rarely offer that visibility in their early years. Patient risk capital is therefore not optional—it is enabling. Equity and other long-duration capital pools are structurally better suited to absorbing technical risk, longer development timelines, and delayed monetisation.

International experience reinforces this point. The US built deep private venture and growth capital markets to support technology commercialisation. Israel combined public architecture with private capital to create a dense innovation ecosystem. China deployed strategic capital and industrial policy to scale capabilities in priority sectors. The models differed, but the common condition was clear: innovation scaled where risk capital was abundant, available across stages, and willing to underwrite uncertainty over long periods. India, by contrast, has achieved much of its entrepreneurial progress despite a relative scarcity of long-term, risk-bearing capital.

This brings the focus squarely to capital formation. India’s challenge today is not a shortage of ambition, talent, or opportunity. It is the shallowness of the financing architecture for long-gestation innovation. Venture investing has expanded meaningfully over the past decade, and the recent recovery in activity is encouraging. Even so, the pool of patient capital available early enough to support technical development and market discovery remains limited relative to the scale 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 in its potential to mobilise additional private capital alongside it. Over time, this architecture could enable more than $20 billion to be deployed into innovation-led sectors, helping bridge the persistent gap between research capability and commercial enterprise. For areas characterised by long gestation and high technical risk, this kind of blended capital framework can materially improve financing outcomes.

That said, public capital cannot be the sole answer. For innovation to become a sustainable growth engine, India will need a deeper and more layered domestic capital base. This has become more important as global private capital has grown more selective amid macro uncertainty, higher interest rates, and tighter risk appetite. India already has multiple pools of capital that can play a far larger role over time—family offices, corporate balance sheets, corporate venture platforms, pension and insurance capital, and other long-horizon institutional investors.

This raises a broader policy question for India’s capital markets. The country has previously used targeted incentives to accelerate capacity creation 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 dividend-paying capacity—particularly in the listed market—there may be scope to design frameworks that make long-duration innovation investing more attractive, whether through co-investment structures, regulatory facilitation, or time-bound capital-linked incentives.

Ultimately, this is not a debate about startups. It is a question of economic structure. Countries that finance innovation effectively do more than create successful companies. They deepen industrial capability, strengthen technological resilience, and expand their share of global value creation. India already has many of the necessary ingredients. The next step is to connect them through a capital architecture that is patient, institutional, and scaled.

Consumption, services, and digital adoption will continue to drive growth. But if India is to raise productivity, build technological depth, and create globally competitive enterprises over the next two decades, innovation must become a central engine of growth. Whether that promise is realised will depend, in large measure, on India’s ability to mobilise capital that is willing to think long-term—and to underwrite uncertainty in pursuit of enduring value creation.

For global and Indian investors, this is a moment of strategic choice. India’s innovation economy is no longer an early-stage experiment; it is entering a capital-intensive phase where outcomes will be shaped by who is willing to commit patient, risk-bearing capital early and at scale. The opportunity is not simply to back companies, but to participate in the build-out of India’s next industrial and technological base.

Investors who engage now—across venture, growth, and long-duration pools—have the chance to shape platforms, ecosystems, and category leaders that will define global value creation over the next two decades. India does not lack 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 will not just benefit from India’s growth—they will help define it.

Sudhir Sethi is Founder Chairman, Chiratae Ventures India