Beyond valuations: India needs to invest more in R&D for sustained growth

In a recent address, Union Minister of Commerce and Industry Piyush Goyal criticised the Indian startup ecosystem for being too focused on chasing valuations and using cheap labour instead of pursuing real innovation or solving fundamental technological challenges. Indian startups are largely seen to be consumption-driven and focused more on ecommerce, fintech, and edtech, that is, solving local problems at scale through technology-enabled services rather than work on long-gestation, foundational technologies. In other words, India’s startup story, while inspiring, has largely been one of scale and not frontiers of science. While the minister was right in pointing out that startups tended to shy away from innovation and replicate global business models rather than inventing new ones, founders may not be the only ones responsible for the current state of affairs. 

 

Over the past decade, India has become the world’s third-largest startup ecosystem, producing around 117 unicorns and driving digital inclusion across sectors. However, not all startups are in the consumer business. On the contrary, India has around 4,000 deeptech startups, including those working in defence, artificial intelligence (AI), space, quantum computing, and semiconductors, and is expected to reach 10,000 by 2030. According to a recent report by Nasscom, these deeptech startups attracted $1.6 billion in funding in 2024, marking a 78 per cent year-on-year increase. Other encouraging signs are also emerging. Several startups are tackling hard problems, from space tech to AI, and health diagnostics. However, these remain outliers, and are not yet the norm. In fact, despite these rapid advancements, Indian startups’ performance pales relative to their Chinese or American counterparts, which are taking bold bets on emerging technologies. These are high-risk, high-reward sectors that require capital; research and development (R&D); and often, government-supported infrastructure. As the deeptech race intensifies globally, it is clear that India will have to do a lot to catch up with these countries.

 

India’s startup ecosystem still falls short of structures that support deep tech. These include robust academia-industry linkages, long-term venture-capital funding, retention of top-tier talent, and adequate R&D infrastructure. Even now, India’s gross expenditure on research & development (GERD) stands at less than 1 per cent of gross domestic product, far behind that of the US (3.5 per cent) and China (2.4 per cent). The lack of R&D ambition is not limited to startups. Indian firms and the government collectively spend too little on these, which needs to change. Further, startups also face regulatory hurdles. In contrast, China’s startup dominance was the result of careful government planning, aggressive funding, and a domestic market structured for scale. As this newspaper has reported, in 2023, for example, a meagre 5 per cent of Indian startup funding went into deeptech sectors, compared to 35 per cent in China. The remarks made by Mr Goyal should thus serve as a call to action. This can include setting up deeptech innovation funds, building strong academia-startup bridges, and offering incentives for faster developments in hardware, AI, biotech, and clean energy. Technology Innovation Hubs, set up under the National Mission on Interdisciplinary Cyber-Physical Systems, will hopefully boost technology development and innovation.