Importantly, India’s foreign exchange reserves, though substantial, are built significantly through capital-account inflows rather than persistent current-account surpluses. This makes them structurally more fragile than they appear. Strengthening exports and external competitiveness is, therefore, an urgent strategic priority.
These trends reflect a deeper structural vulnerability: India’s dependence on imported technologies, components, and capital goods in sectors critical to economic sovereignty. In a world where semiconductors, batteries, telecom equipment, rare earths, and defence supply chains are viewed as strategic assets tied to national resilience and geopolitical leverage, industrialisation is more than an economic agenda. It is an exercise in economic statecraft.
The harder question is how India finances the long, uncertain, and capital-intensive journey of building domestic industrial capabilities.
The capital gap: India has no shortage of private capital. But private capital gravitates towards shorter gestation periods, faster cash flows and near-term returns. Strategic manufacturing sectors — semiconductors, advanced electronics, and green energy — require long gestation periods, massive upfront investments, sustained R&D with uncertain outcomes, and the ability to compete against heavily state-subsidised global incumbents. No rational private promoter can be expected to absorb the entire early-stage risk alone.
Uday Kotak’s observation that India may have “financialised too early” captures this structural reality. Our financial system is sophisticated at pricing risk and allocating capital efficiently. But this very sophistication has created a bias towards sectors where returns are legible. This is precisely why every major industrial power has relied on long-duration strategic capital. China’s Government Guidance Funds — with a target capital pool exceeding $1.5 trillion — have underwritten its dominance in solar, EVs, batteries and 5G. The United States, through the Chips Act and the Defense Advanced Research Projects Agency, has committed hundreds of billions of dollars to semiconductors, AI, and quantum computing. Singapore’s Temasek operates as a patient strategic investor aligned with national priorities. If India insists on pure market competition while competing against heavily state-supported ecosystems, the playing field will remain inherently asymmetric.
A capital architecture: India needs a professionally governed development-capital institution — not a subsidy dispenser. Its instruments could include quasi-equity, long-duration convertibles, first-loss capital, blended public-private pools and procurement-linked financing. The goal would be to absorb part of early-stage viability risk until commercial scale emerges. Such capital must remain minority and catalytic, with promoters retaining ownership, control, and execution responsibility. Returns from successful investments could be recycled into future strategic sectors.
India is not unfamiliar with patient capital. Its capabilities in space and nuclear energy, for example, were developed through sustained, long-horizon state investments. What is different today is the institutional form this must take. Earlier models relied on direct state ownership and public-sector execution. The contemporary challenge is to use the state’s ability to absorb prolonged risk in partnership with private enterprise — preserving for promoters the responsibilities of innovation, operational efficiency, and market responsiveness. The objective is not to displace markets, but to extend them into sectors where early-stage uncertainty remains too high for conventional finance alone.
India already has a partial precedent in the National Investment and Infrastructure Fund, which has demonstrated the state’s ability to mobilise long-term capital alongside sovereign and private investors. Strategic manufacturing, however, involves a different challenge — technology risk, ecosystem creation and prolonged industrial incubation. India may, therefore, eventually require a dedicated National Strategic Manufacturing Investment Fund, distinct from infrastructure-oriented vehicles. India’s production-linked incentive (PLI) scheme has delivered impressive results — over ₹2.16 trillion in investments, ₹20 trillion in production, and 1.4 million jobs. But PLI rewards output after capacity creation has begun. Patient capital operates earlier — at the stage of ecosystem formation. PLI provides the pull; patient capital provides the push. The two are complements, not alternatives.
The way forward: First, a comprehensive national assessment — led jointly by the NITI Aayog, the Ministry of Finance and relevant sectoral ministries — must map sectors where patient capital is strategically necessary, estimate the likely scale required over the next decade, and design the institutional architecture for deployment.
Second, modern industrialisation requires coordination across financing, trade policy, infrastructure, logistics, skilling, technology and energy systems. India may eventually need the equivalent of a “Chief of Industrial Strategy” — an institutional mechanism capable of integrating these dimensions into a coherent framework.
Third, patient-capital institutions cannot be judged by near-term return on equity. They must be assessed through strategic metrics: Reduction in import dependence, domestic ecosystem creation, export competitiveness, crowding-in of private capital and long-term external-sector resilience.
Fourth, governance safeguards must be exceptionally strong: Transparent eligibility criteria, competitive selection, milestone-linked deployment, independent governance and full public accountability. Overseas patient capital may supplement domestic capital, but must remain capped and tightly governed to avoid contingent sovereign liabilities and moral hazard.
Finally, strategic industrial financing inherently involves failures. Commercial judgement exercised in good faith must be distinguished from malfeasance. Without such distinction, India may create patient-capital institutions on paper that functions merely as conventional development banks in practice.
Atmanirbharta is not about autarky. It is about ensuring India has the industrial capacity to absorb external shocks, negotiate from strength, and compete from a position of resilience. With a $333 billion trade deficit and semiconductor demand projected to exceed $110 billion by 2030, the question is not whether India can afford a patient-capital architecture, but whether it can afford to do without one.
The authors are, respectively, director on the board of MCX and MCX Clearing Corporation and former COO of Kotak Bank; and professor of practice at IIT Bombay and former MD & CEO of Kotak Bank. The views are personal
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