India’s Startup Ecosystem: Building a Deep-Tech Future for India

Context

India’s Commerce and Industry Minister recently criticized the country’s startup ecosystem for being too focused on consumer-oriented sectors such as food delivery and e-commerce. He emphasized the urgent need for Indian startups to transition towards deep-tech innovations, which are crucial for long-term strategic goals, national security, and technological sovereignty.

Overview of India’s Startup Ecosystem

• Third-Largest Startup Ecosystem Globally
  India is home to over 100 unicorns, making it the third-largest startup ecosystem after the US and China.
  In 2023, India added more than 20 unicorns, predominantly in logistics, fintech, and ed-tech sectors.

• Strong Government Support
  Policy initiatives like Startup India, Digital India, and the IndiaAI Mission have been instrumental in fostering startup growth.
  Recent efforts include:
   • A ₹10,000 crore Deep-Tech Fund
   • The India Semiconductor Mission

• Young and Talented Workforce
  With over 65% of the population below 35, India has a strong base of young, tech-savvy professionals.
  The country produces more than 1.5 million engineers annually, contributing significantly to the tech sector.

• Global Recognition of Indian Talent
  Prominent Indian-origin tech leaders like Sundar Pichai (Google) and Satya Nadella (Microsoft) exemplify India's global tech leadership.
  Indian entrepreneurs are leading startups in AI, cybersecurity, and fintech across the world.

• Improving Digital Infrastructure
  India’s digital public infrastructure, including UPI, Aadhaar, and BharatNet, has laid the foundation for digital innovation.
  In 2023, India processed over 100 billion UPI transactions, showing widespread adoption.

Challenges in India’s Startup Ecosystem

• Excessive Focus on Consumer-Tech
  Most unicorns cater to short-cycle, B2C models such as food delivery and quick commerce, which lack deep technological innovation.

• Limited Investment in Deep-Tech
  Although deep-tech funding rose 78% year-on-year in 2024, total investment remained at just $1.6 billion, significantly lower than the funding in China and the US.

• Risk-Averse Venture Capital Environment
  Indian venture capitalists often prioritize quick returns, avoiding long-gestation projects.
  In contrast, US investors back long-term ventures like SpaceX and OpenAI.

• Weak Academia-Startup Collaboration
  There is inadequate integration between universities and startups, leading to limited R&D output.
  Indian universities rarely feature in global innovation or patent rankings.

• Regulatory Bottlenecks
  Despite the removal of the Angel Tax, startups still face:
   • High compliance burdens
   • Exit challenges for investors
   • Delays in IP registration and funding clearance

Way Forward

• Increase R&D Expenditure
  India currently spends less than 1% of GDP on R&D. This needs to be raised to at least 2% to compete globally.
  By comparison:
   • China spends 2.6%
   • US and Germany spend over 3%

• Strengthen Academia-Industry Linkages
  Create Centres of Excellence in AI, quantum computing, and semiconductor research.
  Link premier institutions like IITs with startups in defence-tech, biotech, and space-tech.

• Revamp STEM Education and Upskilling
  Introduce early training in emerging fields through the National Deep Tech Startup Policy (NDTSP) 2023, focusing on AI, robotics, and semiconductor design.

• Facilitate Long-Term Capital Access
  Encourage patient capital from sovereign wealth funds and long-horizon VC funds.
  The ₹10,000 crore Deep-Tech Fund should be scaled and deployed strategically.

• Simplify Regulatory Framework
  Introduce fast-track processes for IP rights, patent approvals, and FDI clearances.
  Adopt a mission-mode approach inspired by models like NASA–DARPA to support breakthrough innovations.

Conclusion

India’s startup ecosystem has achieved remarkable growth in consumer-centric innovation, but it must now transition to deep-tech to secure its strategic interests and technological leadership. With a combination of policy reforms, R&D investment, educational overhaul, and supportive capital structures, India has the potential to lead in next-generation technologies and emerge as a global innovation powerhouse.