The making of India's innovation economy

Representative image

Over the past decade, India’s startup ecosystem has undergone a fundamental shift—not just in scale, but in character. What began as a wave of consumer internet entrepreneurship in the early 2010s has evolved into a far more complex, resilient and strategically relevant innovation economy. Today, India stands as the world’s third-largest startup ecosystem, supported by nearly 2 lakh DPIIT-recognised startups, a deepening domestic investor base, and a policy framework that has steadily moved from intent to execution.

This transformation has not been accidental. It has been the outcome of sustained public investment, deliberate policy design, and an increasingly sophisticated private capital market. Together, these forces have created a funding continuum—from ideation and prototyping to scale and global expansion—that did not exist in India a decade ago.

One of the most consequential interventions has been the creation of risk-absorbing public capital. The Fund of Funds for Startups (FFS), administered by SIDBI, alongside seed-stage schemes, played a catalytic role in building India’s early-stage funding pipeline. By anchoring domestic venture capital formation, the FFS helped crowd in private capital and significantly expand the number and diversity of active AIFs in the country. This, in turn, improved access to seed and early-growth funding, allowing founders to validate technology, build products and reach institutional readiness much earlier in their lifecycle.

Equally important has been the role of mission-driven public institutions. Organisations such as SIDBI, NABARD, BIRAC, MeitY, DST, iDEX and DBT have quietly but decisively de-risked early-stage innovation across sectors critical to India’s long-term competitiveness—from defence and aerospace to healthtech, agritech, digital infrastructure, climate solutions and advanced manufacturing. Their support has gone well beyond grants or equity. Regulatory handholding, pilot opportunities with government departments, access to public procurement pathways, and structured incubation have enabled startups to navigate the notoriously difficult journey from lab to market.

State governments, too, have emerged as serious ecosystem builders. Karnataka, Maharashtra, Telangana, Gujarat, Tamil Nadu, Assam and Himachal Pradesh, among others, have created dedicated startup policies, seed funds and incubation networks. The result is a far more geographically distributed innovation landscape. With over 1,100 incubators and accelerators now supported across states, entrepreneurship is no longer confined to a handful of urban clusters—it is increasingly embedded in regional economies, creating local employment and sector-specific capabilities.

On the private capital side, the last decade has seen the maturation of venture capital, private equity, angel networks and corporate venture arms. Angel investors and micro-VCs have bridged the pre-seed and seed gap, while corporate accelerators have given startups access to enterprise customers and real-world use cases. Cumulatively, over USD 115 billion has been invested into Indian startups in the past decade, and the country has produced more than 100 unicorns. But more telling than the headline numbers is the qualitative shift in investor behaviour—from growth-at-any-cost to sustainability, governance and technology depth.

This shift became particularly visible post-2022. As global liquidity tightened and profitability came back into focus, India’s startup ecosystem began to pivot decisively from consumer-led, platform-driven models towards deeptech and IP-led innovation. Investors started backing companies with longer technology moats, national-priority relevance and defensible intellectual property. Sectors such as AI, semiconductors, spacetech, defence, cybersecurity, climate tech, robotics and advanced manufacturing moved from the periphery to the centre of the investment thesis.

Policy has played an enabling role here as well. The National Deep Tech Startup Policy framework, the India Semiconductor Mission, space sector reforms, the defence iDEX programme, and expanded public R&D support have created the scaffolding for deeptech commercialisation. Importantly, private capital has responded by adopting longer investment horizons, blended capital models and closer collaboration with academia and research institutions. Patient capital is no longer an abstract concept—it is becoming a structural feature of India’s innovation economy.

What we are witnessing, therefore, is not just the growth of startups, but the emergence of a new strategic layer in India’s economic architecture. Deeptech is not a buzzword. It is central to technological sovereignty, industrial resilience and long-term competitiveness. Whether it is semiconductors, clean energy, defence systems or advanced manufacturing, India’s ability to build, not just buy, critical technologies will define its position in the global order.

The past decade has laid a strong foundation. The next decade will test whether we can convert this foundation into global leadership. That will require continued coordination between government, domestic capital, global investors and research institutions. It will require regulatory agility, patient risk capital and a willingness to back complex, long-gestation ideas. Most of all, it will require conviction.

India’s startup ecosystem is no longer just about creating the next app. It is about building the next generation of nationally significant companies. That is a far more ambitious project—and one worth committing to.