Financing innovation | Photo credit: naum
Until about 25 years ago, India’s focus was not on innovation. It was based on investments in people, agriculture, machinery and infrastructure. Some innovation took place, but it was not celebrated.
For example, in the 1930s, a film director and a music director discovered that they could record the video and audio of film songs separately. This innovation created playback singing, which changed Indian entertainment forever. After independence, people started using more efficient used car tires instead of the wooden wheels of bullock carts. This deliberate recycling made for quicker and easier travel to the countryside, but almost no one cared.
Today, India needs breakthrough innovation that leads to new or significantly improved goods or services with large-scale domestic impacts, and potentially new export markets. We’ve had some of this, but it hasn’t come from private companies and startups.
Important Indian innovations
The Aadhaar card was a modern breakthrough innovation. No other country had anything like Aadhaar, which was created quickly and cheaply. The operating costs are so low that the government can continue to provide it for free.
The Indian UPI is another breakthrough innovation. Even today, other countries’ payment systems are not as good as UPI. Again, it was created by the Indians at a low cost and is still free.
The landing of Chandrayaan-3 near the moon’s south pole was also a major breakthrough. No country had sent a lander to that side of the moon. India was only the fourth country to have a lunar lander. Once again this innovation came at a low cost.
These high-tech innovations could be financed, even though they were risky, because their financier was the government, which, unlike private funds, did not consider risk and reward. This was also the case with the Jaipur Foot. This cheap, industrialized version of an international prosthesis for amputees was created by a doctor and a craftsman, who initially funded it and gave it away for free.
It is a rehabilitation benefit for injured low-income people in India and some other countries.
It is clear that India has the talent. So haven’t our start-ups spawned a wave of such innovations? We have a number of high-tech products that are Indian versions of available international products. That is useful, because the industrialized products are better for us, but it is not enough. We also get direct copies of foreign products/services, which is just copycat innovation. This can also be helpful, but it is not enough.
Lately there has been a lot of fuss about Indian products essentially doing exactly what the already available foreign products do. Indian products are not cheaper, faster or better than what people already use. It’s just that they are Indian products and not foreign products. And there is pressure on people to switch to this nationalist practice. Support Indian Products: How Long Will We Be Dependent on Foreign Affairs?
This is a call for protectionism, even if it is presented as nationalism. There are also calls for explicit protectionism. Look, China has banned so many foreign services and developed its own successful products. India should do the same. No consideration is given to the total time and effort required to make a wholesale switch to a product that is no better than what people are already using.
In any case, China has not grown spectacularly because of such bans. The growth was due to enormous, cheap exports. India has no such exports. Now China is leading or competing with the world in several emerging technologies. Not India. So India has to find its own way.
Financing risk
One of the main reasons why India is not getting breakthrough innovations from its startups is that Indian financial markets are unwilling or unable to fund ideas that are considered high risk. Even somewhat established start-ups use or need foreign funds, although some start-ups can get by with Indian funds.
However, Indian savings generally flow to less risky ventures, such as projects of booming conglomerates. A key part of the problem is that India does not have the financial tools needed to channel non-risk averse funds into risky ventures.
The average Indian saver will never finance risky investments. However, now India has plenty of people who can risk some money in the hope of high rewards. But they do not have good connections with risky start-ups.
We need to create new workable channels to channel money from willing Indian savers to risky startups. It is not something that can be done easily or quickly. This is what the RBI, Union Finance Ministry, financially savvy private groups and thinkers need to bring together. It is this innovation in the financial sector that will drive breakthrough innovations from bright young Indians. Let’s get moving.
The writer is an economist with extensive practical experience in public policy
Published on November 12, 2025
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