The Dilemma of Growth Without Innovation

Union Commerce and Industry Minister Piyush Goyal’s recent remarks at the Startup Mahakumbh 2025 have reignited a national debate: Are Indian startups innovating enough or merely scaling convenience? By highlighting concerns that startups are focusing excessively on low-tech services like grocery and ice-cream delivery, the Minister underscored a deeper tension within India’s economic trajectory—whether its startup ecosystem is pushing the frontier of innovation or plateauing in market replication.

The state of Indian Startups

• India has earned its place as the 3rd largest startup hub globally, with over 100 unicorns shaping the future of innovation and entrepreneurship.
• Recognised as a powerhouse of entrepreneurial spirit, the country boasts of 157,066 startups acknowledged by the department for promotion of industry and internal trade (DPIIT) with more than 1.6 million jobs created.
• However, Indian startups for being too narrowly focused on low-tech, consumer-facing sectors like grocery and ice cream delivery, and not much focused on real ‘innovation’.

What counts as innovation?

• Innovation in the startup context is not monolithic. It can be categorized as:
  • Incremental innovation (e.g., improving delivery logistics)
  • Disruptive innovation (e.g., ride-sharing or fintech platforms)
  • Deep-tech or science-led innovation (e.g., AI chips, quantum computing, 3D manufacturing)
• Piyush Goyal’s critique is implicitly aimed at the lack of deep-tech innovation—where startups serve as bridges between fundamental science and commercial application.

Why is Deep-Tech Innovation Scarce?

• High capital requirements
• Long gestation periods
• Absence of early revenue
• Need for skilled researchers and advanced infrastructure
• Lower risk appetite among Indian VCs and banks
  • Despite over 1,65,000 startups, only a small fraction operate in robotics, clean energy, AI/ML, or advanced manufacturing. This is not for lack of ambition, but due to ecosystem constraints—a classic structural bottleneck.

Innovation and the Role of Capital:

• Domestic vs Foreign Capital Divide: India's startup ecosystem is primarily funded by foreign venture capital (VCs)—mostly from the U.S., Japan, and China. Domestic capital, especially risk capital from Indian investors or institutions, remains scarce. Piyush Goyal’s call for greater domestic investment points to a need for financial sovereignty and resilience.
• Short-Termism in Indian Capital: Indian capital tends to chase:
  • Fast-scaling platforms
  • Low-capex ventures
  • Proven business models from the West
• This short-term orientation undermines experimental and patient capital, which is essential for building futuristic technology and global competitiveness.
• Structural Problem in VC Logic: Venture capital logic often requires:
  • Scalability within 3-5 years
  • Exit via acquisition or IPO
  • Demonstrable market traction
  • Deep tech doesn’t align neatly with this. Without IP-driven competitive advantage, investors will hesitate. Therefore, market failure in venture funding limits the types of innovation pursued.

Required Measures (Towards a Mature Innovation Ecosystem)

• Strategic Deep Tech Missions: There is need to lnk startups to national missions (clean energy, space, semiconductors).
• Reform Venture Funding Logic: Provide blended finance (government + VC) for patient capital in R&D.
• Encourage Indian LPs (Limited Partners): The government should incentivise Indian family offices, banks, pension funds to invest in VC.
• Decentralised Innovation Clusters: Build regional tech hubs linked with local universities.
• IP and Patent Ecosystem: There is need to strengthen India's IP infrastructure and expedite patent approvals.
• Regulatory Sandboxes: Let startups test products without full compliance during early stages.
• Enhance Corporate Governance: Cases like Byju’s show the need for stronger transparency and audit norms.