The government's ₹1 lakh crore fund, designed to support deep-tech research, is struggling to reach startups. Experts attribute this to a lack of investor familiarity with high-risk technologies and a persistent brain drain. While the capital is available, venture capitalists are currently choosing to stick with safer sectors like e-commerce, leaving significant funds unused.
What Happened
India’s ambitious ₹1 lakh crore Research, Development, and Innovation (RDI) fund, which was established to provide long-term support for deep-tech and innovative startups, is facing significant challenges in reaching its target beneficiaries. Neelkanth Mishra, a member of the Prime Minister’s Economic Advisory Council, recently noted that the capital remains largely untapped. Despite the large allocation, the ecosystem is not yet absorbing the funds effectively. The struggle highlights a structural mismatch between the government's supply of capital and the market's current ability to deploy it into complex, high-risk research areas.
The Gap Between Capital And Startups
The fundamental issue is that venture capital (VC) firms in India often struggle to evaluate deep-tech companies. Deep-tech ventures—which include fields like artificial intelligence, space technology, biotechnology, and advanced materials—typically require longer timeframes to show returns. This is a stark contrast to the e-commerce or fintech sectors, where business models are more standardized and the path to revenue is often shorter. Because VCs are more comfortable with the shorter cycles of e-commerce, they remain hesitant to take the risk on deep-tech projects, even when government-backed funding is available to help lower that risk.
Why Investors Prefer Easy Bets
For an investor, the risk-reward calculation in deep-tech is fundamentally different. Building a deep-tech product involves years of research before a commercial product even reaches the market. This creates a long 'gestation period' where the company burns cash without significant revenue. In the current environment, Indian VCs are prioritizing sectors where they have a better track record and clearer exit strategies. This behavior forces startups in the deep-tech space to struggle for survival, as they cannot easily access the capital pool that the government has set aside.
The Talent Retention Challenge
Another major factor limiting the success of this fund is the 'brain drain.' India produces significant engineering and scientific talent, but a large portion of this workforce moves abroad for opportunities and higher compensation. Without a strong domestic research environment, these professionals find it difficult to innovate within India. This lack of a stable, high-end research base discourages VCs from investing, as the foundation for the startup—the specialized talent—is often seen as unstable or moving to foreign markets.
What Investors Should Track Next
The success of the ₹1 lakh crore fund will depend on whether the ecosystem can bridge the gap between academic research and commercial business. Investors should watch for updates on how the government plans to change the fund's structure to de-risk investments for VCs. Additionally, future policy adjustments that might offer better incentives for deep-tech research or new partnerships with top-tier technical institutes like the IITs could be critical. These factors will determine whether the fund eventually succeeds in building a homegrown deep-tech industry or remains underutilized.