India’s startup ecosystem has reached a pivotal moment. Over the past decade, digital enterprises transformed consumer services, formalised fragmented markets and demonstrated India’s entrepreneurial potential. India’s expanding Digital Public Infrastructure (DPI) reinforced this transformation by lowering transaction costs, improving market connectivity and reducing barriers to entrepreneurship, helping to lay the foundations of today’s startup ecosystem.
Yet expanding this model alone will not fulfil India’s long-term innovation ambitions. If the country aspires to become a technology leader, it must engineer a new generation of startups through stronger links between universities, industry and public policy.
The Next Phase Demands a Different Model
The first phase of India’s startup ecosystem was built around digital platforms, e-commerce, enterprise software and consumer services. Powered by rapid digital adoption and reinforced by DPI, these firms improved efficiency, reduced transaction costs and brought greater formalisation to the economy.
Their contribution should not be understated. They fostered entrepreneurial confidence, attracted investment and demonstrated that Indian founders could build globally competitive businesses.
However, these sectors are driven more by adaptive innovation – applying existing technologies to solve market problems – than by technological invention. Much of their future growth will increasingly depend on expanding beyond domestic consumer markets rather than relying solely on India’s consumer economy. While they remain an important source of entrepreneurship and economic dynamism, they alone are unlikely to generate the technological capabilities needed for India’s next phase of economic transformation.
That requires a different class of startups altogether.
Deep Technology Is India's Next Competitive Advantage
Technology-intensive manufacturing startups play a fundamentally different role by creating new intellectual property, developing advanced capabilities and strengthening industrial competitiveness.
Such firms can move India beyond labour-intensive assembly towards advanced manufacturing built on design, innovation and proprietary technologies. For a country that missed much of the manufacturing-led industrialisation enjoyed by East Asia, deep technology startups offer an opportunity to enter high-value segments of global production through technological capability rather than low-cost manufacturing alone.
Corporate-startup collaborations and startup-MSME partnerships help diffuse frontier technologies across manufacturing. They create an innovation layer that enables new technologies to spread through industrial production, reinforcing not only individual firms but the competitiveness of the wider manufacturing ecosystem. This becomes especially important because at 0.64 percent of GDP, India’s investment in R&D is relatively low and continues to be driven predominantly by the public sector.
Innovation Begins Long Before the Startup
Building frontier technology companies demands fundamentally different capabilities from those needed to launch digital consumer businesses. Unlike many digital startups that begin by solving identifiable market problems, deep technology ventures often begin with scientific discovery, sustained experimentation, repeated testing, long development cycles and significant capital before products reach commercial viability.
Research universities and public laboratories therefore become central to this transition. Together, they account for nearly two-thirds of India’s gross expenditure on R&D, making them the country’s dominant source of research investment. By contrast, industry contributes only 36.4 percent, compared with 50-70 percent in many major economies.
Research alone, however, does not create successful businesses. Scientific discoveries generate economic value only when institutions help researchers translate them into products, firms and markets. Technology transfer offices, university incubators and industry partnerships therefore sit at the heart of the innovation ecosystem rather than at its margins.
Incentives Should Reward Commercial Innovation
Universities have embraced innovation and entrepreneurship more actively in recent years, but their incentive structures have not always evolved at the same pace.
The entrepreneurial pipeline is also strengthening. Global University Entrepreneurial Spirits Students’ Survey 2023 report of more than 30 percent of university students surveyed in India having entrepreneurial ambitions or involvement in venture creation. This, in turn, suggests that the challenge lies less in entrepreneurial intent than in converting research into scalable enterprises.
Patent applications by Indian residents and educational institutions continue to rise. Rising patent counts, however, provide only a partial picture of innovation performance. Fewer than three percent of startups registered under Startup India possess patents, underscoring how little research ultimately reaches commercial scale. In some cases, private universities file more patent applications than all the IITs combined, suggesting that existing incentives reward the quantity of patents more than their commercial value.
Universities should therefore be assessed not only by the number of patents they generate, but also by their success in commercialising research, licensing technologies, creating startups and building sustained industry partnerships. These measures better capture innovation that creates economic value.
Evidence from India’s leading institutions illustrates this relationship. According to Tracxn, of the nearly 1.3 lakh technology companies established between 2015 and 2025, just over 5,500 were founded by graduates of the IITs and IIMs. Although they account for only a small share of founders, they are disproportionately represented in frontier technology sectors such as aerospace, energy technology, enterprise infrastructure and life sciences. This demonstrates the value of embedding entrepreneurship within research-intensive environments where frontier knowledge already exists. Expanding similar ecosystems across a broader network of universities could significantly deepen India’s innovation capacity.
Engineering Innovation, Not Just Startups
Recent policy developments suggest this transition is already underway. The recent notification defining deep technology startups marks one important step. A second is the shift from the broad-based Startup India Fund of Funds towards more targeted financing through the Research Development and Innovation Fund, signalling a more strategic approach to innovation policy. The private funding landscape is also evolving, with growing participation from domestic venture capital firms, family offices and specialised deep technology investors.
Despite this progress, one weakness continues to hold the ecosystem back. The weakest link remains the absence of credible commercialisation pathways connecting research laboratories with industry, investors and markets. Policy should therefore focus on strengthening the quality of incubation, encouraging faculty entrepreneurship, expanding structured industry partnerships, professionalising technology transfer offices, developing university-anchored regional innovation ecosystems around major industrial centres, and widening access to patient capital and translational funding that can bridge the gap between laboratory research and commercial deployment.
Faculty entrepreneurship at leading institutions such as Indian Institute of Science (IISc), Indian Institutes of Technology (IITs), Indian Institutes of Information Technology (IIITs) and BITS Pilani has reportedly been growing at around 20–30 percent annually in recent years, suggesting that this transition is already underway. The challenge now is to extend these successes well beyond a small group of premier institutions.
Building globally competitive deep technology startups is now central to strengthening India’s manufacturing competitiveness, securing strategic autonomy and positioning the country at the frontier of emerging technologies.
India’s first startup revolution made the country a global market for digital innovation. The second must make it a global producer of technological innovation. Achieving that transition requires moving beyond celebrating startups to building the institutions that consistently create them.