Introduction
India’s 21.9 million developers represent immense technological potential, yet software products contribute only $16.1 billion to its $282.6 billion technology industry, highlighting the gap between engineering capability and ownership.
Understanding India’s Value-Capture Deficit
- Services Versus Ownership: India’s IT industry has historically grown through labour arbitrage, outsourcing and global delivery. While generating employment, exports and expertise, this model often leaves intellectual property (IP), recurring product revenues and platform ownership with overseas clients.
- Talent Without Commercialisation: GitHub estimated 21.9 million Indian developers in 2025, but translating engineering skills into globally competitive software products requires product management, market access and sustained experimentation. GCCs increasingly undertake advanced AI and R&D, yet technical capability does not automatically confer ownership.
- Early-Stage Funding Squeeze: Tracxn data cited in 2026 indicate seed funding fell 37% to $698 million during the first nine months of 2026, following a 30% decline in 2025. Although early-stage funding increased 27% to $4.2 billion, capital appears increasingly selective about unvalidated ideas.
Why Deep Domestic Risk Capital Matters
- Strategic & Sovereign Security: Owning critical digital public infrastructure (DPI) and software platforms insulates the national economy from foreign technology monopolies and supply chain sanctions Example: Sovereign tech autonomy.
- Economic & Wealth Retention: Retaining enterprise value within domestic capital markets expands long-term tax revenues and boosts local capital reinvestment cycles Example: Domestic wealth creation.
- Innovation Multiplier: Venture funding connects universities, researchers, incubators and commercial markets. The ANRF and RDI funding framework can support this transition from laboratory discoveries to scalable enterprises. Example: Lab-to-market.
- Industrial Resilience: Shifting up the value chain from labor-arbitrage services to high-margin SaaS and enterprise platforms secures sustainable export growth Example: High-margin SaaS transition.
Why Capital Alone Is Not Enough
- Commercialisation Bottleneck: Startups also need reliable customers, skilled management, international distribution and predictable regulation. Government procurement through GeM’s Startup Runway and paid pilot projects can validate indigenous products. Example: Anchor customers.
- Prudential Concerns: Mandating pension funds to finance risky startups could expose retirement savings to losses. Public funding must therefore crowd in private investment through professionally managed, diversified funds rather than compel indiscriminate allocations. Example: Risk discipline.
- Global Competition: Foreign venture capital provides expertise and access to international markets. The objective should be stronger Indian ownership and globally competitive firms, not financial isolation. Example: Strategic openness.
Way Forward
- Mobilize Institutional Risk Capital: Relax investment mandates for domestic pension funds (PFRDA) and life insurance pools to deploy a statutory 2–3% allocation into domestic Alternative Investment Funds (AIFs).
- Expand Sovereign Fund-of-Funds Frameworks: Enhance the Self-Reliant India (SRI) Fund and SIDBI Fund of Funds specifically dedicated to high-risk, early-stage deep-tech and enterprise software startups.
- Streamline IP & Cross-Border Taxation Rules: Modernize domestic intellectual property regimes, simplify patent valuation norms, and eliminate tax friction to deter corporate flipping to overseas jurisdictions.
- Institutionalize Lab-to-Market University Pipelines: Utilize the Anusandhan National Research Foundation (ANRF) to establish university-linked venture incubators for commercializing academic engineering innovation.
- IP And Taxation Reform: Simplify patent filing, valuation and cross-border tax rules while strengthening contractual IP ownership and dispute resolution.
Conclusion
As emphasized in NITI Aayog’s Deep Tech Policy Framework, transforming India’s vast engineering talent into global technology ownership is vital. Cultivating deep, patient domestic risk capital will secure value retention, strengthen sovereign innovation.
