The missing buyer: India’s deep tech dreams could stall without enough govt demand
India has emerged as a major consumer tech market because consumer demand is strong and well-defined. In contrast, deep tech continues to struggle for space, hindered by the lack of consistent government demand.
As India eyes becoming a $5 trillion economy and harbours ambitions of building a $1 trillion AI sector, the country finds itself at a critical juncture. While India boasts of being the world’s fourth-largest economy, recently surpassing Japan, and the third-largest startup ecosystem, a true breakthrough in deep tech innovation remains elusive.
Despite being home to promising deep tech startups, India struggles to transform these ventures into global powerhouses. The problem, say industry insiders, is structural: deep tech needs a reliable first customer—but in India, that customer rarely exists.
“Startups in India are innovating for consumers because that is a reliable source of repeat demand,” says Pranav Pai, Founding Partner at 3One4 Capital, investing aggressively in deep tech, consumer tech, fintech, etc.
Unlike consumer tech ventures, which can scale through mass adoption and private demand, deep tech startups often require substantial upfront investment, patient capital, and validation from the government. In countries like the United States, government departments often play that crucial role.
“The biggest question for any deep tech startup is: who’s your customer?” Pai explains. “If the answer is only the government, that raises eyebrows for investors because the government is not yet a reliable customer for deep tech innovation. If that changes quickly, we will see the Indian deep tech economy grow exponentially in response.”
In the U.S., the federal government has frequently been the first major customer for cutting-edge technology, enabling startups to secure revenues and credibility early in their journey.
In India, however, that ecosystem is missing, and trust is at the heart of the problem.
The iDEX—Innovations for Defence Excellence—scheme was launched in 2021 with a budget of around ₹500 crore spread over five years. In stark contrast, a single defence contract awarded to a startup in the United States can exceed $1 billion.
Major General (Retd) R.C. Padhi argues that India’s hesitation to trust its own private sector has hampered technological progress, particularly in the defence sector.
“We woke up late in drone technology because we’ve been busy not allowing startups and MSMEs to enter the defence sector. I’ve always believed we should follow the American model and sign confidentiality agreements and trust our own people. After all, we’re all Indians,” Padhi, who is also SVP at IG Drones, told Business Today.
He adds that while large-scale manufacturing of advanced military hardware—like hypersonic missiles, fighter jets, or submarines—must remain under government purview, there’s significant room for startups to contribute in other critical areas of defence technology.
Even as the government introduces new reforms, Padhi says the democratic process inevitably slows decision-making, preventing agile engagement with emerging tech ventures.
Meanwhile, Pai notes that India’s inability to trust and nurture its own deep tech talent is causing a brain drain to the West, where engineers and entrepreneurs find better support and larger markets.
Globally, the most valuable and profitable companies today are not merely consumer businesses but deep tech giants driving transformative technologies—like semiconductors, AI infrastructure, and defence systems. For India to shift from a consumer-tech-dominated ecosystem to one that also excels in deep tech, experts agree on one critical step: the government must step up as a buyer.
Without the country’s demand to de-risk early innovation, venture capital remains hesitant, and startups are left with little choice but to chase consumer markets. And that, insiders warn, could keep India’s $1 trillion AI dream and its aspirations as a global technology powerhouse firmly out of reach.
