Can a department that historically spent 18 per cent less than its budget suddenly deploy Rs 1 lakh crore to transform India into an innovation powerhouse?
That’s the bet India is making on the Department of Science and Technology.
India’s innovation push is underway without much fanfare – you don’t see giant launch events nor stirring slogans. Yet within the science and technology establishment, a quiet transformation is unfolding that could determine whether India remains a service-driven economy or graduates to a true product power. And that has implications for its long-term economic standing.
For decades, the Department of Science and Technology (DST) was one among many others: a lot of what it was doing was a bit technical for headline politics and too modest for economic centrality. But in the third Modi government, it has been thrust into more of a leadership role. It’s now less a support ministry and more the fulcrum of India’s economic reinvention.
Although there’s been a steady upward climb for DST in recent years, the turning point came with the creation of the Research, Development and Innovation (RDI) Fund, a massive Rs 1-lakh-crore pool of “patient capital” announced in the Union Budget of 2025.
The DST will be seen donning the hat of a sovereign venture capitalist, if you will – deploying patient capital at scale, tolerating risk, measuring success in decades rather than quarters. What was once a department of grants and fellowships must now catalyse the innovation India needs to escape the middle-income trap and claim a place among the world’s innovation economies.
If it succeeds, the transformation will be economic. If it fails, the experiment will still matter.
A Department Transformed
A single chart tells the story. Between the 2024-25 and 2025-26 budgets, the DST’s allocation ballooned from Rs 5,661 crore to Rs 28,509 crore – a 403-per-cent leap. Rs 20,000 crore of that, marked as “Loans for Other Scientific Research,” comes directly from the RDI Fund’s first tranche.
The figure is startling not only in scale but in symbolism. Science and technology spending has now moved significantly upwards in the direction of budgets of long-standing infrastructure ministries. It seems as if innovation is being treated not as a discretionary expense but as national capital formation.
Yet such scale brings its own peril. Between 2018 and 2024, the DST underspent its allocations by an average of 18 per cent. The question now is whether a department that once struggled to spend Rs 6,000 crore can properly deploy five times that sum.
Between the 2024-25 and 2025-26 budgets, the DST’s allocation increased from Rs 5,661 crore to Rs 28,509 crore (click to enlarge)From Service To Product: A Strategic Reorientation
Behind the numbers lies a profound policy rethink. India’s leadership has concluded that an economy built on services cannot generate strategic power. DST Secretary Abhay Karandikar framed it crisply in July 2025: “To truly lead, India must go beyond being a service economy. We must become a product economy – with strategic autonomy in critical technologies.”
The logic is simple but compelling. Services contribute around 55 per cent of India’s GDP, but manufacturing’s share has slipped to about 14 per cent, down from 17 per cent a decade earlier. By contrast, manufacturing accounts for roughly 25 per cent of China’s GDP, 23 per cent in South Korea, and 20 per cent in Japan.
The consequences are visible in profit pools. Indian IT firms together generate lower profits annually than Microsoft alone in a lean year. As one policy analyst bluntly observed, “If you want to corner the profit pool, you have to own the product.”
Innovation, in other words, is not an academic virtue – it is the difference between a rich nation and a merely busy one.
The Middle-Income Trap And India’s Clock
India’s per-capita income is $2,730. At this pace, it would take seven decades to reach even a quarter of America’s level. The World Bank lists India among over a hundred nations in danger of the middle-income trap – a plateau where costs are too high for low-end manufacturing, yet technological capability too weak for high-value exports.
History offers few escape stories. South Korea transformed itself from a war-torn agrarian state to a trillion-dollar economy by investing over 4 per cent of GDP in research and development (R&D) and aligning industry with science. Singapore did so through deliberate partnerships with global corporations; Taiwan through semiconductors.
India, by comparison, spends just 0.8 per cent of GDP on R&D, among the lowest for a major economy. In absolute terms, it invests about $7 billion annually in industrial R&D, compared with $625 billion in the United States (US) and $335 billion in China.
If the 20th century was about labour arbitrage, the 21st will be about knowledge arbitrage – and India cannot compete if it funds in one year what the US spends in four days.
The Anatomy Of An Innovation Deficit
The shortfall is not only quantitative but structural. Roughly 44 per cent of India’s R&D comes from the central government, 7 per cent from states, and 9 per cent from higher education; business contributes only 36 per cent, far below the global norm of 65-70 per cent.
Most public-sector research budgets sustain institutions rather than drive discovery. The Council of Scientific and Industrial Research (CSIR) spends nearly all of its over Rs 6,000-crore allocation on salaries and operations. DRDO, despite a budget of about Rs 25,000 crore, has delivered far less commercial impact than, say, America’s Defense Advanced Research Projects Agency (DARPA) – which seeded the internet, Global Positioning System (GPS), and stealth technology with a fraction of DRDO’s resources. The comparison stings: DARPA operates with roughly $4 billion annually but has spawned entire industries.
Notably, private industry fares no better. Corporate India devotes just 0.3 per cent of gross domestic product (GDP) to in-house R&D – five times less than the world average. The 10 largest non-financial firms, despite $43 billion in annual profits, spend under $1 billion on research. Risk aversion, long payback cycles, and the lure of quick margins have kept corporate R&D anaemic.
The RDI Fund targets this dual failure: government labs that consume resources without generating breakthroughs, and private firms that maximise margins while minimising innovation. It attempts to bypass the former and catalyse the latter, channeling public capital to private execution.
Public Money, Private Innovation
State capital can crowd in private risk-taking. Silicon Valley itself, often mythologised as a triumph of free markets, was seeded by Pentagon and National Aeronautics and Space Administration (NASA) research contracts. India’s new model seems to try and replicate that dynamic deliberately.
“The funding may come from the government,” a senior adviser said, “but the execution must belong to private institutions and universities. That’s how the West built its innovation base.”
The ultimate goal is strategic autonomy – mastery in a dozen technologies deemed essential to economic security, from quantum computing and clean energy to space and synthetic biology.
How The RDI Fund Works
Formally approved on 1 July 2025, the RDI Scheme is the largest innovation-finance experiment in India’s history. It provides long-tenor, concessional, or even zero-interest loans to private entities working in defined “sunrise sectors.”
Its distinctive feature is “patient capital” – money willing to wait 10-15 years for returns. Traditional venture capital expects exits within five to seven; banks lend only against collateral. The result is a “valley of death” where promising technologies perish between prototype and market.
The fund aims to bridge that gap by supporting projects at Technology Readiness Level 4 and above – the stage at which innovation must meet industry. Typical ticket sizes will be Rs 50-100 crore, far beyond existing government schemes.
The Architecture
The RDI fund flow will happen through a Special Purpose Fund (SPF) within the Anusandhan National Research Foundation (ANRF), which will act as the custodian of the Rs 1 lakh-crore corpus.
Second-level fund managers – alternative investment funds (AIFs), development finance institutions, non-banking financial companies (NBFCs), and venture capital firms – receive 50-year, interest-free loans from the SPF.
These managers invest in private-sector projects, which must co-invest at least 50 per cent of the cost.
The structure is deliberately arm’s-length. The DST will not select companies; professional fund managers will. The aim is to combine public capital with market discipline – a model closer to Israel’s Yozma programme or Korea’s technology funds than to India’s earlier subsidy schemes.
This architecture was not born easily. As per sources close to the design and development of the fund, there was some discussion about which department should manage the corpus and how. The eventual compromise – placing the fund within ANRF, chaired by the Prime Minister but operated by a lean executive council – balanced concerns of various parties. For many insiders, it was a rare moment when a science ministry won out against the economic bureaucracy.
A meeting of the ANRF executive council in October 2025Operational Freedom And Institutional Architecture
Perhaps the most consequential aspect of the RDI Fund is what doesn’t bind it: the General Financial Rules (GFR). These rules, designed for procurement and audit uniformity, often paralyse speed and discretion in innovation financing. Though it must be clarified here that just earlier this year, the characteristically constraining GFR rules were eased up to an extent with the goal of making it easier to do research in India.
Again, after two months of negotiations, the DST secured a partial exemption – allowing the fund to hire at market salaries, contract specialists quickly, and move capital with private-sector agility. Such exemptions are granted only in “rarest of rare situations,” according to a science policy analyst.
For veterans of India’s research ecosystem, the change is almost revolutionary, as it’s a case of freeing public science from the shackles of lowest-bidder logic. Without this flexibility, the fund would operate like any other government scheme – slow, rigid, and unable to compete with private alternatives, though things are improving even otherwise.
The Broader Ecosystem
The RDI Fund is the headline act, but it sits within a larger institutional mosaic the DST has been quietly assembling.
ANRF, created by Parliament in 2024 with a Rs 50,000-crore endowment, consolidates earlier agencies such as the Science and Engineering Research Board (SERB). It finances early-stage academic research (TRL 1-4), complementing the RDI Fund’s focus on commercialisation (TRL 4+). Together, they cover the full innovation pipeline from the university lab to the factory floor.
The Technology Development Board (TDB), founded in 1996, has been recapitalised to handle concessional loans for commercialisation. Operating historically with just Rs 70-100 crore annually, it will now manage RDI Fund tranches worth thousands of crores – a 200x scaling challenge that will test institutional elasticity.
The Global Innovation and Technology Alliance (GITA) – a DST-Confederation of Indian Industry (CII) joint venture – fosters international R&D partnerships, providing Indian companies access to global technology networks and reducing the need to reinvent available technologies.
Human-capital schemes such as INSPIRE and Science and Technology for Women continue expanding, supporting tens of thousands of scholars and researchers. INSPIRE alone supports 34,343 scholars, 3,363 fellows, and 316 faculty members through graduation to post-doctoral studies.
Individually, these programmes might seem modest. Collectively, they form a national innovation architecture covering the spectrum from basic research to commercial deployment – with the RDI Fund as the financing engine.
Technology Readiness Levels (click to enlarge)Timing And The Geopolitical Tailwind
The transformation arrives amid a once-in-a-generation realignment of global supply chains. The pandemic exposed the fragility of over-concentrated manufacturing; the US-China technology war has accelerated diversification.
The “China + 1” phenomenon – multinationals seeking production bases outside China – gives India a fleeting window. But relocation is no longer about cheap labour; it demands design capacity, testing infrastructure, and intellectual property (IP) generation.
Without these, India risks becoming merely an assembly platform. With them, it could emerge as a full-spectrum innovation hub.
The government’s Production Linked Incentive (PLI) schemes have already attracted Rs 1.82 lakh crore in committed investment, lifting manufacturing foreign direct investment (FDI) by nearly 18 per cent. The RDI Fund is the logical sequel – turning assembly capacity into invention capability.
The Execution Challenge
The optimism is tempered by hard realities. The DST must deploy five times its historical budget, vet hundreds of proposals, and oversee multiple fund managers while building new oversight mechanisms from scratch.
The Technology Development Board, once operating with Rs 70-100 crore annually, must now manage portfolios worth thousands of crores. Scaling institutional capacity that quickly is uncharted territory.
Then there is the private-sector paradox: India’s corporate houses have resisted long-horizon R&D for decades. The co-investment rule – government covers half, firms the other half – is meant to enforce discipline, but sceptics fear it may deter participation.
And hovering over everything is the question of governance: can fund managers truly remain independent of political pressure when the money originates from the state? The first controversial rejection or failure will be the real test of autonomy.
Why This Moment Might Endure
Despite the hurdles, several forces suggest this reform has unusual staying power.
Scale creates its own momentum. Rs 1 lakh crore ensures visibility and political buy-in; even partial deployment creates irreversible capacity. Institutional permanence protects it: ANRF’s parliamentary status and PM-chaired board shield it from routine reshuffles. Unlike schemes that vanish with governments, this one has structural durability.
Precedent matters. PLI schemes demonstrated that carefully designed incentives can mobilise private capital – manufacturing FDI rose 18 per cent within two years. If production subsidies worked, patient capital might work for R&D.
Geopolitical alignment helps. Western governments actively encourage technological diversification away from China, creating receptive global partners. The China+1 moment won’t last forever, but it’s real now – and the RDI Fund is timed to capitalise on it.
India’s entrepreneurial landscape has matured dramatically. With over 185,000 registered startups and more than 110 unicorns, the country now has a risk-comfortable, globally oriented, technology-native business class. This generation understands decade-long development cycles far better than traditional conglomerates did.
The 50-year, zero-interest loan structure is unique globally – effectively a sovereign endowment for technology. Fund managers can take genuinely long positions without the exit pressure that characterises conventional venture capital. This is patient capital at a scale and tenor unavailable anywhere else.
Finally, leadership matters. Having a scientist-administrator like Karandikar at the helm signals seriousness about execution rather than symbolism. People close to the government’s science and technology efforts say the secretary “has been extremely open to outside people as long as you are India first.”
These ingredients don’t guarantee success, but they make this reform unusually resilient to the political and bureaucratic entropy that often swallows grand ideas. The question is no longer whether India is serious about innovation. It is. But this seriousness must translate to capability.
The DST’s New Identity
What is emerging, then, is a department redefined. The DST is no longer like a funding and managing agency for research. It is now being refashioned into a catalyst for economic transformation – a ministry of innovation rather than merely of science.
Its new ecosystem resembles that of a small state-run development bank for ideas: deploying capital, enforcing accountability, nurturing talent, and measuring impact in commercial outcomes. Few ministries in India have experienced such a metamorphosis in mandate and mindset.
Now it’s up to the private sector to step up. As Karandikar wrote in that July piece, “The government has opened the door. Now it’s for Indian industry and innovators to walk through it.”
The Road Ahead: Timeline, Metrics, And Open Questions
Implementation will unfold through 2025-26. Rs 20,000 crore has already been allocated. ANRF’s executive council is said to be finalising criteria for second-level fund managers; operational guidelines covering evaluation metrics and risk frameworks are due soon.
The first project approvals are expected by mid-2026, with disbursements beginning later that year. Early focus areas will likely include electric vehicles, space technology, climate and energy innovation, and AI in agriculture – sectors combining domestic demand with strategic relevance.
Success will be judged across several dimensions. Can the DST deploy Rs 20,000 crore in year one, or will underutilisation persist? Does each rupee of government capital crowd in matching private investment, or does the 50 per cent co-investment requirement become a barrier?
Technology progression matters: are funded projects advancing from TRL 4-5 to TRL 7-8 (full commercialisation)? Import substitution matters: are funded technologies reducing dependencies in critical sectors? Follow-on investment matters: do successfully funded ventures attract subsequent private capital, indicating market validation?
The government hasn’t publicly specified quantitative targets, but internal assessments will track these metrics closely. Early results in the next 18-24 months will determine whether the Rs 1 lakh crore allocation expands or contracts in subsequent budget cycles.
Given the patient capital model, commercial outcomes won’t be visible until 2028-30 at the earliest – reinforcing why institutional permanence and long-term commitment matter.
Critical Uncertainties
Yet uncertainty abounds. Can the DST maintain genuine arm’s-length governance once political interests collide with investment decisions? The structure promises autonomy, but Indian public institutions have historically struggled to insulate professional decisions from political pressure. The first controversial rejection – a well-connected applicant turned down, a project in an opposition-ruled state approved – will test whether the principle holds.
Will Parliament tolerate inevitable failures? High-risk R&D produces failures. Will government leadership have political cover to sustain the fund when projects collapse? Or will high-profile failures trigger parliamentary questions, media criticism, and institutional retreat?
How will IP rights be shared between public financiers and private innovators? When government-catalysed R&D produces patents, who owns them? How are licensing terms determined? Will successful technologies be available to other Indian companies at reasonable terms, or exclusively controlled by initial recipients?
These mundane but critical questions will shape whether the fund generates strategic autonomy or merely subsidises private profit.
Regional equity poses its own dilemma. India’s deep-tech clusters concentrate in Bengaluru, Hyderabad, Pune, and the National Capital Region. Will the RDI Fund reinforce this concentration to maximise ecosystem effects, or will political pressure force geographic distribution that dilutes impact? Extending innovation geography beyond existing enclaves will test both administrative imagination and political will.
Coordination challenges loom beyond DST. The Ministries of Electronics & Information Technology (IT), Biotechnology, and Space all run parallel innovation schemes. Without effective alignment, these could duplicate efforts, create bureaucratic confusion, or work at cross-purposes. ANRF must evolve into a true apex body capable of coordinating them.
DST is likely studying comparable models globally: Taiwan’s Industrial Technology Research Institute (ITRI), South Korea’s innovation financing mechanisms, Israel’s Yozma programme, Singapore’s Economic Development Board. The challenge is adapting these models to India’s scale, federal complexity, and institutional context.
The Stakes
The ambition is staggering: to compress a 40-year transformation into two decades. The risks are equally vast. Failure could reinforce cynicism about state-led innovation; success could rewrite the playbook for development economics.
India’s post-liberalisation growth has largely ridden on private consumption and services exports. The next phase – a leap from $4 trillion to $10 trillion GDP – will require technological depth, not just scale. That, in turn, hinges on whether the science and technology establishment’s new machinery can deliver outcomes at market speed without sacrificing rigour.
The story of the RDI Fund is therefore larger than any single ministry.
The South Korean metamorphosis that India might seek to emulate took four decades of sustained state-industry collaboration, guided by crises and course corrections. India is attempting the same in half the time. Whether the government can manage that compression remains uncertain. But what is already clear is that the centre of gravity within the Indian state has shifted. Science is no longer peripheral to policy; it is policy.
If the experiment works, the department that once handed out research grants will have helped reinvent the Indian economy.
What’s heartening is that India is decisively betting on its own ingenuity – not cautiously, but at a trillion-rupee scale. It will be a fun and significant ride ahead.