The Innovation Deficit, How a Crisis of Belief is Holding India Back in the Deep Tech Race

The Innovation Deficit, How a Crisis of Belief is Holding India Back in the Deep Tech Race

The narrative of 21st-century India is one of paradoxes. It is a nation that dispatches spacecraft to the moon’s south pole and builds world-class digital public infrastructure like UPI, yet it struggles to produce a globally competitive lithium-ion battery or a foundational semiconductor chip. This duality points to a deep-seated structural flaw: India excels in jugaad (frugal innovation) and system-scale execution but suffers from a chronic deficit in deep, ground-up technological creation. The recent, revealing case of India’s most valuable company pausing its ambitious lithium-ion battery plans—not due to a lack of capital or market, but because it could not secure Chinese technology—is not an isolated incident. It is a symptomatic failure of the Indian industrial mindset. The core issue is not merely a lack of risk capital or weak university ties, though those are real problems. It is a profound, often unspoken, crisis of belief: a widespread doubt within the Indian corporate psyche that real, pioneering research can happen here, by us.

A Tale of Two Strategies: Import vs. Invent

The contrast presented is stark and instructive. On one hand, a corporate behemoth, armed with vast financial reserves and market dominance, halts a strategic foray into the future of energy storage because a foreign supplier turned off the tap. Its calculus was rational in the short-term: why embark on the expensive, uncertain, and decade-long journey of fundamental research when proven technology can be licensed or purchased? This is the “efficient follower” model, perfected by India in sectors like pharmaceuticals (via reverse engineering) and automotive (via licensed manufacturing). It minimizes risk and accelerates market entry.

On the other hand, a much smaller Finnish-American entity, Donut Lab, captivated the Consumer Electronics Show (CES) 2026 with a breakthrough in solid-state battery technology. Their journey is a blueprint for deep-tech innovation. It began not in a corporate lab with a billion-dollar budget, but with a doctoral student’s thesis on solid-state electrolytes. Finnish entrepreneurs, spotting the potential, did not wait for the PhD to be conferred or papers to be peer-reviewed. They engaged immediately, providing funding, entrepreneurial guidance, and a commercial framework. The European Space Agency (ESA), recognizing the technology’s stability across extreme temperatures—a critical need for space applications—provided further validation and funding. By 2025, Donut Lab had invested in the spin-out, Nordic Nano, integrating it while preserving its independent R&D identity in Finland, akin to the successful DeepMind-Google model.

The divergence is cultural and philosophical. The Indian story reflects a transactional mindset—technology as a commodity to be procured. The Finnish story embodies an evolutionary mindset—technology as an organism to be nurtured from a seed of an idea. One seeks to rent competence; the other seeks to build capability. As innovation theorist Clayton Christensen observed, the rational allocation of resources towards known markets and existing customers is often the very reason established companies fail to disrupt. For large Indian firms, the “rational” choice—to import, not invent—is a repeated, self-reinforcing trap that condemns them to perpetual technological dependency.

Dissecting the Indian Innovation Bottleneck: Beyond the Usual Suspects

The standard diagnosis of India’s R&D anemia is well-rehearsed:

1. Risk-Averse Capital: A lack of patient, long-term “risk capital” willing to fund unproven science over 10-15 year horizons. Venture capital in India overwhelmingly prefers scalable software models (the next app or SaaS platform) over capital-intensive, long-gestation hardware and materials science.

2. Short-Term Leadership: Corporate and investment leadership, driven by quarterly earnings and promoter pressures, prioritizes fast ROI over foundational bets.

3. The University-Industry Chasm: Academia operates in silos, pursuing publications for tenure, while industry seeks quick, deployable solutions. There is little meaningful exchange of personnel, problems, or long-term funding.

4. The Brain Drain: The brightest STEM talent often views a career in core research within India as lacking prestige or potential, opting instead for management roles, finance, or emigration to Western labs.

However, these are symptoms exacerbated by a deeper cultural and psychological bottleneck. There exists a corrosive, often internalized, belief that Indians are adept executors, process managers, and savvy traders, but not primordial innovators. This belief is a legacy of colonial history, a post-independence focus on self-reliance through assimilation rather than creation, and a corporate culture that rewards deal-making and regulatory navigation over technological mastery. The result is what economist William Janeway termed the shift from “Schumpeterian” entrepreneurship (innovation-driven creative destruction) to “rent-seeking” entrepreneurship—generating profits by manipulating the economic or regulatory environment rather than creating new value.

India has world-class talent in the latter. Its business leaders are masters of navigating complex bureaucracy, managing political economy, executing massive projects, and optimizing supply chains. Tragically, it has far fewer leaders who have built organizations whose primary muscle is pushing the frontiers of scientific understanding. The pause of the battery project is a powerful signal: if the nation’s champion corporation doubts its own capacity to compete at the highest technological level, what message does that send to the entire ecosystem?

The Donut Lab Blueprint: A Model for Systemic Nurturance

The Nordic Nano story is not about a lone genius or a fluke. It demonstrates a functional innovation ecosystem where all actors play their symbiotic role:

• Academia as the Idea Wellspring: The doctoral researcher was working on a fundamental materials science problem, not a corporate brief.

• Entrepreneurs as the Translational Bridge: The industrialists possessed the vision to see commercial potential in nascent science and the agility to act before the research was “complete.”

• Strategic Capital as the Sustenance: Donut Lab provided not just money, but strategic direction and a path to market.

• The State as the First Believer/Anchor Customer: The ESA’s involvement provided non-dilutive funding, rigorous validation (space-grade reliability), and a prestigious first application.

Critically, the structure preserved the research entity’s independence. Nordic Nano remained a separate company with its own R&D center, protecting its creative, exploratory culture from being crushed by the parent company’s potentially more bureaucratic or quarterly-focused mindset. This is a lesson India’s large conglomerates have largely failed to learn; their R&D centres are often extensions of business units, focused on incremental product development, not blue-sky research.

Forging an Indian Path: From Belief to Architecture

Knowing the problem is not enough. India must architect a new reality. This requires a multi-pronged, interlocking strategy that attacks both the structural and the psychological barriers.

1. Re-engineering the University-Industry Interface:
The current model of sponsored research for immediate problems is insufficient. What is needed are:

• Joint, Tenured Faculty Positions: Professors who split time between university labs and corporate R&D centers.

• Ph.D. Programs Co-Supervised by Industry Scientists: Where the thesis is a piece of a larger, long-term industrial challenge.

• “Skunkworks” Labs on Campus: Funded by consortia of companies but operating with academic freedom, focusing on pre-competitive, foundational technologies (e.g., a national lab for energy storage materials).

2. Creating New Pipelines of Patient Capital:

• Mandate Pension & Insurance Funds: A small, mandated allocation of India’s large domestic institutional capital (like the EPFO and insurance pools) must be directed into funds-of-funds that invest in deep-tech venture capital.

• Corporate Venture Capital (CVC) with a Long Lens: Encourage Indian corporates to set up CVC arms with 10-year evaluation horizons, explicitly tasked with making “moonshot” bets, insulated from parent company P&L pressures.

• Outcome-Based, Not Milestone-Based Grants: Government grants (from agencies like the Defence Research and Development Organisation or the Department of Science and Technology) should fund outcomes (e.g., a battery with X energy density) over longer periods, not just annual progress on predetermined paths.

3. Cultivating the New Archetype: The Technologist-Entrepreneur:
India glorifies the tycoon and the startup founder chasing unicorn status. It needs to elevate the technologist-entrepreneur—the scientist who builds a company around a patent, the engineer who leaves a stable job to commercialize a PhD project. This requires:

• National Visibility: Prestigious awards and media coverage celebrating deep-tech founders, not just their exits.

• Failure Amnesty: Creating forums where failed deep-tech entrepreneurs can share lessons without stigma, making “intelligent failure” a respected part of the career journey.

• Incentivizing “Returning Roots”: Aggressive programs to attract Indian scientists and engineers from global corporate and academic labs back to India, not just with financial incentives, but with the promise of leading well-funded, autonomous research entities.

4. The State as the Lead Risk-Taker and Convener:
The state must evolve from being just a regulator or funder to being a visionary architect and lead risk-taker. This means:

• Committing to “Strategic Procurement”: Using the state’s massive purchasing power (in defence, railways, energy) to create guaranteed early markets for indigenously developed deep-tech products, de-risking the commercialization valley of death.

• Building Grand Challenge Platforms: Publicly articulating grand national challenges (e.g., “Develop a 500 Wh/kg battery by 2035” or “Create a carbon-neutral cement process”) and funding multiple, competing approaches from public-private consortia.

• Fostering Pre-Competitive Consortia: Bringing rival companies together in non-competitive spaces (e.g., fundamental semiconductor research, agricultural bioscience) to pool resources and tackle problems too big for any single entity.

Conclusion: The Choice Before India

The solid-state batteries being pioneered in Finland, born from a doctoral thesis and nurtured by a cohesive ecosystem, could have been—should have been—conceived and developed in India. The nation possesses the raw intellectual talent, the growing financial heft, and the pressing domestic needs that drive innovation. What it lacks is the collective self-belief and the meticulously constructed institutional plumbing to connect the dots.

Continuing on the path of the “efficient follower” is a strategic dead end. In an era of geopolitical rivalry, tech nationalism, and export controls, reliance on imported core technology is a profound vulnerability, as the battery case starkly illustrates. The cost of inaction is not just economic stagnation in high-value sectors; it is the forfeiture of strategic autonomy and the inability to shape the future.

The call to action is not solely for policymakers in Delhi or billionaires in Mumbai boardrooms. It is for every engineering student choosing between an MS in the US and a research stint in an Indian lab, for every venture capitalist deciding between another fintech bet and a materials science startup, for every corporate leader justifying the R&D budget to shareholders. India must choose to believe—and then build the evidence for that belief, one hard, uncertain, groundbreaking innovation at a time. The alternative is to remain a perpetual tenant in the house of global technology, never its architect. The time to start building from the ground up is now.

Q&A: Unpacking India’s Deep-Tech Innovation Challenge

Q1: The article argues the core problem is a “crisis of belief,” not just funding or infrastructure. What evidence supports this, and how does it manifest?
A1: The evidence is behavioral and anecdotal, reflecting a deeply ingrained mindset. It manifests in several ways:

• The Corporate Pause: The decision by a financially robust market leader to halt a critical future-facing project upon being denied imported technology, rather than pivoting to indigenize it, reveals a fundamental lack of confidence in their own R&D capacity.

• Preference for Proven Paths: The “rational” choice to license or acquire technology, rather than incubate it, signals a belief that the innovation risk is better borne elsewhere.

• Hierarchy of Careers: The societal and familial pressure on top engineering talent to pursue management, finance, or emigration, rather than core research within India, stems from a belief that such paths here are less prestigious or fruitful.

• Rhetoric vs. Reality: While “Atmanirbhar Bharat” (Self-Reliant India) is a national slogan, corporate and investment strategies often default to dependency, indicating a gap between political aspiration and industrial conviction.

Q2: How does the Donut Lab/Nordic Nano model differ fundamentally from how Indian industry typically approaches R&D?
A2: The differences are structural and philosophical:

Q3: What specific, actionable steps can the Indian government take to act as a “lead risk-taker” and reshape the innovation landscape?
A3: The government can move beyond grants to create a de-risked market and a challenge-driven ecosystem:

• Strategic Procurement Contracts: Issue firm, multi-year purchase commitments (e.g., “The Indian Railways will procure X MW of indigenously developed solid-state battery storage by 2030”) to create guaranteed demand.

• Establish “ARPA-I” (India): Create a high-risk, high-reward funding agency modeled on the US Defense Advanced Research Projects Agency (DARPA), with program managers empowered to fund radical ideas based on visionary goals, not incremental progress.

• Launch “Grand Challenge” Prizes: Offer large, outcome-based monetary prizes for achieving specific technological breakthroughs (e.g., a prize for a commercially viable green hydrogen production method below a certain cost).

• Facilitate Pre-Competitive Consortia: Use its convening power to bring together rival firms in sectors like automotive or chemicals to jointly fund foundational research in areas like alternative fuels or biodegradable polymers, sharing pre-competitive results.

Q4: The article mentions Clayton Christensen’s theory of disruptive innovation. How does it precisely apply to large Indian companies’ avoidance of deep-tech R&D?
A4: Christensen’s theory explains that successful companies focus their resources on sustaining innovations—improving products for their existing, profitable customers—because it is the “rational” thing to do. This focus makes them vulnerable to disruptive innovations that start in low-end or new markets. For large Indian firms:

• The “Rational” Choice: Investing billions in uncertain battery research with a 10-year horizon seems irrational when proven battery packs can be imported to meet current customer demand for electronics or EVs.

• The Disruptive Threat: However, a breakthrough in solid-state or another next-gen battery technology (a disruption) could render their entire imported technology stack and manufacturing lines obsolete. By not investing in the disruptive technology themselves, they cede the future to others (like Donut Lab).

• The Resource Allocation Trap: Their immense cash flows are “rationally” allocated to expanding capacity for current technologies, marketing, and supply chain optimization—activities that please current customers and shareholders but leave them defenseless against a technological paradigm shift.

Q5: Can India’s success in software and digital public infrastructure (DPI) be replicated in deep-tech/hard-tech? Why or why not?
A5: The models are fundamentally different, making direct replication difficult, but lessons can be adapted.

• Why Replication is Hard:

  • Capital Intensity: Software is cheap to prototype and scale. Deep-tech (batteries, semiconductors, biotech) requires massive capital for labs, equipment, and pilot plants.

  • Cycle Time: Software innovations can iterate in weeks. Material science and hardware cycles take years.

  • Ecosystem Needs: Software needs talent and internet. Deep-tech needs specialized supply chains, advanced instrument manufacturing, and niche materials—ecosystems India largely lacks.

• Adaptable Lessons:

  • The Power of Public Digital Platforms: The state’s role in creating UPI as a public good lowered entry barriers for fintech innovators. Similarly, the state could create public physical infrastructure (e.g., shared advanced materials characterization labs, open-access semiconductor fabrication facilities for prototyping) to lower barriers for deep-tech startups.

  • Talent Pipeline: India’s software success was built on a massive, English-literate engineering talent pool. A similar focused effort is needed to cultivate and retain specialized PhDs and post-docs in core engineering and sciences.

  • Focus on Solutions for India: Just as DPI solved for India’s unique financial inclusion challenge, deep-tech efforts should focus on India’s grand challenges (e.g., affordable energy storage for erratic grids, water purification tech, sustainable agriculture), creating solutions with global relevance born from local necessity.