By Ashish Dhawan & Varun Aggarwal
This year’s economics Nobel Prize awarded to Philippe Aghion, Peter Howitt, and Joel Mokyr underscores the principle that sustained productivity gains stem not from capital deepening alone but from frontier innovation, the systematic generation and diffusion of new technologies that displace obsolete ones through creative destruction.
The Rs 1-lakh crore Research, Development and Innovation Fund (RDIF) operationalises this principle by addressing a long-standing structural gap in India’s innovation system, i.e. absence of an institutionalised financing mechanism for commercialising research to create deeptech products.
While the Anusandhan National Research Foundation (ANRF) supports upstream research (Technology Readiness Levels, TRL 1–6), THE RDIF provides the downstream capital intensity and risk absorption necessary for late-stage validation, prototyping, and demonstration (TRL 7–9). This is important as innovation accelerates when public investment de-risks private R&D and when competition, intellectual property, and financial depth reinforce one another.
The RDIF’s funding mechanism has been structured to address financing barriers that constrain private sector-led R&D and innovation. It aims to provide long-term financing or refinancing with extended tenors at low or nil interest rates, enabling companies to undertake high-risk, high-impact research in sunrise and strategic sectors.
The RDIF adopts a two-tier funding model for efficient resource management. A special purpose fund (SPF) within the ANRF will serve as primary custodian, channelling capital to second-level fund managers who will extend long-term concessional loans to high-potential R&D projects aimed at technology advancement and commercialisation.
Funding may also be provided in the form of equity, particularly for start-ups and innovation-driven enterprises where traditional loan structures are insufficient to absorb risk.
Additionally, contributions from SPF may be directed toward a Deep-Tech Fund of Funds (FoF) or other RDI-focused FoFs to strengthen the equity base for transformative research and technology ventures. This blended approach—combining patient debt, strategic equity, and professional fund management—creates a sustainable financing continuum that can unlock large-scale private investment, de-risk frontier R&D, and drive India’s technological transformation.
The RDIF represents structurally sound and forward-thinking interventions in India’s innovation financing architecture. The use of debt as the principal instrument, rather than outright grants, introduces accountability and performance orientation into the innovation system.
Enterprises receiving long-tenor, low- or nil-interest loans are incentivised to prioritise outcomes, efficiency, and commercialisation, ensuring that public funds catalyse tangible value creation rather than perpetuating dependency. This also enables capital recycling, where successful repayments can be redeployed to finance new projects, creating a self-sustaining innovation cycle.
The two-tiered structure brings professional rigour, transparency, and technical due diligence to project selection. This architecture distributes responsibility across specialised intermediaries, each capable of assessing technology risks, sectoral readiness, and market scalability, thereby creating a decentralised yet accountable financing ecosystem for R&D.
Another strength lies in the RDIF’s ability to blend debt with equity through its Deep-Tech FoF, which provides flexible instruments for projects where conventional credit is insufficient. This feature recognises that innovation, particularly at higher TRLs, demands risk-tolerant capital that can absorb uncertainty.
The FoF structure allows the government to leverage private venture expertise, crowd in institutional investors, and create risk-sharing partnerships that extend the impact of public spending.
The RDIF tackles two key gaps in India’s innovation ecosystem. First, industry R&D investment remains just 0.2% of GDP, barely 11% of China’s, and 7% of the US’s levels, according to the FAST Industry R&D Report.
The RDIF aims to crowd in greater industry participation by de-risking private investments. Second, India’s venture capital ecosystem is heavily skewed toward internet start-ups, with minimal funding for deeptech due to longer gestation cycles. The RDIF Deeptech FoF will help create this market by building trust and de-risking limited partners.
The RDIF also has the potential to act as a market maker. The effectiveness of innovation finance depends not only on funding supply but also on assured demand. Technologies emerging from RDIF-supported ventures should gain early validation through public procurement, with government entities serving as first adopters or anchor buyers where they are natural users.
This builds market confidence, enhances credibility of domestic innovators, and bridges the “first customer” gap that often impedes technology diffusion. In sectors where the government is not a direct consumer, the RDIF can encourage private adoption through innovation showcases, supply-chain linkages, and credit enhancements for buyers of indigenous technologies.
Beyond its economic rationale, the RDIF’s design generates significant institutional spillovers. The debt-based model incentivises firms to strengthen R&D governance, maintain transparent accounts, and track measurable outcomes.
Fund managers evaluate projects for both technical merit and diffusion potential, creating a feedback loop of accountability between the public and private sectors that India’s innovation landscape has long lacked. The RDIF also blends growth capital with strategic intent, functioning as a dual-purpose instrument that is both developmental and competitive.
The onus now lies on industry and institutions to turn the RDIF into a catalyst for innovation-led growth. Firms must invest boldly in frontier R&D, while research institutions strengthen technology transfer and deepen industry linkages. This alignment can translate the RDIF’s promise into national technological capability.
Ashish Dhawan & Varun Aggarwal , Respectively Founder, Convergence Foundation, and Co-founder, Foundation for Advancing Science & Technology (FAST-India); and Co-founder, FAST-India & Change Engine
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