India’s procurement overhaul aims to boost deep‑tech innovation

The Indian state has long been the biggest single buyer of goods and services in the country, yet its purchasing power has rarely been directed toward the most technologically ambitious firms. Deep‑tech startups—those whose value lies in breakthroughs in physics, engineering, or advanced algorithms—are still fighting for pilots, proof‑of‑concepts, and the kind of long‑horizon contracts that only a sovereign client can provide. The Deloitte economics brief released on 29 September underscores a sharp uptick in venture capital flowing into Indian deep‑tech, alongside a widening gap between private capital’s appetite for rapid exits and the longer gestation periods that frontier technologies demand.

If the government steps in as the first customer, it can convert that funding surge into tangible outcomes: a home‑grown satellite launch capability, AI‑driven diagnostics that reach the nation’s most remote clinics, and quantum‑ready communications for a resilient defence network. The stakes are not abstract. They sit at the intersection of national security, public health, and the ambition to leapfrog the global technology curve.

Below are seven concrete policy shifts that would make the Indian government the catalyst deep‑tech startups need, while delivering public value that private markets alone cannot guarantee.

1. Turn Procurement into a Platform for Innovation

India’s public‑sector procurement has traditionally been a price‑driven, low‑margin exercise. The Deloitte brief notes that while overall government spend is rising, the share allocated to high‑risk, high‑reward projects remains marginal. To change that, procurement must be re‑engineered as a platform that rewards technical risk‑taking.

First, the Ministry of Finance should create a dedicated “Deep‑Tech Procurement Window” within the existing e‑procurement portal. This window would list multi‑year contracts—five to ten years—specifically for emerging technologies such as hypersonic materials, low‑earth‑orbit satellite constellations, and AI‑enabled disease surveillance. By publishing the roadmap publicly, the government would give startups a clear horizon to align their R&D pipelines, reducing the uncertainty that currently forces many to chase short‑term commercial deals abroad.

Second, evaluation criteria must move beyond price to include technology readiness level (TRL), scalability, and strategic alignment. A weighted scoring system—perhaps 40 % cost, 30 % TRL, 20 % impact on national objectives, and 10 % ecosystem development—would incentivise firms to invest in higher TRLs rather than merely under‑cutting competitors. The Defence Procurement Board’s recent pilot of a “innovation‑first” scoring model for autonomous drones can serve as a template, showing how a modest shift in metrics can open doors for firms like Skyroot Aerospace and Entropik Tech that sit just beyond the traditional cost‑only gate.

Third, the government should adopt “pay‑as‑you‑grow” contracts. Instead of a lump‑sum payment at delivery, milestones tied to incremental performance—e.g., a successful test‑flight, a certified AI model, or a validated quantum key distribution link—unlock successive tranches of funding. This mirrors the approach used by NASA’s Small Business Innovation Research (SBIR) program and would give Indian deep‑tech firms the cash flow needed to survive the long development cycles that venture capital alone cannot sustain.

2. Co‑Invest and De‑Risk Through a National Deep‑Tech Fund

Venture capitalists, as highlighted by Deloitte, are increasingly cautious about allocating large sums to capital‑intensive deep‑tech ventures without a clear exit path. A sovereign fund that co‑invests alongside private investors can bridge that gap.

The Ministry of Electronics and Information Technology (MeitY) should launch a “National Deep‑Tech Growth Fund” with an initial corpus of ₹10,000 crore. The fund’s mandate would be to take a minority equity stake—typically 10‑15 %—in startups that have secured at least one private round and are targeting a government contract listed in the procurement window. By sharing upside, the fund reduces the perceived risk for private VCs, encouraging larger follow‑on rounds.

Crucially, the fund must embed a “matching‑fund” clause: for every ₹1 of private capital invested, the sovereign fund contributes ₹0.5, up to a predefined cap. This structure has been successful in Israel’s Yozma program, where government‑backed matching spurred a 12‑fold increase in high‑tech VC activity within five years. In the Indian context, a similar mechanism could unlock the latent potential of companies such as Saankhya Labs (5G chipset design) and Vayavya Labs (semiconductor testing automation), whose capital needs far exceed what traditional angel networks can supply.

The fund should also retain a “strategic veto” right, allowing the government to steer investments toward sectors deemed critical—e.g., quantum computing for secure communications, or AI for pandemic prediction. This ensures that public money supports national priorities while still respecting market discipline.

3. Build Testbeds and Living Labs Across the Country

Deep‑tech validation often stalls because prototypes need real‑world environments that are difficult to replicate in a lab. The Deloitte economics note points out that India’s “innovation ecosystem” is strong in software but weak in hardware validation infrastructure.

A coordinated network of testbeds—spanning aerospace, health, and energy—would give startups a low‑cost runway to demonstrate performance at scale. The Department of Space could open up secondary launch facilities for sub‑orbital experiments, enabling Skyroot and other nascent launch firms to iterate on propulsion systems without the full cost of a primary mission.

Similarly, the Ministry of Health and Family Welfare could designate “AI‑Health Living Labs” in tier‑2 cities, where companies like Qure.ai and Niramai can trial diagnostic algorithms on diverse patient populations under regulated supervision. Data access agreements, overseen by an independent ethics board, would ensure privacy while providing the volume of labeled data needed to push models beyond the research stage.

The energy sector offers another fertile ground. The Ministry of New and Renewable Energy could convert under‑utilized solar parks into “grid‑flexibility sandboxes” where Vayavya Labs and emerging battery‑management startups test real‑time load‑balancing algorithms. By embedding these testbeds within existing government infrastructure, the state avoids the capital outlay of building new facilities while still delivering the critical validation loop that deep‑tech investors demand.

4. Institutionalise Regulatory Sandboxes for Frontier Technologies

Regulation is often the final barrier that keeps deep‑tech innovations from reaching the market. The Deloitte brief flags a “regulatory lag” as a key concern for AI and quantum firms. A systematic sandbox framework—modelled on the UK’s FCA sandbox for fintech—would let companies experiment under a temporary waiver of certain rules, provided they meet predefined safety metrics.

For AI in public services, the National AI Portal could host a sandbox where startups test predictive policing or traffic‑optimization algorithms with live data, while the Ministry of Home Affairs monitors bias and accountability. Successful pilots would then be fast‑tracked into permanent policy, creating a virtuous cycle of evidence‑based regulation.

Quantum communications present a more technical challenge. The Department of Telecommunications should author a “Quantum Sandbox Charter” that clarifies spectrum allocation, key‑distribution standards, and cross‑border data‑transfer rules. By publishing clear, time‑bound guidelines, the government would remove the legal uncertainty that currently deters firms like QNu Labs from scaling prototypes.

A sandbox for autonomous systems—ranging from agricultural drones to defence robotics—could be overseen jointly by the Ministry of Agriculture and the Defence Research and Development Organisation (DRDO). By allowing limited‑area field trials under supervised conditions, the state can collect safety data while giving startups the operational feedback loop they need to refine control algorithms.

5. Deploy Targeted Fiscal Incentives and Tax Credits

Financial incentives remain the most direct lever to encourage deep‑tech adoption. The current tax regime offers a blanket R&D credit, but it does not differentiate between incremental software upgrades and breakthrough hardware research.

A “Deep‑Tech Tax Credit” should be introduced, granting a 30 % credit on eligible expenditures that push a project beyond TRL 5. The credit would be refundable, ensuring that early‑stage firms with limited cash flow can benefit immediately. Companies like SigTuple (medical imaging) and Entropik Tech (emotion‑AI) would qualify when they move from proof‑of‑concept to clinical validation.

Moreover, the government can provide “accelerated depreciation” for capital equipment used in deep‑tech labs—such as high‑precision CNC machines, cryogenic test rigs, or AI‑training clusters. By allowing 100 % write‑off in the first year, the policy reduces the upfront capital barrier that deters many founders from scaling hardware prototypes.

The fiscal package should be paired with a “fast‑track clearance” for import of specialized components that are not domestically available. A single‑window clearance portal, overseen by the Directorate General of Foreign Trade, would cut approval times from months to weeks, ensuring that critical parts for quantum chips or aerospace composites do not become bottlenecks.

6. Create a Centralised Deep‑Tech Coordination Office

Fragmentation across ministries has long diluted India’s strategic tech initiatives. The Deloitte report highlights that while several ministries have their own innovation cells, there is little cross‑pollination.

A high‑level “Deep‑Tech Coordination Office” (DTCO) housed within the Prime Minister’s Office would harmonise policy, procurement, and funding streams. The DTCO’s charter would include:

• Mapping national challenges (e.g., climate resilience, health security) to deep‑tech solutions.
• Aligning procurement windows across ministries to avoid duplicate calls for similar technologies.
• Curating a “national deep‑tech pipeline” that tracks projects from lab to deployment, ensuring continuity even as political leadership changes.

Leadership should be a senior technocrat with a proven track record in both industry and public service—someone like Dr. K. Sivan, former ISRO chief, who commands credibility across the aerospace, AI, and quantum domains. The DTCO would also serve as the liaison for international partnerships, negotiating joint research agreements and co‑funded pilots with agencies such as the European Space Agency or the U.S. National Institute of Standards and Technology.

7. Leverage International Collaboration to Amplify Domestic Impact

Finally, deep‑tech does not evolve in isolation. The Deloitte brief observes that Indian startups are increasingly looking abroad for talent, markets, and validation. A proactive foreign‑policy stance can turn that outward gaze into a strategic advantage.

India should negotiate “Deep‑Tech Reciprocity Agreements” with leading research nations, granting Indian startups access to overseas test facilities—such as CERN’s particle‑accelerator labs or NASA’s micro‑gravity platforms—in exchange for data sharing and joint IP ownership. Such agreements would accelerate the maturation of homegrown technologies without the need for massive domestic capital outlays.

Additionally, the government can host an annual “India Deep‑Tech Summit” that brings together foreign investors, multinational corporations, and Indian startups under the aegis of the Ministry of Commerce. By showcasing successful government‑startup collaborations—like the DRDO‑Saankhya joint development of a 5G radar prototype—the summit would signal to the global community that India is a reliable partner for frontier technology.

These seven policy shifts are not merely bureaucratic tweaks; they constitute a strategic re‑orientation that places the Indian state at the heart of the nation’s most ambitious technological pursuits. By becoming the first customer, the government can de‑risk the long‑haul nature of deep‑tech, catalyse private capital, and deliver public goods that private markets alone would neglect.

If executed with the urgency reflected in the latest Deloitte economics briefing, these reforms could transform India from a large consumer of imported high‑tech into a global exporter of breakthrough solutions—an outcome that would reverberate across defence, health, climate, and the broader economy for decades to come.