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India’s climate tech landscape is at a crossroads, with ambitious innovation held back by structural and systemic hurdles
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Last month, Commerce and Industry Minister Piyush Goyal offered a reality check to the Indian start-up fraternity during his address at the Startup Mahakumbh. Drawing a comparison with China, he criticised the tunnel vision of Indian start-ups by calling out their sole emphasis on convenience-based start-ups instead of nurturing innovation in deep tech sectors. While the observation is not without merit, it is important to recognise that the divergence between India’s and China’s start-up ecosystems stems as much from structural and policy-level factors as it does from entrepreneurial choices.
This disconnect is most pronounced in the climate tech space, once touted as India’s solution to deep tech innovation. Despite its early potential, the climate tech ecosystem continues to grapple with the same structural challenges that have long plagued the country’s broader tech landscape. Between 2021 and 2023, Indian climate tech start-ups witnessed a surge in investor interest, with funding rising from US$2.4 billion to US$3.4 billion. However, in 2024, the funding dropped to US$1.3 billion, with a corresponding decline in both deal count and average ticket size. This retreat signals a growing caution among investors, probably driven by the global economic scenario and compounded by concerns over the governance, scalability, and credibility of such tech ventures in India.
Author’s own creation using data from the Business Standard
The gap between investor expectations and the actual needs of start-ups is another critical issue. Investors often demand that start-ups build comprehensive end-to-end value chains, such as expecting e-mobility companies to manage everything from battery production to vehicle manufacturing. In contrast, in ecosystems like China’s, specialised players dominate different segments of the value chain, enabling companies to focus on specific niches and innovate within those areas. This contrast highlights a key challenge in India, where the expectation for broad-scope innovation often undermines the more targeted, specialised progress seen in other countries.
These challenges have become even more pronounced in recent months, particularly following the troubles of a leading electric ride-sharing company. The Indian start-up ecosystem, already reeling from the effects of a funding crunch, now faces an even deeper credibility crisis. As scrutiny over mismanagement intensifies, it underscores the urgent need for a more transparent and accountable framework for climate tech innovation in India.
Deep tech climate ventures are inherently capital-intensive and have long gestation periods. These start-ups often require significant investments in research and development to transition from lab-scale innovations to commercially viable solutions. Solutions for hard-to-abate sectors, such as sustainable fuels and hydrogen, can demand early-stage capital investments as high as US$25 million even before they are ready to be commercialised. Even though early-stage funding through grants and seed investors has become more accessible, a major hurdle arises during the scale-up phase. As companies move beyond Series A, capital becomes scarce. A study conducted by IIMA Ventures noted that less than 3 percent of Indian start-ups secure Series B funding or beyond, highlighting a critical shortfall in growth-stage finance. Without stronger policy backing and targeted capital support, many of these ventures risk stalling just as they begin to demonstrate commercial potential.
Solutions for hard-to-abate sectors, such as sustainable fuels and hydrogen, can demand early-stage capital investments as high as US$25 million even before they are ready to be commercialised.
Additionally, large institutional investors often favour more mature and scalable technologies like solar and wind energy, which can absorbi substantial investments. Renewable energy sources, primarily solar photovoltaic and wind technology, receive 97.7 percent of all mature-stage investments in India. On the other hand, start-ups developing next-gen climate technologies often struggle to attract investment due to the high risks and long timeframes involved.
As the climate tech ecosystem grapples with these challenges, including the slowdown of venture capital funding, affordable venture debt can act as a potential solution to provide the necessary financial support for start-ups. By offering non-dilutive financing, venture debt enables companies to scale without giving up equity. This funding model is applicable across sectors and can help bridge critical growth stages, making climate tech ventures more appealing to institutional investors and also addressing the sector’s pressing need for capital.
Much of climate tech innovation is not only dependent on ground-breaking inventions but also on process innovation, as well as efficient scaling and commercialisation of these technologies in an efficient manner. This is an area where China has a clear competitive edge. In contrast, India’s deep tech ecosystem, especially in critical climate sectors, continues to face significant constraints amid the underperformance of the country’s manufacturing landscape. In the absence of meaningful reforms to enhance the ease of doing business and streamline regulatory processes, efforts to scale climate tech innovations will remain limited in impact. A case in point is India’s semiconductor sector, where much of the current focus remains on assembly and testing rather than end-to-end chip fabrication. Currently, the country does not have any large-scale fabrication facilities, and critical enabling infrastructure, such as uninterrupted power supply, adequate water resources, is also a problem.
Solutions for hard-to-abate sectors, such as sustainable fuels and hydrogen, can demand early-stage capital investments as high as US$25 million even before they are ready to be commercialised.
India's logistics cost is also a significant burden, accounting for 13-14 percent of its GDP, as compared to the global average of 8-9 percent. This is because of inefficiencies in the transportation networks and inefficient supply-chain infrastructure. Even a 1% reduction in logistics costs could yield annual savings of up to US$5 billion, benefiting manufacturers and improving their profit margins.c
India is not short on climate-tech innovation across start-ups; we already have the blueprints for low-carbon and energy-efficient systems. From innovations like solar microgrids and EV infrastructure to AI-driven precision farming techniques and carbon capture technologies, a range of upcoming transformative technologies is emerging. What we lack is the machinery to take these ideas beyond the lab. For deep tech solutions, especially those tied to infrastructure and hardware, the leap from prototype to real-world deployment is daunting. It is not just about capital; it is about test environments, risk-tolerant collaborators, and public-private pathways that allow for early-stage experimentation at scale.
This is where most technologies get stuck—trapped in the so-called “Valley of Death,” where proof-of-concept exists, but proof-in-practice remains elusive. In India, the absence of a robust pilot ecosystem makes this valley even deeper. While success stories like the IIT Madras Research Park and the Bangalore Bio Innovation Centre show what is possible, they remain exceptions. We need more such spaces, mechanisms and platforms where innovators can demonstrate, iterate, and de-risk solutions before scaling them. Pilots are the critical bridge between invention and adoption. They not only build trust but also validate performance and de-risk innovation for the investors. But in the absence of enabling infrastructure, India risks letting its most promising climate-tech breakthroughs stall before they ever reach the market.
As India aspires to become a global deep-tech leader, especially in climate-critical sectors, realising this vision will require more than ambition.
India’s climate tech landscape is at a crossroads, with ambitious innovation held back by structural and systemic hurdles. While the potential for transformative change exists, the progress remains stifled by high upfront costs, limited scalability, and a lack of cohesive policy and funding support. As India aspires to become a global deep-tech leader, especially in climate-critical sectors, realising this vision will require more than ambition. It demands decisive action and a focused push on process innovation.
India does not need to replicate China’s model, but there is value in learning from its focus on targeted policy support, manufacturing depth, and long-term strategic thinking. It is time we moved beyond viewing start-ups as marginalised players and recognised them as vital components of India’s larger industrial and manufacturing landscape. Like any established sector, they need reliable infrastructure, consistent regulatory frameworks, and access to risk capital. The window to lead the climate tech revolution is open, but not forever.
Gopalika Arora is an Associate Fellow with the Centre for Economy and Growth at the Observer Research Foundation
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Gopalika Arora is an Associate Fellow at the Centre for Economy and Growth in New Delhi. Her primary areas of research include Climate Finance and ...
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