Opinion More delivery and payment apps will not make India a tech leader

To understand this contradiction, let’s examine the incentive structures that guide Indian business through a simple but powerful framework that has two dimensions of local opportunity and competition pressure. This 2×2 matrix reveals how competition pressure and local opportunity shape India’s innovation landscape and what’s the trajectory that India needs to follow.

Competition pressure vs Local opportunity

In the high local opportunity, low competition quadrant — where most Indian businesses operate — companies become what I call “market skimmers”. They skim the cream from massive domestic markets without needing to invest in fundamental innovation.

Consider the case of BharatPe, which achieved enormous success by simply making digital payments accessible to small merchants. Or, Byju’s, which digitised test preparation without fundamentally reimagining education. These companies didn’t need to develop new scientific breakthroughs — they simply needed to implement existing technology to solve glaring inefficiencies in the Indian market. Their success demonstrates the abundance of low-hanging fruit in India’s economy.

The next quadrant — high local opportunity with high competition — produces “efficient adapters”. Here we find companies like Flipkart, which didn’t invent e-commerce but adapted it brilliantly to Indian realities like cash-on-delivery payments and motorcycle delivery networks. These companies innovate, but their innovation is focused on localisation and efficiency, not scientific breakthroughs.

The most troubling quadrant — low local opportunity, low competition — houses our “global outsiders”. Indian electronics manufacturers like Dixon Technologies have built billion-dollar businesses assembling products designed elsewhere, but few have invested in developing proprietary technology. Without domestic demand for cutting-edge electronics and minimal pressure to innovate, they remain contract manufacturers rather than technology creators.

The final quadrant — low local opportunity, high competition — is where true “global innovators” emerge. This space remains sparsely populated in India. Rare exceptions like Bengaluru-based Astrome, developing millimetre-wave wireless communication technology, or ePlane Company, building electric flying taxis, show what’s possible. But these remain exceptions, not the rule.

Understanding India’s situation

Why does this pattern persist? Fundamentally, because capital and entrepreneurial talent flow to the path of least resistance. When an entrepreneur can build a billion-dollar business solving India’s massive transportation inefficiencies (like Ola), why take on the vastly harder challenge of developing self-driving technology? When an investor can achieve reliable returns backing the next fintech startup, why wait a decade for returns on semiconductor research?

The paradox deepens when we consider that much of India’s entrepreneurial energy is directed toward substituting for the state’s failures. Startups have effectively privatised basic infrastructure — from Swiggy Instamart replacing reliable grocery stores to Urban Company providing services that might be public utilities elsewhere.

This substitution effect creates enormous business opportunities without requiring scientific innovation. Consider the education sector. While American entrepreneurs might need to develop AI-based adaptive learning to improve their already functional education system, Indian entrepreneurs can create billion-dollar companies by simply making existing educational content more accessible. The bar for creating value is simply lower when the baseline is inefficient.

The export-innovation connection further explains India’s deep tech deficit. Indian electronics companies like Micromax once dominated the domestic smartphone market but faltered when facing global competition. Without pressure to meet international standards, they had underinvested in R&D and proprietary technology. Meanwhile, South Korean and Chinese manufacturers that had competed globally for decades leapfrogged ahead. The lesson is clear: Domestic comfort breeds innovation complacency.

Global comparisons bring this framework to life. Consider Taiwan’s semiconductor industry. In the 1980s, Taiwan faced limited local opportunity (a small domestic market) but enormous competitive pressure. Their response wasn’t to become “global outsiders” but to deliberately pursue the “global innovator” quadrant. The government established TSMC as a public-private partnership, invested heavily in talent development, and created specialised research institutions. Today, TSMC holds a 61.7 per cent market share in the global semiconductor foundry market — a multi-billion dollar company born from strategic innovation choices.

In contrast, India’s large domestic market allowed Reliance Jio to build a multi-billion telecom business primarily serving local customers. While impressive, Jio hasn’t needed to develop proprietary network technology to succeed. It operates comfortably in the “market skimmer” quadrant, adapting global technologies rather than inventing new ones. This pattern repeats across industries — from financial services to retail to healthcare.

Brazil offers an instructive parallel. Like India, Brazil has a large domestic market and significant inefficiencies that entrepreneurs can address without deep innovation. But one notable exception stands out: Embraer, Brazil’s aerospace manufacturer, which competes globally in the commercial aircraft market. How did this deep tech success emerge in an otherwise innovation-light economy? Through deliberate policy choices — including military-commercial technology transfer, export requirements tied to government support, and partnerships with global aerospace leaders. Embraer demonstrates that specific sectors can move beyond the constraints of the broader economic environment.

South Korea is perhaps most instructive as a counterexample to India’s trajectory. In the 1960s, South Korea’s per capita GDP was comparable to India’s. Today, it’s over 10 times higher. This transformation wasn’t achieved by companies serving domestic needs but through export-oriented conglomerates that were forced to innovate to compete globally. Samsung began as a trading company selling fish and vegetables; it transformed into a global technology leader when government policies pushed chaebols toward international competitiveness through a combination of protection, subsidies tied to export performance, and access to capital. The results are quantifiable: South Korea is now known for its high level of innovation and patent filings, which are significantly higher than India’s on a per capita basis despite having just 4 per cent of its population.

State capacity and technological ecosystem

While the local opportunity/competitive pressure matrix explains much, another framework might offer additional insights: The state capacity/technological ecosystem matrix. This 2×2 framework examines how governmental effectiveness intersects with private innovation infrastructure. In the high state capacity/strong ecosystem quadrant sit countries like Germany, where government-funded Fraunhofer Institutes bridge academic research and industrial application, resulting in over 7,011 active patent families and €143 million in licensing revenue. In the high state capacity/weak ecosystem quadrant, we find China, where massive government investment drives innovation despite historically limited private research infrastructure. However, while China’s private sector historically lagged, state-backed initiatives like government guidance funds (GGFs) and “new infrastructure” projects (e.g., AI, clean tech) are rapidly closing gaps. In 2022, these projects received RMB 563 trillion (USD 83.7 billion)

The low state capacity/strong ecosystem quadrant houses countries like Israel, where limited government resources are compensated by exceptional private innovation networks and strong international ties. Israeli startups raised over $25 billion in 2021 — more than 10 times what would be expected based on population. India unfortunately occupies the challenging low state capacity/weak ecosystem quadrant, where neither government institutions nor private networks sufficiently support deep tech development.

This alternative framework helps explain why India struggles to replicate innovation models from abroad. Simply copying Israel’s military-civilian technology transfer programmes or Germany’s industrial research institutes wouldn’t address India’s fundamental limitations in state capacity. Similarly, attempting South Korea’s export discipline without the accompanying financial system would likely fail. The path forward requires addressing both dimensions simultaneously.

Road ahead

Breaking this cycle requires addressing the core incentive structures. Government initiatives like the production-linked incentive scheme are beginning to foster export orientation. The National Quantum Mission signals serious intent toward moonshot technologies. But more is needed — particularly patient capital with longer time horizons. When Indian venture funds expect returns in five-seven years, how can entrepreneurs pursue technologies that might take a decade to mature?

The academic-industry gap also needs urgent attention. Israel’s success in deep tech stems partly from seamless technology transfer between universities and industry. In contrast, India’s research often remains trapped within academic institutions, without any significant commercialisation pathways. The recent establishment of AIRAWAT, India’s first national artificial intelligence computing platform, shows progress, but India needs dozens of such initiatives.

Perhaps, most importantly, India needs a cultural shift that celebrates scientific risk-taking. Names like Elon Musk and Jensen Huang have become household legends in the West, while India’s entrepreneurial heroes largely come from the worlds of software and services. There is a need to elevate scientists and deep tech founders to similar status if India wants to inspire the next generation.

India stands at a crossroads. While harvesting low-hanging fruit has built impressive businesses and created enormous value, India cannot remain market skimmers forever. As basic inefficiencies are gradually addressed, the returns from simple digitisation will diminish. The path to sustained prosperity and global technology leadership runs through the challenging terrain of deep tech innovation.

The writer is research analyst at The Takshashila Institution in their High-Technology Geopolitics Programme