Cleantech in India: from laboratory to leadership through a new fund

Labanya Prakash Jena, Prasad Ashok Thakur and Trilochan Tripathy outline the potential for India’s new Research and Development Innovation Fund (RDIF) to boost green innovation and decarbonisation.

Historically, India, at around 0.64% of GDP, has been a laggard in spending on R&D for technology compared with its global peers (e.g. China spends around 2.68% of GDP). This lower R&D spending has resulted in limited innovation, hindered competitiveness and productivity, and placed an ever-increasing reliance on foreign countries for cutting-edge technologies across sectors.

However, India now stands at the cusp of a defining moment in research and innovation.  With the recently launched INR 1 lakh crore (approximately £8 billion) Research and Development Innovation Fund (RDIF) by the Government of India, the country’s R&D landscape is poised for a fundamental reshaping.

Designed as a catalytic intervention, the scheme introduces a ‘Fund of Funds architecture’, where capital is routed through a Special Purpose Fund under the Anusandhan National Research Foundation (ANRF) and managed by professional fund managers responsible for deploying concessional finance todeep-tech startups and research ventures. This market-driven, risk-sharing model enables scale and agility, while addressing long-standing structural barriers such as limited access to patient capital and low private sector R&D investment.

With a strategic focus on frontier technologies like AI, quantum computing, clean energy and biotechnology, this initiative has the potential to transition India from being a consumer of global innovation to a net creator and supplier of transformative solutions worldwide. Its most profound impact may be in areas where India’s leadership is not only aspirational for 1.4 billion people but also essential for global progress, including in climate action.

A massive opportunity in deep decarbonisation technologies

By strategically deploying the RDIF to catapult high-impact, high-risk climate technologies over the ‘valley of death’, the stage between initial funding and profitability, India could steer the global clean energy ecosystem within the current context of climate finance turbulence. Several deep decarbonisation technologies, such as direct air capture and alternative cement chemistry, are still in the early stages of development, so no country can claim a clear competitive advantage across all climate technologies. India could therefore focus its efforts on achieving breakthroughs in these domains, not just for its own energy and environmental security but also to enable wider global adoption of these technologies. China’s rise to leadership in several green technologies, driven by sustained early-stage investments in the 2000s, offers India valuable lessons as it seeks breakthroughs in climate and clean-tech innovation.

Consider the case of hard-to-abate sectors such as cement, steel, aviation and refining, which will take a few more decades to decarbonise to any meaningful level. For example, the cement industry accounts for around 7% of global greenhouse gas emissions. The International Energy Agency (IEA) has noted that near-zero-emissions cement production is significantly more expensive than conventionally-produced cement, and the pipeline of projects is far from what is needed for a net-zero trajectory. This presents a unique opportunity for India by dedicating a significant portion of RDIF to green cement R&D.

Gaining a competitive advantage in these technologies can help India become self-reliant in green technologies and support the country in its green technology ambitions. For example, the speciality chemical sector is a market where India’s share of global consumption is currently modest at 3–3.5% but it holds immense potential. Similarly, by investing in green hydrogen and green chemicals, as well as bio-based alternatives, India can reduce its reliance on imported fertilisers and fuel, and become a key supplier to global value chains.

Investment in climate technologies also supports India’s National Manufacturing Mission, which aims to increase the manufacturing share in India’s economy and enhance export competitiveness. To achieve this, it needs to decarbonise its products to remain competitive in the export market and avoid carbon penalties, such as the EU’s Carbon Border Adjustment Mechanism (CBAM).

Harnessing frontier technologies

A pragmatic approach to deploying the RDIF would be to de-risk crucial yet capital-intensive technologies that are essential for India’s long-term decarbonisation goals. These include:

• Small modular reactors (SMRs). These advanced nuclear reactors are a promising source of firm, low-carbon power but are still in the high-price, high-risk quadrant, requiring significant upfront capital and regulatory certainty.
• Offshore wind and large-scale solar with battery storage. These technologies are mature in some markets but still costly in India due to limited domestic supply chains and high import dependence.
• Geothermal energy: An emerging option, with the International Renewable Energy Agency noting that advances in novel drilling techniques are beginning to unlock new applications.
• Direct air capture (DAC): An early-stage technology but showing momentum through successful pilot projects globally.

The RDIF can play the role of an anchor investor by infusing capital into these technologies well before they reach commercialisation. Such an investment would be structured as patient concessional capital, whether loans, equity or a combination of several financial instruments, and would help crowd-in private sector and foreign investors who are reluctant to bear the initial risk alone. Simultaneously, building a robust domestic supply chain is crucial. This includes new-age materials for advanced reactors, next-generation air-filtration membranes, and AI/ML-based cybersecurity measures for energy infrastructure. RDIF could fund these strategically important capabilities to gradually reduce India’s reliance on imports of technology and expertise. This would save precious foreign exchange reserves while creating future green jobs.

As these technologies pass through the ‘valley of death’ stage, other government schemes, such as the Production Linked Incentives (PLI) and conventional green financing support (e.g. concessional debt financing) by development financial institutions in India, can help them reach commercial scale.

Retaining and nurturing global climate-tech innovation

The RDIF could become a powerful instrument to engage with the global climate-action Indian diaspora. People of Indian origin around the world have already demonstrated expertise in cutting-edge climate technologies, finance and policy. The RDIF could serve as a welcoming gesture to attract this talent back home. It could ‘crowd-in’ domestic talent and green capital, especially as the USA has decided to recede from its leading position in this domain. Furthermore, the fund could facilitate global research collaborations anchored by Indian institutions, corporates or startups, focusing on co-development, market orientation and adherence to intellectual property rights.

Governance and operational freedom can bring success

To fully realise the transformative potential of the RDIF and establish India as a global innovation leader, implementation must be characterised by speed, strategic clarity and robust institutional governance. Fund managers must be empowered as accountable partners, entrusted with rigorous due diligence, active portfolio management and data-driven performance oversight: operating with autonomy and insulated from bureaucratic constraints to ensure agility and effectiveness. The National Manufacturing Industry Transformation and Upgrading Fund (NMITUF), established by the Chinese government, is a notable example of a state-financed fund investing in innovative technologies. While the Government has pumped capital into the fund, it is managed by a professional investment management company.

Since the RDIF is directly run by the Department of Science and Technology (DST), managed by scientists and career professionals, and is chaired by the Prime Minister, the fund is expected to operate without the bureaucratic hurdles faced by other Government financing programmes and schemes.

The realisation of benefits from these technologies will take a long time; it will be challenging to assess the outcome. Besides, a government-funded R&D fund should not restrict itself to generating returns on investment: it could also consider other outcomes, such as the number of patents resulting from successful technologies, the commercialisation of developed technologies, the mobilisation of private capital, and the development of complementary technologies.

Transparent governance frameworks, outcome-focused metrics and streamlined capital deployment are crucial for the fund’s success. By embedding these principles, the RDIF could catalyse India’s emergence as a preeminent global hub for innovation.

Labanya Prakash Jena is Director at Climate and Sustainability Initiative (CSI) and a Visiting Senior Fellow at the Grantham Research Institute. Prasad Thakur is an alumnus of IIT Bombay and IIM Ahmedabad. Trilochan Tripathy is a Professor of Finance at Xavier School of Management, Jamshedpur.

The authors would like to thank Shantanu Singh and Saurabh Trivedi for their comments on an earlier draft. The views in this commentary are those of the authors and do not necessarily represent those of the Grantham Research Institute or their reviewers.