Capital for Innovation in Indian BioEconomy

India’s bioeconomy reached $195.3 billion in 2025, growing 18% in a year and contributing about 4.8% of GDP, according to the India BioEconomy Report 2026 released by BIRAC in March. The stated targets are $300 billion by 2030 and a trillion by 2047. But if one looks at the segment tables alongside company annual reports, budget documents and venture funding data, while the headline is not wrong, it seems to be answering a different question from the one policy should be focusing on, which is capital for innovation, which is essential for long-term growth.

What the largest segment contains

BioIndustrial, the biggest of the four segments, is 46% of the total. Alcoholic beverages account for $25.80 billion and animal nutrition, mostly poultry and aquaculture feed, for $23.04 billion. Together they come to a quarter of India’s entire bioeconomy. Textile processing adds $8.69 billion. These industries do use enzymes and microbial processes, so counting them is defensible. But bio-based industrial products, the category holding biopolymers, biomaterials and precision fermentation and the one the BioE3 Policy exists to promote, comes to $0.48 billion, 0.25% of the bioeconomy.

Agricultural biotechnology reads similarly. BioAgri is $14.6 billion, of which genetically modified crops account for $10.92 billion. In India that means Bt cotton, from a trait approved in 2002. Three-quarters of the segment rests on one twenty-four-year-old approval. The faster-growing components are biofertilisers, biopesticides and biostimulants, none of which needs transgenic clearance. Capital has moved to different components.

BioServices grew 66%, but two subsegments roughly doubled in a single year: digital platforms, and enterprise services led by global capability centres, of which the report counts over 150 employing more than 300000 people. Within BioIndustrial, a subsegment the report calls newly added, contributed $4.20 billion. Together these disclosed scope changes account for roughly 41% of the reported $29.6 billion increase. But they are still included as is in the growth rate calculations.

Where the research actually sits

Even BioPharma, the segment with real product capability, is manufacturing-weighted. Biosimilars are its largest single line at $14.77 billion. There is no reported category for novel therapeutics.

India’s ten largest listed pharmaceutical firms spent about Rs. 15277 crore on research in FY2025-26, close to 6% of revenue, against a global median of 17.3%, with six firms accounting for over nine-tenths of it. National research intensity remains below 1% of GDP, well under China, South Korea and the US.

The loop that keeps it in place

None of this would matter if the bioeconomy figure were merely descriptive, but when it is a target, it starts shaping behaviour in ways that need to be analysed for effectiveness for innovation and long-term growth potential.

When targets are based on output, growth is found in segments that are already large and well-funded. As a result, BioIndustrial and BioServices made up 76% of last year’s increase. The headline number goes up, the sector looks healthy, and there is no urgent push to invest in early-stage biology. This creates a self-reinforcing cycle, which is why the situation has stayed the same for a decade, even as the sector has grown.

This cycle can be seen in what has actually been built. Between 2024 and 2026, the government announced the BioE3 Policy, Biopharma SHAKTI with a Rs. 10000 crore budget, and the Research, Development and Innovation Scheme with a Rs. 1 lakh crore fund. All three are major commitments. The first is a manufacturing policy, the second supports manufacturing capacity, and the third is a low- or no-interest lending program for projects with higher technology readiness. However, none of these funds discovery work.

How the capital is distributed

The 2026 report includes investment data by segment, making it possible to see the imbalance. From January 2024 to December 2025, Indian bioeconomy companies raised $4.61 billion in 208 deals. Healthcare and life sciences received 79.5% of this amount. Despite making up 46% of output, BioIndustrial got only $13 million from five deals.

If capital matched each segment’s share of output, the ratio would be close to one. For BioPharma, the ratio is 2.4, but for BioIndustrial, it is just 0.006. How can this gap of 400 to 1 be closed?

Stage and location make the gap worse. Early-stage deals made up 31% of transactions but only 3.6% of the money, with an average size of $2.52 million. Ten buyouts took a third of all capital, and none of the ten biggest deals in those two years went to a discovery-stage therapeutics company. Five cities received 71% of the total investment, while eastern India got just $2 million from three deals, even though it had 183 new biotech startups in 2025.

During the same period, exits totaled $6.15 billion compared to $4.61 billion invested. This seems like good liquidity, and in some ways it is. However, most of these exits were secondary sales between financial investors in manufacturing and diagnostics. The investor base for Indian biotech funds is mostly foreign and generalist. In a healthy market, exit proceeds would go back to domestic investors, who would then invest in new funds. In India, this link is missing, so capital comes in, value is created, and then the value leaves.

The overall picture is even more striking. According to Tracxn, there are 7780 Indian life-sciences companies, but only 1210 have ever raised institutional funding. Of these, 403 reached Series A or later, and about 100 have exited, raising $12.3 billion in total. In contrast, global life-sciences companies raised $27.8 billion in just the first eight months of 2026.

China shows the value of having this missing channel. In 2025, Chinese companies signed 186 cross-border out-licensing deals worth a record $137.7 billion in potential value, with average upfront payments of $141 million. These upfronts alone are more than all the money Indian life-sciences companies have ever raised. There is no similar series of deals in India, which says a lot about the difference in scale.

Form, not merely amount

The second issue is about the type of capital, not just the amount. The RDI Scheme offers loans. Concessional loans help companies with revenue that want cheaper financing, but they do little for companies whose main asset might fail. With equity, the financier shares the loss if the asset fails, but a loan must still be repaid even if the asset does not succeed. In reality, these companies cannot borrow at any rate, because Indian lenders require tangible assets or proven cash flow, and discovery-stage firms only have patents, which lenders do not know how to value.

Timing makes the problem worse. Indian venture funds usually last ten years, but biological development can take six to fifteen years. This means an asset invested in early may mature after the fund has closed. Tax policy has also become less favourable: the weighted deduction on research dropped from 200% to 150% in 2016, and then to 100% in 2020. As a result, the after-tax cost of a rupee spent on research rose from about 30 paise to 75.

The part that worked

Ethanol provides a counter-example and shows that these issues can be fixed. Blending reached 20% in 2025, five years ahead of schedule. Many assume the government spent a lot, but it did not. Instead, it guaranteed purchases through oil marketing companies, set the procurement price, and approved Rs. 4687 crores in interest subsidies on distillery loans, with commercial banks providing the main funding. This removed demand risk but did not address capital shortages.

That interest subsidy alone exceeds BIRAC’s total disbursement for biotechnology innovation since 2012, which stands at Rs. 4200 crores. Irrespective of the merits of the ethanol policy, the point is that the Indian state has the instruments and the fiscal room to move private capital into the bioeconomy at speed, and has so far aimed them at one segment.

What should follow

Some measures are discussed below, and those with the most leverage will cost very little. But more than the specific measures, it is the principle behind each that needs to be kept in mind.

An innovation-intensity subtotal should be published beside the headline, covering bio-based industrial products, originator biologics as distinct from biosimilars, crop biologicals and discovery-linked research services. On 2025 data, that lands near $15 to $20 billion against $195.3 billion. Prior years should likewise be restated whenever measurement scope changes, so that reported growth rates mean something.

An equity and first-loss window should be carved out of the RDI corpus. Five to eight % would be enough to matter, and first-loss protection alters the risk facing private investors without the state picking assets.

The next thing to consider would be to replace the research deduction with a refundable or transferable credit. A deduction is worth nothing to a firm with no taxable profit, which is precisely the population of firms conducting discovery research. Replacing the section 35(2AB) deduction with a refundable credit at 25 to 30% of qualifying expenditure, or a transferable credit saleable to a profitable firm, converts a worthless allowance into cash for a pre-revenue company. This carries the risk that refundable credits could lead to reclassification of ordinary expenditure as research, but this could be handled through published definitions of qualifying expenditure. A related change could be to restore the customs exemption on some research equipment that was withdrawn in 2023.

Biotechnology funds should be permitted a fifteen-year life, and domestic insurance and pension capital a small, capped allocation to them. Without a domestic investor base, every successful exit leaks out of the system. This is the recommendation with the largest downside if implemented badly. Retirement savings should not be exposed to venture risk without strict caps, diversification requirements and governance standards. The case for it is that no other mechanism converts Indian exits into Indian reinvestment, and that without it every other capital recommendation leaks.

The government should reward verified clinical progress instead of just revenue. This could be done through milestone payments for regulatory acceptance of a new drug application, completion of Phase I, and a Phase II result that meets a set goal.

The agricultural regulator should have legal deadlines, and the issue of Bt brinjal should be settled either way. Sixteen years of delay after technical approval is worse for investment than a clear ban, because at least a ban can be factored into decisions.

India has built formidable manufacturing capability in biology and financed it well. It has not built a comparable discovery capability, and the structures that produced the first are unsuited to the second. The measurement system, however, reports this as success. Changing what is counted is, therefore, important to make sure the discovery system works reliably.