In the age of geopolitical uncertainty and constant shifts in the innovation landscape, the role of the state is often undermined. For India, the need of the hour is for the state to become entrepreneurial rather than a supporting bystander, dependent on growth led by the private sector. Economist Mariana Mazzucato’s idea of the entrepreneurial state argues that the state is the “investor of first resort” and plays a crucial role not only in fixing market failures but also in creating new markets. The core of the argument lies in the idea that the state has often been the most important entrepreneurial actor in creating and shaping markets instead of merely fixing market failures.
Today, the conventional perspective of India’s growth story encapsulates the government in a supporting role, the backbone on which entrepreneurs and private firms commercialise innovation. In advanced economies, the state as an entrepreneur has been recognised from an early stage. A critical example is that of the semiconductor development in the US. In the late 1950s and 1960s, the US military and NASA became the first actors to provide an assured market for the technology. The state led research in computing, materials and electronics in a backdrop where private firms could not absorb technological uncertainty. The US government funded defence labs, private firms and universities, and formed the basis of networks such as Silicon Valley. In this way, the US government created a market by leading foundational research, generating demand, and funding groundbreaking research.
The state has often been the most important entrepreneurial actor in creating and shaping markets instead of merely fixing market failures.
A more recent example is that of artificial intelligence. The US defence agency DARPA led the development of early AI, machine learning, robotics, autonomous systems, and computer vision; instead of “supporting AI”, it provided an assured market for its defence, space, and scientific capabilities. Mazzucato also reiterates that an entrepreneurial state differs from state capitalism in its approach. Instead of directly controlling markers and focusing on ownership, it creates and shapes markets. In an entrepreneurial role, it takes early-stage risks, focuses on innovation, and creates demand.
In the Era of Economic Statecraft
Transitioning to an entrepreneurial state is no longer an option but a necessity for India. For instance, with the recent bans on Anthropic’s Mythos and Fable models, AI has become not just a market good but a strategic leverage. Implications for other countries can be critical as it highlights their dependence on foreign technology, which can become a strategic chokepoint, disrupting innovation. This is one such example where India needs to step up as an entrepreneurial state to reduce its reliance and build its own capabilities. By becoming a first buyer for sovereign AI applications and supporting frontier research, the Indian state can create optionality and build institutional capacity. This should not be limited to AI, but also include renewable energy, critical minerals, space economy, advanced manufacturing, agricultural technology, and biotechnology.
Over the last few decades, the Public-Private Partnership model has been lauded as a crucial strategy to bridge the investment gap, especially in infrastructure. The traditional PPP model often relies too heavily on the private sector, with the latter assuming responsibilities for project planning, prioritisation, and execution. In the new entrepreneurial role, the state would ideally create demand, reduce uncertainty, and crowd in private capital. It should be able to define tangible outcomes, use procurement to become a market creator, and become the first order risk absorber. For instance, in the case of biofertilisers, the state could choose not to depend on private firms to invest in hydrogen production but instead create assured markets, set standards, reduce risks, and create conditions for early pilots.
As a market creator, the country should become a first-mover by prioritising funding for research and development, coordinating actors, creating demand, and building a conducive ecosystem to promote innovation.
As a market creator, the country should become a first-mover by prioritising funding for research and development, coordinating actors (including universities, research organisations, start-ups, and private firms), creating demand, building a conducive ecosystem to promote innovation, and adapting to changing market trends.
The state can assume an entrepreneurial role through four core strategies:
- Build Domestic Capabilities: India needs to set the stage for sunrise sectors, where it leads frontier research, build a skilled talent pipeline, and create customised domestic models.
- Create Markets: The state needs to become the first buyer for various applications to provide risk-free, assured markets for private firms to step in.
- Manage Risks: The country will need to de-risk priority sectors by building a conducive regulatory landscape, allowing a sandbox-based approach, and creating shared infrastructure. To create efficient markets, this will need to be coupled with developing standards by building institutional capacity.
- Become Dynamic: The state must promote innovation by not being tied to ownership or being heavily reliant on political goals. It should be ready to be agile and adapt to fast-moving sectors to become a creator. It should enable dynamic standards, talent, and governance to reposition national capabilities.
In a new era of governance, India needs to prioritise and embrace the uncertain by shifting the role of the state from being a “supporter” to becoming an “investor of first resort”.
Shruti Jain is an Associate Fellow with the Centre for Development Studies at the Observer Research Foundation.
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