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Yatha Raja, Tatha Praja

Indian capital behaves the way the Indian state has taught it to behave.

12 min read India Innovation Startups
Yatha Raja, Tatha Praja

A flawed perspective on investment

Recently, I came across this essay on Twitter titled I Want India to Win. Just Not With My Money which makes a real point: too much Indian wealth sits in real estate, gold, fixed income, and public markets while ambitious Indian startups struggle for domestic risk capital. India also spends too little on R&D for a country that wants technological sovereignty; the World Bank R&D data shows India far below countries such as the United States, Israel, South Korea, and China.

However, as I was going through the arguments made in this article, it felt myopic. The entire argument eventually reduces to one complaint: Indians in general, and HNIs in particular, do not invest enough in research and development.

But a better question to ask might be:

What kind of system teaches capital where it is safe to go?

Maybe it’s the system that does not encourage risk takers? And I was reminded of this famous proverb in Sanskrit: Yatha raja, tatha praja. As the ruler, so the people. Before pointing fingers at anybody, I think we should look at what other countries did to foster private investment into research and development, and whether this is really a cultural issue of Indians.

What Other Countries Did

Whenver you read about the origins of Google, Apple, or any other major silicon valley companies it always starts in a garage with a bunch of founders deciding to tackle some of the hardest problems out there. It’s a pretty nice story but unfortunately not the whole story.

The real story is layered: public research, universities, defence or public procurement, early technical communities, founders, private capital, and commercial markets. Margaret O’Mara’s The Code is a useful book-length account of how Silicon Valley grew through that mix.

Evidence: DARPA and self-driving cars

Self-driving cars are now associated with Waymo, Tesla, Cruise, Zoox, Mobileye, and venture-backed autonomy companies. But a key catalyst was DARPA. Its Grand Challenge was designed to accelerate autonomous vehicle technology. The 2004 race failed in the narrow sense, since no vehicle finished, but DARPA’s ten-year retrospective describes how it helped create a technical community and pushed autonomous ground vehicles toward defence and commercial use.

The private sector later productised and scaled the work. But it was the state apparatus that created the arena and foistered innovation.

Evidence: Google, NSF, and In-Q-Tel

Google is often told as a pure founder-and-VC story. But the U.S. National Science Foundation’s On the Origins of Google explains that Larry Page and Sergey Brin’s work grew out of the NSF-supported Digital Library Initiative at Stanford. Page was supported through the project; Brin had an NSF Graduate Student Fellowship; the BackRub prototype used equipment funded by the Digital Library project and other contributors.

Google Earth has an even more direct state link. Google Earth came from Keyhole, which received investment from In-Q-Tel, the strategic venture firm created for U.S. intelligence needs. In-Q-Tel’s own 2003 announcement says the Keyhole investment was meant to help the CIA and the National Imagery and Mapping Agency access technology of high potential value.

This is not conspiracy. It is industrial policy with a venture-capital shape. For the company-level story, Steven Levy’s In the Plex and David Vise and Mark Malseed’s The Google Story give more detailed accounts of Google’s early years.

Evidence: SpaceX, Tesla, and Israel

SpaceX is private, but NASA mattered. NASA’s Commercial Orbital Transportation Services program was a public-private partnership where NASA helped develop commercial transport to low Earth orbit. NASA’s Commercial Resupply Services overview describes how SpaceX and Orbital developed rockets and spacecraft through COTS before receiving resupply contracts. Eric Berger’s Liftoff covers SpaceX’s early survival years in detail.

Tesla also did not scale in a policy vacuum. The U.S. Department of Energy records that it issued a $465 million loan to Tesla in January 2010 to produce electric vehicles and develop manufacturing capacity. Tesla repaid it early, but the bridge mattered.

Israel’s VC industry was also state-shaped. The OECD paper Venture Capital Policies in Israel says the industry was built through government funding, especially the Yozma program. The OECD’s page on government support for venture capital in Israel describes Yozma as a 1993 government initiative to commercialise research and build the local VC market.

The lesson is not that government should replace entrepreneurs. The lesson is simpler: serious states make risky private ambition investable.

India Was Not Always This Timid

This behaviour is not eternal Indian culture. India once had institutions that connected trust, surplus, and commercial risk.

Sanjeev Sanyal has made this point in his writing on Indian Ocean trade. In a Republic report on Sanyal’s remarks, he says medieval Hindu temples “functioned as banks and venture capitalists” and describes merchant guilds such as Manigramam and “The Five Hundred” as organised commercial bodies operating across the Indian Ocean. In his Telegraph essay Trading Accounts, Sanyal also discusses India’s long maritime and trading history.

That does not mean we should romanticise the past. It means the diagnosis should be precise. Indians are not allergic to risk. Older institutions that could organise community capital were weakened, captured, or bureaucratised.

Modern temple control is one example. The IIM Bangalore paper Governance and Management of Temples notes that HR&CE-style frameworks in states such as Tamil Nadu, Andhra Pradesh, and Karnataka oversee temple administration, trustee appointments, budgets, audits, and in some cases executive-officer management. The same paper says Tamil Nadu’s HR&CE department oversees more than 44,000 religious institutions and charitable endowments, including 41,746 temples, and that Hindu religious institutions under its control hold about 4.78 lakh acres of land.

A department can audit, appoint, and administer. It will not behave like a community trust funding guilds, ports, local enterprise, cultural infrastructure, or deep-tech labs.

Why Capital Hides

Some wealth goes to land and gold because of status, habit, emotional memory, and greed. But some of it is a rational response to the Indian state.

Evidence: suspicion, tax, and bribery

The angel tax showed the problem clearly. For years, startup funding could be taxed if a company’s share premium exceeded the tax authority’s view of fair market value. The government has now moved in the right direction: the Press Information Bureau announced in Budget 2024 that the ‘angel tax’ would be abolished, and the Income Tax Department says Section 56(2)(viib) is not applicable from Assessment Year 2025-26.

But the tax existed long enough to send a bad signal: if you raise risky capital at a valuation the state does not understand, you may be punished for receiving money.

The deeper issue is the psychology of suspicion. Too often, profit is treated not as evidence that someone created value, employed people, or took risk, but as a clue that something may be wrong.

If you made money, perhaps you underpaid tax. If you raised money, perhaps you laundered it. If your company grew fast, perhaps the valuation is fake.

Beneath formal taxation sits the informal tax: bribery. Transparency International’s Corruption Perceptions Index 2025 gives India a score of 39 and rank of 91 out of 182 countries. Our World in Data’s page based on World Bank Enterprise Surveys tracks firms asked for bribes across transactions such as electricity connections, water connections, construction permits, tax meetings, import licences, and operating licences.

In a clean system, the better builder has an advantage whereas in a bribery-heavy system, the better navigator has an advantage.

Evidence: black money has an easy parking lot

The Government of India’s 2012 White Paper on Black Money discussed black money in sectors such as real estate, bullion, and jewellery. PRS’s summary of the white paper lists vulnerable sectors including land and real estate, bullion and jewellery, financial markets, public procurement, the informal sector, and the cash economy.

That matters for capital allocation. Real estate is not just an asset class; in many markets it is also an opacity channel. Gold is not just a hedge; it is a portable store of opacity. If black money can be recycled easily into property and bullion, clean productive capital competes with a distorted market.

So attacking black-money channels is not separate from innovation policy. Better land records, rational stamp duties, digital trails, beneficial-ownership transparency, realistic circle rates, enforcement against cash components, and political-finance reform all change where money wants to hide.

Evidence: small investors are shut out of private risk

Other countries have regulated bridges between citizens and private-company risk. In the United States, the SEC explains that Regulation Crowdfunding allows eligible companies to raise up to $5 million in a 12-month period through SEC-registered intermediaries. FINRA maintains a public list of registered funding portals, including platforms such as Republic and StartEngine.

The UK and Europe have similar routes. The FCA explains crowdfunding risks and categories. Crowdcube and Republic Europe operate regulated private-market investment platforms. The EU’s ECSPR framework created a harmonised regime for crowdfunding service providers.

India has no comparable retail bridge. SEBI’s 2016 caution on unauthorised electronic platforms warned that digital platforms facilitating private-placement fundraising were not authorised or recognised under securities law. For pooled startup exposure, the formal AIF route is built for wealthy investors: SEBI’s AIF rules set a Rs 1 crore minimum for most AIF investors, while SEBI’s 2013 angel-fund amendments imposed high eligibility conditions and a Rs 25 lakh minimum.

So an Indian can speculate in risky public-market instruments, buy gold, or put money into land through family networks. But putting Rs 10,000 or Rs 50,000 into a private Indian startup through a clean, disclosed, regulated portal is not easy.

Surjit Bhalla’s recent ANI interview makes the macro version of the same point. The Economic Times report says Bhalla argued that India’s problem was weak private investment, and that policy changes had made India less attractive to investors. He specifically argued that private capital responds to incentives and had more incentive to invest abroad.

Evidence: ISRO, freebies, and state priorities

ISRO is one of India’s great public institutions, but its budget shows how lightly the state funds strategic capability. A PIB note says the Department of Space had projected Rs 15,604.80 crore for 2026-27, while the Ministry of Finance approved Rs 13,705.63 crore. PRS puts total Union expenditure for 2026-27 at Rs 53,47,315 crore. That makes the Department of Space roughly 0.26% of Union expenditure.

Welfare is necessary in a poor country. But a serious state distinguishes welfare that builds capability from welfare that only buys applause. If transport must be subsidised, subsidise better transport: electric buses, charging depots, route density, maintenance, and reliable service. The Government of India’s PM-eBus Sewa aims to deploy 10,000 electric buses, and PRS notes that India imports about 85% of its crude oil requirement. Electrified public transport is therefore welfare, industrial policy, and energy-security policy at once.

But political incentives often prefer the visible transfer over the compounding asset. Maharashtra’s Ladki Bahin scheme, Delhi’s Mahila Samridhi allocation, and Tamil Nadu’s fare-free bus allocation are examples of large recurring transfers or subsidies.

Some beneficiaries need support. The problem is not compassion. The problem is that Indian politics is more imaginative at distributing money than at converting public money into durable capability.

Short-term government produces short-term capital.

The Real Disagreement

This is not an excuse for HNIs to buy their fourth flat and call it patriotism. Rich Indians should invest more in Indian innovation. They should back founders, funds, labs, university spinouts and risky ideas that may actually create the next layer of the economy. Real estate and gold are not enough.

But I still think it is wrong to make HNIs and large corporations the central villain while underplaying the state. The problem is not that Indians are culturally incapable of risk. The problem is that the system keeps teaching capital to be defensive. If the state says “innovation” but rewards land hoarding, capital will buy land. If the state says “formalise” but harasses formal risk, capital will stay informal. If black-money channels remain easy, capital will choose opacity.

This is why the examples matter. Self-driving cars had DARPA. Google had NSF-supported research. Google Earth had In-Q-Tel-backed Keyhole. SpaceX had NASA COTS. Tesla had a Department of Energy loan. Israel had Yozma. These were not stories of private bravery floating in empty space. They were stories of states making bravery rational.

India’s own history says something similar. Merchant guilds, temple banks, port networks, and maritime trade were once part of our economic imagination. We did not lack risk appetite. We damaged the institutions that organised it, replaced them with bureaucratic control, and then acted surprised when people learned to hide wealth instead of risking it.

So the real question is not simply whether India’s HNIs are brave enough. The question is whether the Indian state is serious enough to make bravery rational. Until then, wealth will keep doing what the system has taught it to do: buy land, buy gold, stay quiet, and call it prudence.

Yatha raja, tatha praja.

Disclosure

This article was authored with the help of AI. The opinions, arguments, edits, and final responsibility are mine.

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