India stands at a critical crossroads in its journey to achieve net-zero emissions by 2070. This ambitious goal demands significant financial resources, yet the current investment landscape reveals a pressing capital shortfall. While foreign investors have historically driven the nation’s startup ecosystem, India now needs its domestic investors to step forward.​

For impact investors, this moment presents not just a challenge but an unparalleled opportunity to shape a transformative chapter in India’s development — one where sustainability and innovation converge. The question is clear: how can domestic capital lead this change?

The Current Landscape

India’s startup ecosystem has flourished over the past decade, attracting $150 billion in funding and producing over 100 unicorns. Global investors, from Tiger Global to Sequoia Capital, have played an outsized role in this growth. However, a shift is underway. Domestic investors — particularly family offices and venture funds — are beginning to recognize the potential for returns and impact within India’s borders.

Recent developments underscore this shift. For instance, Blume Ventures’ latest fund saw 40% participation from Indian limited partners (LPs), while Inflexor Ventures’ Rs 350-crore ($41.5 million) Opportunities Fund is primarily backed by domestic sources. Yet, with global investment slowing, the need for robust domestic capital has never been more urgent.

The Challenge: Capital Shortfall in the Net-Zero Journey

Achieving net-zero in India will require $10.1 trillion in cumulative investments, with a current shortfall of $3.5 trillion. While concessional finance from developed economies can bridge part of this gap, domestic investors must play a central role.

Policies like the SIDBI Fund of Funds and SEBI’s Alternative Investment Fund (AIF) regulations have laid the groundwork for growth. However, domestic capital mobilization remains insufficient. For instance, India’s National Pension System, managing over ₹8.99 trillion ($107 billion), allocates a mere 0.12% to alternative investments. This underinvestment in private markets leaves critical sectors — like renewable energy and climate tech — underfunded.

Opportunities for Domestic Capital

1. Renewable Energy — India has already added 10 GW of renewable energy capacity in the first quarter of 2024, its highest quarterly addition ever. Yet, challenges persist. Solar energy with storage is now cost-competitive with fossil fuels, but the country needs approximately 74 GW of storage capacity to meet peak demand by 2031-32. Domestic investors, with their long-term perspectives, are uniquely positioned to fill this gap.
2. Green Hydrogen Leadership — The demand for green hydrogen is expected to increase fivefold by 2050. Early auctions for green hydrogen projects have already demonstrated strong market interest, and domestic investors can play a pioneering role in scaling this technology.
3. Electric Mobility Revolution — With government incentives targeting 30% EV adoption by 2030, opportunities abound not only in manufacturing but also in charging infrastructure and battery recycling. These areas require a nuanced understanding of local usage patterns, making domestic capital essential.
4. Gender Lens Investing — Research consistently shows that gender-inclusive approaches deliver better business outcomes. For example, women in India report significantly higher impact scores from sustainable initiatives, suggesting that investments prioritizing women’s participation can unlock new opportunities for growth and equity.

Case Study: From Data to Impact – The FarMart Story

FarMart, an agritech platform, exemplifies the transformative potential of impact investments. According to a recent 60 Decibels report, 90% of retailers on FarMart’s platform reported improved quality of life. Even more compelling, 88% indicated no viable alternatives to the platform, underscoring its critical role in addressing market gaps. One retailer shared: “Before using the app, I struggled to provide farmers with basic information like shop timings and stock availability. Now, I can connect with them instantly, which has boosted my sales and saved me significant time.”

Such success stories illustrate the power of patient domestic capital in scaling impact-driven enterprises across India’s diverse sectors.

Barriers to Domestic Impact Investment

While the opportunities are immense, domestic investors face persistent challenges.

• Taxation and Regulation: Complex compliance requirements and unequal tax treatment between public and private markets deter many potential investors.
• Access for the Underserved: Only 33% of current impact beneficiaries lie in the bottom 60% of India’s wealth distribution. Bridging this gap requires innovative financing models and a deeper understanding of underserved communities.

Path Forward: Unlocking India’s Impact Potential

To realize the full potential of domestic capital, India needs both bold action from investors and enabling policies from the government. Key recommendations include:

• Expanding programs like the SIDBI Fund of Funds to scale dramatically beyond the current ₹10,000 crore ($1.2 billion) target.
• Incentivizing pension funds to allocate a greater share of resources to alternative investments.
• Simplifying tax regulations to encourage greater participation from family offices and high-net-worth individuals.

Call to Action

India’s net-zero journey offers an unprecedented opportunity for domestic investors to redefine the nation’s investment narrative. By stepping up, they can not only achieve significant financial returns but also transform the lives of millions through impact-driven solutions.

The stakes are high, but the rewards — both for investors and society — are even higher. The time to act is now.