Daybreak - India’s innovation engine works. About 5% of the time

Episode Date: December 9, 2025

India's Atal Incubation Centres promised to be the backbone of government innovation. With 500 crore rupees in initial funding and support from Niti Aayog, these 72 centres were supposed to nurture startups with grants, mentors, and infrastructure.Nearly a decade later, the results are sobering. Of 3,500 incubated startups, fewer than 5% have raised external capital. Most centres lack basic websites or outcome metrics. No external audits. No unicorns.Now the government wants to double down—allocating 2,750 crore rupees to expand the ecosystem. But nobody seems to care if the existing network actually works.Tune in.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Ramon Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production.

Sita and I are still reeling from the intensity of our first studio recording. Intermission launches on March 23rd. To get alert, as soon as we release our first studio. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. Farha is the founder of a year-old women's health startup. Ideally, she should be working on her pitch deck or networking with VCs.

Maybe she could even be testing out her prototypes. She's doing none of those things right now. Instead, she's worrying about money. Money that technically on paper, she's already received in a government grant. Her startup was accepted into an Adal Incubation Center or AIC. These are the flagship government-backed programs that promise grants, mentors and support for Indian startups. You know, the technical stuff that does need a lot of support when you're building out a company. But for her struggles go beyond the just technical.

They're exactly what you'd imagine founders to be facing. The on-ground basic things like hiring, marketing, outreach, important but not as glamorous functions that can't be ignored. But they're time-consuming enough that it leaves her no time to raise external funding. The 36-year-old founder told my colleague at the Ken, reporter Mrenmay, that because she can't raise external funding and because the government grant only covers a tech part of her startup, she has to invest her own money in. into everything else.

Of course, building the platform is necessary. But Farha's vision is bigger than that. She needs more than just tech. She needs to build out a community. Which means this is the kind of startup that needs traction and visibility and buzz to really work. Now, Farah expected the incubation center to be the place that understood her problems,

especially considering all the talk about mentorship and expansion. But turns out that wasn't quite it. Now, Atal Incubation Centers was launched in 2016, with about 500 crore rupees under Niti Ayyog's Atal Innovation Mission. The promise was simple. Be the backbone of government innovation and support India's innovators. But after nearly a decade, the results tell a different story altogether. These centres have incubated over 3,000 startups across 72 locations in the country. Out of them, fewer than 5% have raised external capital.

And now, the government wants to expand this ecosystem. It has already allocated nearly 3,000 crore rupees to continue the mission. Even states like Karnataka are announcing another thousand crore or so in new deep tech and AI funds. But nobody seems to care if the existing network actually works. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Rachel Rikis, and every day of the week, my co-host, Nipa Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Wednesday, the 10th of December. Supporting startup seems like a very difficult challenge for these centres.

Especially considering many of these 72 incubation centres can't even maintain a website. Several even lack published funding data and outcome metrics on their websites. Government reports claim that these centres have created more than 40,000 jobs. But there doesn't seem to be any data on what kind of jobs these actually are. In its many years of activity, there haven't been any external audits or even unicorns. There haven't even been many live products that have come out of this entire ecosystem. Founders who worked with the centres don't really have glowing reviews. Vrunmi spoke to Siddhar, a Hyderabad-based hardware founder.

His startup, which builds electronic diagnostic kits, joined the center in 2023. Some parts of his products were hard to fabricate and very expensive. Most of his suppliers were sourcing it from Korea. He didn't have any contacts, guidance or support. So, Siddhar thought that this was exactly what the incubator was supposed to help with. Connections, options, strategy. Instead, they washed their hands off once they'd given him the money. He claims that most Attal incubators are exactly like this.

Basically, generalist centres with no specific domain depth. They'll fund you, sure. But they won't help you build. It looks like the selection process is part of the problem as well. It's apparently absurdly low. In fact, an insider said that AIC admits nearly 30 to 60% of their applicants. So, the selection process seems mostly performative. The point is to fill the seats, not really to pick startups that will actually survive.

But to be fair, this wasn't how it was supposed to go. These centres were supposed to support early-state startups. Each incubation centre would get 10 crore rupees over five years. The focus was also on sectors like health, mobility, manufacturing, agri-tech, etc. Start-ups would get mentoring, grants, infrastructure. You know, all the hand-holding early startups need to help risky ideas survive. Runmay spoke to Koshik Chowdhury, who runs the AIC at Institute of Plasma Research in Gandhya. He told Runei that the center is supposed to help startups reach the prototype stage.

Then, the centres can connect the companies to stakeholders who can take their product to market. Some incubators actually did make this theory work. Take AIC Banasthali in Rajasthan. It has supported 75 women-led startups and almost 30 have raised external funding. Even the centre at NMIMS Mumbai has incubated close to 60 companies and almost 10 have raised funds externally. But these are still outliers. Siddharthar claimed that most AICs end up being just real estate solutions. They provide the desks and the internet.

But the moment a startup needs manufacturing support, they hit a wall. More on this in the next segment. The AIC incubation system was never designed to care. AICAIM official told us that while it's easy to announce grants, it's harder to disburse them. And the hardest thing of all is verifying how the money is used. incubators would report activities, you know, things like startup headcounts, weekend boot camps, other selfie-friendly events. But when it came to follow-on funding, continued revenue and survival, the official said that those meters were never tracked. There wasn't any feedback loop either. If a startup happened to disappear after a month, the incubator would still get credit for just the onboarding process.

Nobody checked whether mentors were useful. if startups actually stay through the program or if they ended up building something real. Even sector-specific centers received a standard 10-crow-ru-ru-ru-grant. So it didn't seem like there was any comparative evaluation going on. As the insider put it, everything was funded but nothing was measured. But not everyone sees this as a failure. Some say the expectations are wrong to begin with. Take Jamil Khan, who has a rural incubation center in Jammu and Kashmir.

He said that the hard rule for success isn't to raise VC funding. From the government side, it sees if the startup built a prototype or if it generates revenue. That does sound like a fair point. But if the timeline is long, capital is scarce and support is weak, what are these incubators actually doing? Well, Khan clarified that basically startups get grants for different stages. First for ideas, then prototypes, and finally minimum viable products or anything. MVP's. That's obviously a good starting point. But when it's time to pilot, scale or test in the real world,

there's nothing. No support. Basically, Atal incubation centres stop at the proof of concept stage. And that results in a pipeline full of early prototypes with nowhere to go. Stay tuned. Unlike programs like Y Combinator or Peak 15 surge, which take products from idea to market, Atal centers stop early. Now, that's great for R&D, but not very helpful for a startup incubator. Khan told us that startups often end up with a product they can't afford to sell. Adal incubation centers also have a follow-on funding rate that is under 5%.

Even the best performers hover at 10 to 15%. Most are far lower than that. Now, private accelerators show what better odds look like. Take the ones we mentioned earlier. Surge Y Combinator and even tech stars. They're all very selective by design because they want to choose startups that are built to improve survival odds. And now, states are also joining the incubator push.

For instance, Karnataka announced over 600 crore last year for deep tech startup specifically. Another 400 plus crore from venture funds is expected for AI ventures. So, you can see that policy loves that. incubators. But the data doesn't quite match over there. In fact, a 2025 European study found that startups that skipped incubation outperform those that didn't. There are also examples of government incubators that have worked far better than this. Take Society for Innovation and Entrepreneurship or sign at IIT Bombay. It backed IdeaForge, now a listed drone company that's worth

$2,000 pro-rupes. Also, QRAI, which raised more than 500 crore in its CETSD quite recently. Sign has incubated over 200 startups. More than 80 of those have received external funding. It has an average follow-on funding rate of nearly 40%. That's seven times higher than AIC's numbers. In 2024, Sign even reported a portfolio evaluation over 12,000 crore rupees. So, the model is right there.

The government just has to scale it. Instead, AIC is stuck in this awkward spot and with it, the startups and founders had it onboarded. Back in Hyderabad, Siddhar's startup shut down six months ago. But the incubators still lists his venture on its website, as if nothing even happened. Farha's company, on the other hand, is still standing. But barely. She's already working on other plans, and none of them involved starting a company.

The government investment in innovation is huge. Between the centre and the states, nearly 4,000 crore rupees is at stake. But is anyone even keeping score? Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription offers daily long-form feature stories, newsletters and a whole bunch of premium podcasts. To subscribe, head to the podcast. the Ken.com and click on the red subscribe button on the top of the Ken website.

Today's episode was hosted and produced by my colleague Rachel Vargis and edited by Rajiv Sien.