Examine the role of hybrid financing instruments such as Optionally Convertible Debt under the RDI Scheme in drawing private investment into high-risk R&D.

Private firms fund only about 36% of India's Gross Expenditure on R&D (GERD). In China, Japan, Korea and the USA, firms fund over 70% [1]. The ₹1 lakh crore RDI Scheme (2025) addresses this gap without grants [2]. It uses loans, equity and hybrids such as Optionally Convertible Debt (OCD), which is a loan the lender may later convert into equity [3].

Why high-risk R&D needs hybrid finance

• Valley of death: taking a technology from TRL-4 to TRL-6 is costly and slow, and it earns no revenue. The RDI Scheme funds only projects at TRL-4 and above [2].
• Collateral gap: banks lend against assets that deep-tech start-ups lack. The RDI Scheme judges projects on their technology and market potential instead [2].

How OCD draws in private investment

• Shared risk: TDB backs Peptris's ₹172 crore AI drug-discovery project, VIGOR, with ₹86 crore as OCD. Private capital therefore stays at stake alongside public money [4].
• Patient capital: long-term, low-interest debt eases cash flow during multi-year preclinical work [3].
• Public upside: the option to convert lets the state share in success, which a grant never allows. Repaid money flows back into the fund [4].
• Expert intermediaries: second-level fund managers such as TDB and BIRAC, sanctioned ₹1,000 crore each, choose and monitor the projects [3].

Limitations

• Failure risk: if every candidate fails, the debt may never be repaid. VIGOR's four molecules all come from one AI platform, so the risk is only partly spread [4].
• Slow disbursal: only ₹500 crore had reached TDB by March 2026 [3]. The Budget allotted ₹20,000 crore for 2025-26 [2].
• Opaque terms: the interest rate, conversion price and public-access conditions are not published [4].

Way forward

• Publish standard OCD term sheets with milestone-linked conversion.
• Bring in more second-level managers, such as AIFs, NBFCs and DFIs, to speed up disbursal [2].
• Attach access conditions where public money backs rare-disease drugs, in line with the National Policy for Rare Diseases, 2021.

Hybrid instruments turn public money from a subsidy into a shared-risk stake, which suits high-risk R&D. With clear terms and faster disbursal, they can help meet the Economic Survey 2020-21's aim of raising the business share of GERD towards about 68% [5]. This would advance SDG 9 (industry, innovation and infrastructure) and self-reliance in technology.