Government’s Role in Facilitating Intellectual Property Financing

Intellectual property has become one of the most valuable assets a business can hold – yet for decades, it was almost impossible to use IP to attract funding. Banks wanted land, machinery, or inventory as collateral. Investors wanted proven cash flows. This left IP-intensive businesses, particularly startups and innovators, locked out of the formal financing system. Governments across the world, including India, have stepped in to change this equation through a growing set of grants, tax incentives, and IP-specific financing schemes. Understanding how these interventions work is essential not just for policy students, but for anyone building or advising an IP-driven business.

Why government intervention in IP financing is necessary 🔗

IP assets – patents, trademarks, copyrights, trade secrets – are intangible. They don’t depreciate in the same predictable way as machines, and their market value is difficult to assess without specialist expertise. Traditional lenders, therefore, treat them with caution. This creates a structural gap: businesses whose primary value lies in their IP struggle to access debt financing or attract investors, even when their innovations are commercially sound.

This is not a fringe problem. According to WIPO, global investment in intangible assets grew from USD 2.9 trillion in 1995 to USD 6.9 trillion in 2023 – more than doubling in real terms, and growing three times faster than tangible investment between 2008 and 2023. Despite this surge, IP-backed financing remains largely nascent. Markets do not correct this failure on their own because the information asymmetry between IP owners and lenders is too large. Governments must therefore act as both facilitators and risk-sharers to unlock the potential of IP as a financing tool.

India’s national IP policy framework 🔗

India formally acknowledged the link between IP and economic competitiveness through its National IPR Policy, adopted in 2016, which laid the groundwork for integrating IP into the broader innovation and financing ecosystem. The policy’s overarching goal – “Creative India; Innovative India” – positioned IP not merely as a legal protection tool but as a driver of national prosperity. Alongside the IPR Policy, the government launched the Startup India initiative in the same year, which became the primary delivery vehicle for IP-linked financial support.

India’s performance on innovation indicators has improved significantly since these interventions. The country climbed from 81st place on the Global Innovation Index in 2015 to 39th in 2024 – a jump of 42 positions that experts attribute, at least in part, to targeted government schemes around IP creation and financing support.

Key government schemes supporting IP-intensive businesses 🔗

Startup India and DPIIT recognition 🔗

The Startup India initiative, administered by the Department for Promotion of Industry and Internal Trade (DPIIT), is India’s most comprehensive framework for supporting innovative businesses. Recognition under this scheme is the gateway to virtually all government IP-financing benefits. As of 2025, over 1.8 lakh startups have been registered under the programme – up from just 500 at inception in 2016.

Among the IP-specific benefits available to DPIIT-recognised startups: an 80% rebate on patent filing fees, a 50% rebate on trademark registration fees, and full reimbursement of government fees on design registration. These rebates directly reduce the upfront cost of building an IP portfolio, which in turn improves a business’s asset base for financing purposes. The logic is straightforward – if a startup cannot afford to protect its IP, it cannot use that IP as the foundation for attracting investment or credit.

Tax incentives under Section 80-IAC 🔗

One of the most impactful government levers in IP financing is the tax holiday under Section 80-IAC of the Income Tax Act, 1961. Eligible DPIIT-recognised startups can claim a 100% income tax exemption on profits for any three consecutive years within their first ten years of incorporation. This benefit applies to private limited companies and LLPs incorporated on or after 1 April 2016, with annual turnover not exceeding ₹100 crore. The Union Budget 2025-26 extended this window further – startups incorporated before 1 April 2030 are now eligible to apply.

The tax holiday is particularly significant from an IP-financing perspective. During the early years when a business is investing heavily in R&D and IP creation, Section 80-IAC allows profits to be fully reinvested rather than diverted to tax payments. Over 3,700 startups have received this exemption since the scheme’s inception, with the DPIIT continuing to clear new batches of applicants. For lenders and investors assessing a startup’s financial health, this sustained cash retention signals a stronger balance sheet than would otherwise exist.

The abolition of the Angel Tax effective from Financial Year 2025-26 further strengthens the investment climate for IP-driven startups. Previously, investments received above Fair Market Value were taxed at 30.9% – a major deterrent for angel investors. Removing this levy means IP-intensive startups can raise capital from early-stage investors without a portion of the funding being immediately clawed back in tax.

Startup India Seed Fund Scheme (SISFS) 🔗

Early-stage IP businesses often need capital before they can demonstrate revenue – precisely the stage when traditional financing is hardest to access. The Startup India Seed Fund Scheme addresses this directly. DPIIT-recognised startups can receive grants of up to ₹20 lakh for proof of concept, prototype development, and product trials, and up to ₹50 lakh as investment support for commercialisation and scaling. Funds are disbursed through eligible incubators across the country, and critically, they are non-dilutive – the startup does not surrender equity in exchange for the grant.

For a startup whose primary asset is a patent or proprietary technology, this seed capital can bridge the gap between IP creation and commercial viability, making the business investable by private capital at the next stage.

Fund of Funds for Startups (FFS) 🔗

Rather than investing directly in individual startups, the government has deployed a Fund of Funds mechanism managed by SIDBI (Small Industries Development Bank of India). The government committed a ₹10,000 crore corpus through this mechanism, which is allocated to SEBI-registered venture capital funds. These funds, in turn, invest in startups – including those whose value is rooted in IP. This approach multiplies the government’s direct capital outlay while bringing in the due diligence expertise of professional fund managers, creating a more efficient channel for IP-intensive businesses to access growth capital.

Credit Guarantee Scheme for Startups (CGSS) 🔗

Even with strong IP, startups frequently lack the physical collateral banks demand for loans. The Credit Guarantee Scheme for Startups addresses this directly by providing guarantee cover of up to ₹10 crore per startup, allowing lenders to extend credit without requiring traditional collateral. This is a structural fix – it doesn’t change the bank’s lending process, but it substitutes government risk-coverage for the physical assets that banks would otherwise demand. For startups whose balance sheets are dominated by IP rather than fixed assets, CGSS is one of the most practically significant interventions available.

SIP-EIT: supporting international IP protection 🔗

India-based technology businesses that want to protect their IP in international markets face substantial costs. The Support for International Patent Protection in Electronics and Information Technology (SIP-EIT) scheme, launched by the Ministry of Electronics and Information Technology, reimburses eligible startups and MSMEs for international patent filing expenses – up to 50% of costs incurred, capped at ₹15 lakh per invention. International patents significantly expand the commercial territory over which an IP holder can exercise rights, which in turn increases the asset’s value to potential licensees, acquirers, and lenders. SIP-EIT thus has a direct multiplier effect on the financing potential of a startup’s IP portfolio.

Multiplier Grants Scheme (MGS) 🔗

Government grants that fund R&D with direct commercialisation potential create IP that would not otherwise exist. The Multiplier Grants Scheme takes this a step further: when industry co-funds R&D, the government matches the contribution at a rate of up to 2:1. Industry grants up to ₹2 crore per project (and ₹4 crore for industry consortiums) are eligible. By leveraging private sector capital through a matching model, MGS creates commercially-oriented IP that is, by design, more likely to be attractive to future investors and lenders.

The global context: WIPO’s push for IP-backed financing 🔗

India’s domestic efforts sit within a broader international push to normalise IP as a financing asset. In December 2024, WIPO launched its first Hands-on IP Finance guide – a practical toolkit designed to help businesses use their IP to secure loans. The guide addresses how IP supports debt financing, how to navigate conversations with lenders, and what post-loan IP obligations look like. The publication attracted 350 participants at its online launch – reflecting the scale of global demand for structured guidance in this area.

WIPO has also documented country-level approaches through its Unlocking IP-backed Financing: Country Perspectives report series. Singapore’s experience is instructive: through its pilot Intellectual Property Financing Scheme, the government shared default risk with participating financial institutions that offered IP-backed loans. This public-private risk-sharing model – where government absorbs a portion of the downside so that banks are willing to lend against IP – is a template that policymakers in India and other countries are increasingly studying.

What remains to be done: the case for enhanced policy support 🔗

Despite meaningful progress, significant barriers to IP financing persist in India. IP valuation remains inconsistent – there is no standardised methodology that lenders can rely on to assess the worth of a patent portfolio or trademark. Without reliable valuation, banks remain reluctant to lend against IP even where government guarantees exist. The development of accredited IP valuation standards, alongside a secondary market for IP assets, would substantially deepen the financing ecosystem.

There is also a geographic concentration problem. Most IP-financing schemes are accessed predominantly by startups in metropolitan areas with access to incubators and legal advisors. Reaching IP-intensive businesses in smaller cities and rural areas – particularly in sectors like traditional knowledge, agri-tech, and handicrafts – requires both simplified application processes and stronger outreach through regional offices of DPIIT and the IP offices.

Finally, the policy framework needs to evolve faster than the innovation landscape. Emerging asset categories – AI-generated inventions, data assets, blockchain-based IP rights – are not yet adequately covered by existing financing frameworks. Proactive policy development in these areas would position India to capture the financing benefits of next-generation IP creation.

IP financing as a driver of national competitiveness 🔗

The link between government support for IP financing and national economic performance is not theoretical. India’s climb up the Global Innovation Index since 2016 coincides closely with the launch and expansion of the schemes discussed above. Countries that treat IP as an engine of competitive advantage – and that design policy accordingly – attract greater investment in R&D, generate more licensable technology, and build businesses with durable export potential. India’s commitment of over ₹10,000 crore through the Fund of Funds, the elimination of the Angel Tax, and the expansion of Section 80-IAC’s eligibility window are all signals that the government recognises this connection.

The challenge going forward is not whether government should be involved in IP financing – the evidence strongly supports continued engagement – but how to make existing schemes more accessible, more efficiently administered, and better calibrated to the IP assets that will matter most in the next decade of innovation.

What do you think? As IP becomes an increasingly dominant form of business value, should Indian banks be required to accept IP as collateral under a standardised framework – and if so, who should set the valuation standards? And given that most government IP-financing schemes currently favour technology and manufacturing sectors, how should policy be redesigned to capture the financing potential of IP in creative industries, traditional knowledge, and agri-innovation?

References

1. https://www.wipo.int/web/ip-financing
2. https://www.lexology.com/library/detail.aspx?g=46d4441b-381d-4f46-9f67-00838d45e101
3. https://www.lexology.com/library/detail.aspx?g=46d4441b-381d-4f46-9f67-00828d45e101
4. https://www.startupindia.gov.in/content/sih/en/startupgov/startup_recognition_page.html
5. https://cleartax.in/s/section-80iac-of-income-tax-act
6. https://www.pib.gov.in/PressReleasePage.aspx?PRID=2128860
7. https://www.startupindia.gov.in/content/sih/en/government-schemes.html
8. https://www.startup-movers.com/top-government-schemes-for-startups-in-india
9. https://www.hg.org/legal-articles/top-10-government-schemes-to-support-your-startup-in-india-66793
10. https://www.wipo.int/en/web/ip-financing/w/news/2024/launch-of-hands-on-ip-finance