Subject. Stable and progressive development of economic branches, territories and regions of the Russian Federation is impossible without innovation-driven economy. Innovation is a key factor in improving the competitiveness of the national economy. Objectives. The aim of the study is to assess innovation activity of Russian regions, identify factors contributing to its development, consider certain conceptual provisions of modern regional economics on innovation development, define the concept of innovation activity of Russian Federation subjects. Methods. We employ general scientific methods of scientific abstraction, empirical analysis of data, comparative and structural methods of analysis, econometric modeling, logical and systems approaches, and methods of comparison. Results. We present an econometric model that considers factors affecting the innovation, offer areas to boost innovation in terms of regional industrial fund development. The paper provides an analysis of indicators of innovative activity of Russian Federation subjects, like innovative product output and the cost of technological innovation. Conclusions. Successful development of regional industrial funds will make a significant contribution to innovation-driven growth of territories. The instruments of regional industrial policy should become more flexible, respond to numerous challenges of the modern economy and consider the specifics of territory development.