India’s aspirations for becoming a global innovation leader and a knowledge-driven economy hinge on transforming its research and development (R&D) landscape. The recently published paper by NITI Aayog’s Frontier Tech Hub lays down a 10-year vision for national R&D growth. While the document highlights systemic challenges like weak investment and ecosystem support, it fails to critically address the underwhelming role of India’s private sector in research activities.

India’s Private Sector Lags in R&D

Globally, private corporations drive most R&D investment. In countries like the US (70%), China (79%), and the European Union (57%), the private sector leads not just in spending but also in executing government-financed research.

In sharp contrast, India’s private R&D expenditure (RDE) is a mere 36% of total national RDE, despite the government’s intra-mural R&D spend (0.32% of GDP) being comparable to that of the US and China. This clearly points to a disproportionately low private sector contribution, which is the main reason behind India’s low R&D-to-GDP ratio.

Limited Participation Among Indian Firms

Out of the top 1000 listed Indian companies, only half reported any R&D spending in FY22-23. Just 15 Indian companies figure among the top 2000 global R&D spenders — as compared to 681 US and 524 Chinese companies.

Indian firms also invest far less in R&D as a share of their net sales — just a quarter of US firms and half of global averages. This reflects a deep-rooted underinvestment, even among top-performing firms.

Sector and Size Skew in R&D Spending

R&D spending is highly skewed by industry and company size:

• Top 20 spenders among the 1000 listed companies account for 71% of all private R&D.

• Three sectors — pharmaceuticals, IT, and transportation — contribute nearly 60% of private RDE.

• Indian companies feature in only five global R&D sectors, while their US and Chinese counterparts span 32 and 33 sectors, respectively.

Moreover, 20% of India’s private RDE comes from foreign companies with R&D units based in India — not domestic firms. This highlights the lack of homegrown innovation intensity.

Output and Efficiency Concerns in Indian R&D

Quantitative and qualitative metrics both show India’s R&D output lags behind its global peers:

• For every $1 million PPP spent, Indian firms generate just 0.102 patent grants, compared to 0.23 in the US.

• RDE per R&D worker in India is only $0.14 million, much lower than the US ($0.32 million) and EU ($0.21 million).

• India’s net R&D exports are just 0.08% of its RDE, while the US exports 2.1% — suggesting limited global value addition.

Why Private R&D Must Be a Policy Priority

It is evident that public-sector-led efforts alone won’t suffice. Without a vibrant and broad-based private sector role, India’s R&D mission will not be sustainable.

The government must pivot its policy strategy to focus on:

• Engagement and incentivisation, not mandates.

• Highlighting R&D’s competitive and financial benefits to corporates.

• Creating platforms for joint R&D policymaking, with private sector representation.

Proposed Reforms for a Robust Private R&D Ecosystem

The NITI Aayog paper hints at some reforms, but a comprehensive and structured overhaul is required:

1. National Vision and Advisory Body

A Board of Advisors on Science and Innovation should be constituted to co-create a national private R&D roadmap with equal participation from businesses.

2. Fiscal Incentives and Tax Reforms

The reinstatement of higher income tax deductions for scientific research (withdrawn in 2020) is critical. Additionally, outcome-based incentives should be offered for:

• High-priority R&D sectors

• Academia-led research

• Startups engaging in step innovation

• Research service providers (e.g., for prototyping or testing)

These incentives must be locked in for at least 20 years to provide certainty for long-gestation research projects.

3. Improved Data Systems

A dedicated Satellite Accounts System and National RDE Database must be built to collect, monitor, and publicise detailed quantitative and qualitative metrics on R&D performance.

4. Boosting Industry Participation in Public-Funded Research

Public-funded extra-mural R&D schemes should incorporate:

• Preferential procurement from companies investing in R&D

• Models to co-develop and monetise IP

• Inclusion of MSMEs through consortiums and cluster programs

This will ensure broad participation and technology spillover across industries.

5. Enhancing Mobility and Knowledge Exchange

India must dismantle silos between academia, industry, and government through:

• Project-based exchange programs

• Research apprenticeships

• Creation of a National R&D Information Clearing House to connect innovation needs with available resources

This would develop a rich ecosystem of R&D talent and innovation-sharing.

Conclusion

If India is to emerge as a technological powerhouse, the private sector must be brought to the forefront of R&D policymaking and execution. The current underperformance — both in terms of investment and innovation output — represents a significant obstacle to the nation’s economic and strategic ambitions.

With a focused approach combining policy reforms, fiscal incentives, industry engagement, and knowledge sharing, India can unlock the untapped potential of its corporate sector and build a resilient, globally competitive innovation ecosystem.

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