Low R&D Investment in India, Causes, Challenges, Initiatives

India’s Gross Expenditure on Research and Development (GERD) has remained around 0.64-0.7% of GDP for nearly two decades, significantly lower than major innovation-driven economies such as China, the United States, and South Korea. Despite possessing a large pool of scientific and technical manpower, India’s innovation output and private-sector R&D investment remain relatively low. This has renewed attention on the need to strengthen the country’s research and innovation ecosystem to achieve the vision of Viksit Bharat 2047.

What is Research and Development (R&D)?

Research and Development (R&D) refers to systematic scientific, technological, and innovative activities undertaken to develop new products, processes, technologies, or improve existing ones.

R&D plays a crucial role in enhancing productivity, promoting technological self-reliance, improving industrial competitiveness, generating high-skilled employment, and driving long-term economic growth.

India’s R&D Landscape

• India’s GERD remains around 0.64-0.7% of GDP, much lower than China (around 2.4%), the United States (around 3.5%), and South Korea (around 4.9%).
• The private sector contributes only about 37% of India’s total R&D expenditure, whereas businesses contribute nearly 70-80% in leading innovation economies.
• India has around 255 researchers per million population, significantly below major developed and emerging economies.
• India ranked 38th in the Global Innovation Index 2025, reflecting progress but also highlighting substantial room for improvement.
• Government institutions such as the Council of Scientific and Industrial Research (CSIR), Defence Research and Development Organisation (DRDO) and Indian Space Research Organisation (ISRO) account for a large share of national R&D expenditure.

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Causes of Low R&D Investment in India

Low R&D investment in India results from a combination of historical, economic, institutional, and policy-related factors.

• Large Domestic Market: Many firms can achieve growth by serving India’s vast consumer base, reducing pressure to innovate for global competition.
• Limited Export Orientation: Lower exposure to international competition weakens incentives for technological upgrading and product innovation.
• Colonial Industrial Legacy: Colonial deindustrialisation weakened indigenous manufacturing capabilities and fostered a greater focus on trade and intermediation than innovation.
• Premature Financialisation: Many firms prioritize short-term financial returns, dividends, and shareholder value over long-term investment in research.
• Short-Term Corporate Incentives: Executive performance is often linked to quarterly profits and stock prices rather than long-term innovation outcomes.
• High Business Uncertainty: Regulatory uncertainty, policy changes, and market volatility discourage investments whose returns may take years to materialise.
• Weak Industry–Academia Linkages: Research conducted in universities and laboratories often remains disconnected from industry requirements.
• Limited Commercialisation of Research: Publicly funded innovations frequently fail to reach the market because of weak technology transfer mechanisms.
• Insufficient Deep-Tech Financing: Venture capital funding remains concentrated in consumer technology, while sectors such as semiconductors, biotechnology, and advanced manufacturing receive limited support.
• Absence of Strong Mid-Sized Innovative Firms: India lacks a large network of innovation-driven medium enterprises comparable to Germany’s Mittelstand.
• Inadequate Research Infrastructure: Many institutions face constraints relating to laboratories, equipment, testing facilities, and funding.
• Brain Drain: A significant number of highly skilled researchers migrate abroad in search of better research opportunities and funding.

Challenges Arising from Low R&D Investment

Low R&D expenditure creates economic, technological, industrial, and strategic challenges for India.

• Limited Innovation Capacity: Low investment restricts the development of new technologies, products, and indigenous solutions.
  • For example: India is the world’s largest generic drug supplier but remains heavily dependent on China for Active Pharmaceutical Ingredients (APIs) — nearly 68% of API imports come from China. Indian pharma companies have historically invested in reverse engineering rather than new drug discovery. India’s New Chemical Entity (NCE) pipeline is negligible compared to the US, EU, or even Japan.
• Dependence on Foreign Technology: India continues to rely heavily on imported technologies in sectors such as semiconductors, advanced manufacturing, and defence.
• Weak Global Competitiveness: Indian firms face difficulty competing with innovation-driven global corporations.
  • For example: India ranks 38th on the Global Innovation Index (2025) 
• Slow Industrial Upgradation: Manufacturing industries struggle to move towards high-value and technology-intensive production.
• Lower Productivity Growth: Limited technological innovation constrains improvements in efficiency and productivity.
• Reduced Export Competitiveness: India remains concentrated in low- and medium-technology exports compared to countries with strong innovation ecosystems.
  • For example: India’s export basket remains heavily concentrated in low-to-medium technology products like gems and jewellery, textiles, leather, and agricultural commodities. High-technology manufactured exports account for only about 9-10% of total merchandise exports, compared to China’s 31% and Malaysia’s 43%.
• Missed Opportunities in Emerging Technologies: Slow progress in artificial intelligence, quantum computing, robotics, biotechnology, and semiconductor manufacturing can reduce future competitiveness.
• Brain Drain of Talent: Researchers and innovators often contribute to foreign economies due to better research ecosystems abroad.
• National Security Risks: Dependence on imported technologies can affect strategic autonomy in defence and critical infrastructure.
• Challenges to Atmanirbhar Bharat: Low domestic innovation slows technological self-reliance and indigenous manufacturing.
• Risk of Middle-Income Trap: Without innovation-led growth, India may struggle to transition into a high-income economy.
• Lower High-Skilled Employment Generation: Innovation-intensive industries create quality jobs, and low R&D investment limits such opportunities.

Government Initiatives to Promote R&D

• Anusandhan National Research Foundation (ANRF): Established to strengthen research and innovation across universities and research institutions.
• Semicon India Programme: Provides incentives for semiconductor manufacturing, design, and ecosystem development.
• National Deep Tech Startup Policy: Supports innovation in frontier technologies such as AI, quantum computing, space technology, and semiconductors.
• Production Linked Incentive (PLI) Scheme: Encourage domestic manufacturing and technological upgradation across multiple sectors.
• National Education Policy (NEP), 2020: Emphasises research-oriented higher education and innovation culture.
• Startup India Initiative: Promotes entrepreneurship and innovation through financial and regulatory support.

International Best Practices

• South Korea: Linked state support and credit access with export performance and technological advancement, leading to one of the world’s highest R&D expenditures.
• Israel: The Yozma Programme successfully created a vibrant venture capital ecosystem and transformed the country into a global innovation hub.
• China: Combined large-scale public investment, university-industry collaboration, and industrial policy to significantly increase R&D intensity.

Way Forward

Enhancing R&D investment requires structural reforms, stronger private-sector participation, and a long-term innovation strategy.

• Mandate R&D Disclosure: Large listed companies should disclose R&D expenditure as a percentage of revenue to improve transparency and accountability.
• Increase Private Sector Participation: Businesses should be encouraged to invest more in long-term research and technological innovation.
• Reform R&D Tax Incentives: Simplify procedures and make tax benefits more accessible for startups, MSMEs, and innovative firms.
• Build Patient Capital Institutions: Establish dedicated innovation financing mechanisms to support long-gestation deep-tech projects.
• Effectively Operationalise ANRF: Focus on outcome-based funding and stronger university-industry partnerships.
• Link Incentives with R&D Commitments: Firms receiving benefits under PLI schemes and public procurement programmes should undertake minimum R&D investments.
• Strengthen Industry–Academia Collaboration: Promote technology transfer offices, collaborative research centres, and innovation clusters.
• Expand Research Infrastructure: Develop world-class laboratories, testing facilities, incubators, and technology parks.
• Promote Deep-Tech Startups: Increase support for startups working in semiconductors, biotechnology, quantum technologies, clean energy, and advanced manufacturing.
• Retain and Attract Talent: Improve research funding, career opportunities, and international collaborations to reduce brain drain.
• Enhance Export Competitiveness: Greater integration with global value chains can create stronger incentives for innovation.
• Reduce Policy Uncertainty: Stable regulations, predictable policies, and strong institutions can encourage long-term R&D investment.