India Inc’s R&D Challenge: From Economic Liberalisation to Global Competitiveness

Syllabus: GS3/Economy

Context

• Recent corporate R&D data shows that Indian companies are increasing their spend on innovation, but the quantum of investment is still not enough to match global competitors and develop sustainable technological competitiveness.

India’s Current State of R&D Growth

• R&D has increased substantially at the corporate level, with R&D spending rising from around 150 in FY99 to 471 in FY26.
• Total R&D spending rose from ₹957.8 crore in FY99 to ₹63,529.2 crore in FY26, recording a 16.8% CAGR, faster than the 12.9% CAGR in net sales.
• However, intensity remains modest. R&D accounted for 0.91% of combined net sales in FY26, compared with 0.36% in FY99 and the historical peak of 1.15% in FY17.
  • Only about half of the 471 companies reporting R&D spent at least 1% of sales on it.

Post-1991 Reforms: Shift Towards R&D

• The 1991 BoP crisis was a reflection of India’s inability to match foreign-exchange profits with expenditure. It exposed weak export competitiveness. 
• Prior to reforms, Indian enterprises were predominantly domestic market orientated with limited attention to exports and global competitiveness.
• Liberalisation sought to improve efficiency, competitiveness and integration with the global economy.
• Initially, corporate R&D during the late 1990s and early 2000s focused substantially on absorbing imported technologies. 
• Subsequently, firms increasingly shifted towards developing indigenous products and solutions.

Why Does R&D Growth Remain Inadequate?

• Low R&D Intensity: Spending by companies as a whole still lags behind the levels necessary for technical leadership.
• Sectoral Concentration: Automotive and pharmaceuticals are dominant, but emerging global R&D frontiers such as AI, IT and advanced computing are leading internationally.
• Short-term Commercial Focus: R&D is linked to profitability. 3-year average operating-profit increase is 70% correlated to R&D growth.
• Weak Innovation Scale: In 2024 WIPO data, TVS Motors filed 283 patents during 2022-24, against 20,783 by Huawei.
• IT-sector Vulnerability: Top Indian IT firms have R&D spend of just 0.58% of sales in FY26 even as AI threatens to automate various traditional services.

Related Efforts & Initiatives

• In the post-reform economy, corporations have set up dedicated R&D facilities, and are increasingly treating R&D as a strategic investment.
  • The emphasis of policy is changing from the absorption of technology to indigenous development of products, technology leadership and innovation as shown in the overall drive for increasing private sector participation in research.
• Anusandhan National Research Foundation (ANRF): It was constituted by the ANRF Act, 2023 with aims to boost India’s research ecosystem and foster collaboration between academics, government and industry.
  • Its purpose is to stimulate cross-disciplinary research and to increase the transfer of research into innovation and economic application.
• Research, Development and Innovation (RDI) Support: Recent governmental initiatives have increasingly been focused on catalysing private sector R&D, especially in deep-tech and emerging technologies.
  • The goal is to close the gap between public research and commercial innovation by incentivising industry to invest in higher risk, longer term R&D.
• Industry-led R&D Infrastructure: Indian corporations are increasingly establishing dedicated R&D centres, technology campuses and product-development facilities.
  • It represents a shift from merely absorbing imported technology to developing indigenous products and solutions.
• Start-up and Deep-Tech Ecosystem: India’s expanding start-up ecosystem provides a route for converting research into commercially viable technologies.
  • Greater interaction between start-ups, established corporations, universities and research institutions can help overcome the traditional gap between invention and commercialisation.
• Sector-specific Innovation Push: Sectoral Innovation Push: Innovation is increasingly associated with strategic sectors such as:
  • AI and sophisticated computing;
  • Defence and aerospace;
  • Electric vehicles and alternative-fuel technologies; 
  • Pharmaceuticals and biotechnology; 
  • Semiconductors and electronics; and 
  • Quantum technologies.
• Academia–Industry Linkages: A stronger innovation ecosystem requires universities and research institutions to collaborate with companies on joint R&D, knowledge transfer, patents and product development.
  • It can make academic research more responsive to the needs of industry and society. 

Way Forward

• Increase private-sector R&D intensity, particularly beyond pharmaceuticals and automobiles.
• Promote industry–university–government collaboration and commercialisation of research.
• Encourage long-term R&D through stable policy support and risk-sharing mechanisms.
• Strengthen patent generation and intellectual-property capabilities.
• Push Indian IT firms towards AI, advanced computing and emerging technologies.
• Link R&D with export competitiveness, so that innovation translates into globally competitive products.

Conclusion

• India has moved from a protected-market model towards greater technological ambition. 
• But, the central challenge remains converting rising R&D expenditure into globally competitive patents, products and technologies, moving decisively from ‘Made in India’ towards ‘Imagined and innovated in India’.

Source: BS