India’s Innovation Malaise: Need For Globally Competitive Manufacturing

Syllabus: GS3/Science & Technology

Context

• India’s position at 38th in Global Innovation Index (GII), 2026 has renewed debate over inadequate R&D expenditure, weak private-sector participation and the need for manufacturing-led innovation.

About the Global Innovation Index (GII)

• It is published annually by the World Intellectual Property Organization (WIPO) and evaluates the innovation capabilities and performance of economies.
• It aims to assess how effectively countries develop and translate innovation capabilities into economic and technological outcomes.
• It highlights that innovation depends on a broader business environment, infrastructure and industrial capabilities along with research institutions.

India’s Performance in GII 2026

• India has emerged as an important innovation economy, particularly among lower-middle-income countries.
• However, structural weaknesses remain:
  • R&D Expenditure: India’s Gross Expenditure on R&D (GERD) is approximately 0.6–0.7% of GDP, considerably below South Korea (around 5%), China (around 2.7%) and other advanced economies.
  • Private-sector Participation: Businesses contribute approximately 41% of India’s total R&D expenditure, compared with 70–80% in several innovation-intensive economies.
  • Innovation Ecosystem: India performs relatively well in areas such as ICT services exports, start-ups and knowledge-intensive services but needs stronger manufacturing and technological capabilities.
  • Innovation Clusters: India has 4 clusters (i.e. Bengaluru, Delhi, Mumbai and Chennai) in the world’s top innovation clusters of GII, demonstrating India’s growing research potential.
• Translating scientific knowledge into commercially successful products remains a major challenge despite these achievements.

Understanding the Link Between Manufacturing and Innovation

• Innovation and manufacturing have a mutually reinforcing relationship. Globally competitive manufacturing often provides the economic foundation for sustained private-sector R&D investment.
• Important Lessons From East Asian Experiences:
  • South Korea: R&D expenditure was approximately 0.26% of GDP in 1965 and 0.77% in 1980. During this period, exports increased from 2.6% of GDP in 1960 to 27.7% in 1980. R&D intensity crossed 2% only around 1995.
  • China: It became the world’s largest manufacturing economy in 2008, when its R&D intensity was approximately 1.42% of GDP.
  • Japan and Taiwan: Both strengthened their manufacturing and export capabilities before establishing themselves as major technological and innovation centres.
• These experiences suggest that export competitiveness, manufacturing scale and industrial capabilities can generate the resources and incentives necessary for higher R&D investment.

Why Does India’s Private R&D Investment Remain Low?

• Several structural constraints discourage Indian businesses from investing in research:
  • High Input Costs: Import duties on critical raw materials, expensive electricity and costly logistics increase manufacturing costs.
  • Regulatory Burden: Complex compliance requirements, approval delays and regulatory uncertainty increase the cost of establishing and operating factories.
  • Costly Capital: Relatively expensive borrowing makes long-term, uncertain R&D investments less attractive.
  • Limited Global Market Access: High production costs prevent domestic manufacturers from competing effectively with international producers.
  • Protection-driven Competitiveness: Tariffs and domestic regulatory protections sometimes allow firms to survive without investing sufficiently in productivity, quality and technological advancement.
  • Risk Aversion: Limited tolerance for commercial failure further discourages experimentation and long-term innovation.
• Consequently, inadequate private R&D investment is partly a symptom of deeper weaknesses in India’s business and manufacturing environment.

Key Government Initiatives Supporting Innovation

• India has undertaken several initiatives to strengthen its innovation ecosystem:
  • Anusandhan National Research Foundation (ANRF): Promotes research collaboration between universities, research institutions and industries.
  • Research, Development and Innovation (RDI) Scheme: Provides substantial financial support to encourage private-sector investment in strategic and emerging technologies.
  • Production Linked Incentive (PLI) Scheme: Encourages domestic manufacturing, investment, scale and technological upgrading across selected sectors.
  • Startup India: Promotes entrepreneurship, innovation and a supportive start-up ecosystem.
  • Atal Innovation Mission: Encourages innovation and entrepreneurial capabilities through incubation centres and Atal Tinkering Labs.
  • India Semiconductor Mission: Supports the development of domestic semiconductor manufacturing and design capabilities.
  • National Quantum Mission: Promotes research and development in quantum technologies.
• These initiatives can strengthen India’s innovation ecosystem, provided they are complemented by improvements in the broader business environment.

Emerging Challenges

• Despite policy interventions, important challenges persist:
  • Weak industry-academia collaboration and limited commercialisation of research.
  • Dependence on imported advanced machinery, components and critical technologies.
  • Fragmented supply chains and inadequate industrial infrastructure.
  • Regulatory uncertainty and difficulties in enforcing contracts.
  • Limited integration of MSMEs into global value chains.
  • Growing technological competition and rapid AI-driven changes in innovation cycles.
• Artificial intelligence is shortening product-development cycles, making speed, adaptability and efficient execution increasingly important determinants of competitiveness.

Way Forward: Building Globally Competitive Manufacturing Ecosystems

• India needs to move beyond treating R&D expenditure as an isolated indicator of innovation and focus on creating an enabling environment for globally competitive manufacturing.
• Key priorities include:
  • Regulatory Simplification: Reduce unnecessary approvals, compliance requirements and policy uncertainty through predictable, transparent regulations.
  • Competitive Input Costs: Rationalise tariffs on essential industrial inputs, improve electricity quality and affordability, and reduce logistics costs.
  • Develop Industrial Clusters: Establish large, integrated manufacturing ecosystems with reliable infrastructure, efficient logistics, simplified clearances and access to skilled labour.
  • Strengthen Private R&D: Promote industry-led research through targeted incentives, public-private partnerships, technology transfer and stronger university-industry collaboration.
  • Improve Ease of Doing Business: Address delays in taxation, contract enforcement, land access and dispute resolution.
  • Promote Export-oriented Manufacturing: Integrate Indian firms into global value chains and encourage competition based on productivity, quality and technological advancement.
  • Encourage Risk-taking: Develop stronger venture capital networks, support deep-tech start-ups and create an institutional environment that does not excessively penalise genuine business failures.

Conclusion

• India’s innovation ambitions cannot be achieved through increased government funding for R&D alone. It needs first to create an environment where businesses can manufacture efficiently, compete globally and generate sufficient returns to reinvest in research.
• The transition from a protected manufacturing economy to a globally competitive production powerhouse is essential for transforming India from an innovation participant into an innovation leader.

Source: HT