Hyderabad: In what seems to be a huge push for R&D in India, the government announced a corpus of ₹1 lakh crore in the budget on 1st February, that would be available on ‘minimal or nil interest rates’ to “encourage” the private sector to invest in research and development in ‘sunrise sectors.’ It was not clear if this corpus was targeted at a specific Ministry or intended as a more broad-based encouragement to research.
It is a welcome development, but it remains to be seen how the scheme will be implemented. There are many possibilities at this juncture but it is not known about any specific discussions [on beneficiaries and implementation] and the ministries which will be involved. However, it is very good as it envisages both the public and private sectors to invest in research and development.
India’s share of R&D in overall GDP is much lower compared to developed countries and this has been a long-standing task of industry body NASSCOM. India’s spending on research and development is among the lowest in the world, as per a study conducted by the government think tank NITI Aayog and the Institute for Competitiveness. R&D investment in India, in fact, has declined from 0.8% of GDP in 2008-09 to 0.7% in 2017-18.
Data indicates that India’s GERD (Gross expenditure on R&D)is lower than the other BRICS nations. Brazil, Russia, China and South America spend around 1.2%, 1.1%, above 2% and 0.8% respectively. The world average is around 1.8%.
Half of India’s population is below the age of 25 years with a median age of 28 years, which bodes well for the overall talent pool. As per the Global Innovation Index 2019, India stood at the 52nd position out of a total of 129 countries for capacity and success in innovation. For a country that is supposedly the fifth most start-up-friendly economy globally, this is a poor rank and highlights the slow growth rate of the tech economy despite the ripe consumer market. This lack of innovation is depicted by India’s relatively low expenditure on research and development.
The lack of quality R&D is evidenced by the fact that many Indian unicorn start-ups such as Paytm, Ola, Flipkart, and Zoho as well as unicorns such as CarDekho, mSwipe, LensKart, and others are imitations of successful global ideas fine-tuned to serve local needs.
Successful foreign start-ups that were established way before their Indian counterparts — years before in some cases — have become blueprints for Indian start-ups. While one cannot deny that India has become a start-up hub as the 3rd largest ecosystem for start-ups globally with over 1,12,718 recognised start-ups across 763 districts of the country, the reality is that the number of these start-ups were formed out of ideas that originated elsewhere.
The challenge for the Indian start-up ecosystem will be moving past these limitations in infrastructure and the government's inaction on the R&D front. Developed countries USA, Sweden and Switzerland spend about 2.9%, 3.2% and 3.4% respectively. Israel spends about 4.5% of its GDP on R&D, the highest in the world.
Among the reasons cited by developing countries for low spending in R&D like India, is that the R&D investments take time to produce results. Countries like India tend to focus on bigger issues like hunger index, disease control, and raising the quality of life, and authorities divert the resources towards tackling them. However, it can be argued that these pressing concerns shouldn’t be viewed as a hindrance but rather an opportunity to widen the ambit of R&D.
Data shows that the countries that spend less on GERD fail to retain their human capital in the long run. Lower spending on R&D and less innovative opportunities may lead people to move from one region to another region/state/country for better opportunities. This phenomenon is known as brain drain and reduces the competitive edge of a state, further impacting the country’s overall economy. For India to achieve a 5 trillion $ economy, India’s GERD needs considerable improvement to touch at least 2%.
India’s GERD at 43 $ per capita is one of the lowest in the world. India’s BRICS and Asian counterparts, like Russia (285), Brazil (173) and Malaysia (293), fare much better with such low contributions, R&D performance remains stagnant. Many company experts and even RBI, over the years, have flagged the poor performance when it comes to R&D. It has also been observed that there is a mismatch between what is taught at the University level and what is required at the industry level.
Most recently Infosys co-founder, Kris Gopalakrishnan had asserted the need for higher spending on R&D with more contribution from private companies and Institutions. He said, “We need to invest more money in research. Research spending should hit 3% of India’s GDP from 0.7% currently. Of this, the private contribution should jump at least 1.5% from 0.1% at present.
The last comprehensive report on R&D spending in India was published by the Department of Science and Technology ( DST ) in 2020. From the allocated funding in 2017-18 for R&D, 61.4 percent of the amount went to DRDO (31.6 percent), Departments of Space (19 percent), and Atomic Energy (10.8 percent) leaving around 37 percent of the allocated amount for general R&D agencies — ICAR, CSIR, DST, DBT, ICMR, etc., and only 0.9 percent to R&D in electronics, IT, and renewable energy. In most of the developed capitalist countries, defense-related R&D is undertaken by the private sector. In India, this expenditure is mostly borne by public funding. Therefore, the percentage contribution of the government to GERD should be higher.
Between 2011-12 and 2017-18, the number of universities/institutions increased from 752 to 1,016 and doctoral degrees awarded yearly from 10,011 to 24,474. The increase in the number of universities/institutions and the number of doctoral students is not commensurate with the meager increase in funding leading to deterioration in the standards of R&D work at the doctoral level. The situation is particularly grim in the universities that depend on the DST, DBT, ICMR and CSIR under their extramural support system.
Research and innovation at educational institutions in India, particularly those that are engaged in higher education, is critical. Evidence from the world’s best universities throughout history shows that the best teaching and learning process at the higher education level occurs in environments where there is a strong culture of research and knowledge creation.
While there is a huge need for innovative solutions, particularly those that alleviate poverty and improve inclusion metrics, India needs to be infrastructure-ready for innovations to flourish. Given the scale of the Indian market and its resource constraints, low-cost, high-impact solutions are the need of the hour. This requires a huge push from the government to make the Indian economy ready for its market to reach its full potential.
(Disclaimer: The opinions expressed here are those of the author)
