Source: The post Firms must lead India’s innovation growth path has been created, based on the article “Innovation needs the right firms” published in “Business Standard” on 17th July 2025
UPSC Syllabus Topic: GS Paper3-Science and Technology–indigenization of technology and developing new technology.
Context: The Union Cabinet has approved the ₹1 trillion Research, Development and Innovation (RDI) Scheme to boost industry-led R&D in India. With ₹20,000 crore allocated in this year’s budget, the scheme aims to correct India’s historically low private sector investment in innovation and establish a globally competitive innovation ecosystem.
For detailed information on India must strengthen research to boost innovation read this article here
Why Firms Must Be the Core of Innovation Strategy
- Firms as the Heart of Innovation: Globally, innovation primarily occurs within firms. Models like the Kline chain-linked model show that design, market linkage, and distribution—central innovation activities—are firm-based, with public research acting as input, not the core.
- Systemic Failure Due to Low Industrial R&D: Even if public research and funding mechanisms are perfected, poor firm-level innovation derails national progress. Thus, any innovation-focused policy must directly engage with firms, rather than intermediaries like “funds of funds”.
- Driving National Innovation through Firm Investment: To invigorate the national innovation system, firms must develop proprietary technologies, invest more in R&D, and commercialize
innovations at global scales. The RDI scheme is expected to serve this purpose if funding flows directly to firms.
Targeting the Right Firms for Maximum Impact
- Current Low R&D Investment by Indian Firms: Indian industry invests just 0.3% of GDP in in-house R&D versus the global average of 1.5%. Top Indian firms spend only 2% of their profit on R&D, in contrast to 29–55% among global peers. Many key technology-intensive sectors see no Indian presence.
- Absorptive Capacity as a Selection Criteria: Since much of Indian industry lacks the capacity to absorb a large funding boost, the scheme should target firms already R&D-intensive—those investing at least half as much as their international peers. These firms exist in sectors like pharma, auto, chemicals, and defence.
- Data-Driven Identification of Eligible Firms: Top 300 R&D investors in India, ranging from ₹16 crore to ₹297 crore in annual R&D spending, form a realistic target group. These firms can quickly scale efforts if provided with direct, generous funding.
Designing Performance-Based Incentives
- Encouraging Rapid Expansion of R&D Teams: Funded firms should be required to increase R&D personnel by at least 50% within a year to qualify for successive tranches. Firms expanding by less than one-third should be excluded from further rounds.
- Promoting Investment in Intermediate TRL Zones: Firms should deepen their innovation by investing in TRL 4-6 levels, bridging academic research (TRL 1-3) and product development (TRL 7-9). This “deepening” will foster proof-of-concept development for future innovations.
- Need for Transparent Metrics: To ensure effectiveness, objective TRL-based evaluation metrics must be developed. This would keep firms accountable and aligned with the scheme’s goals of fostering deeper R&D.
Way forward
- Setting a National Benchmark: India currently has no firm matching global leaders in both R&D intensity and volume. In five years, over 100 Indian firms should meet these benchmarks, demonstrating scalable innovation excellence.
- Creating Role Models for Wider Transformation: These leading firms will serve as examples for others, gradually transforming the Indian industrial landscape into a robust, innovation-driven economy.
Question for practice:
Examine how the recently approved RDI Scheme can transform India’s industrial innovation ecosystem and what challenges need to be addressed for its successful implementation.
