State of R&D Spending in India

Source: The post State of R&D Spending in India has been created, based on the article “R&D: Why the private sector falls behind” published in “Business Standard” on 3rd August 2024 

UPSC Syllabus Topic: GS Paper3-Science and Technology 

Context: The article discusses India’s need for more research and development (R&D) spending. It highlights that India’s current R&D spending is low compared to other countries, partly due to limited competition in domestic markets and a lack of incentives for businesses. 

For detailed information on Issues with India’s R&D expenditure read this article here 

What is the Current State of R&D Spending in India? 

1. India spends only 0.65% of its GDP on research and development (R&D), significantly lower than countries like South Korea (4.8%) and China (2.4%).
2. The government contributes over 60% of total R&D expenditure, focusing on defense, space, agriculture, and nuclear research.
3. The private sector’s share in R&D has declined from 45% in 2012-13 to 40% in 2020-21.

What Factors Affect R&D Investment? 

1. Competitive Forces: Countries with higher exposure to global competition tend to invest more in R&D. For example, South Korea and Taiwan have high R&D spending because their firms face intense global competition.
2. Economic Structure: Resource-rich countries like Indonesia and Mexico spend less on R&D (0.28% and 0.3% of GDP, respectively), showing that R&D investment is influenced by the underlying economic structure.
3. Government Incentives: Though India offers R&D tax deductions, the benefits are limited. Micro, small, and medium enterprises (MSMEs) struggle with protecting intellectual property due to court delays.

Why Does India Need More R&D? 

1. India needs to invest more in research and development (R&D) to progress faster and more effectively. 
2. Innovation will play a key role if incomes are to quadruple in the next two to three decades while addressing inclusion and sustainability challenges.

Why Is India’s R&D Spending Low? 

1. A key reason is India’s low per capita income, which generally correlates with lower R&D investment.
2. Limited competition in domestic markets reduces the need for firms to invest in R&D.
3. High profit-earning ratios in India reduce the incentive for businesses to invest in uncertain R&D.
4. Cultural sentiment among Indian businessmen often favors short-term gains over long-term, uncertain R&D investments.
5. Protective market policies, such as high tariffs, lower the competitive pressure on firms, reducing their incentive for R&D.

What Could Drive More R&D in India? 

1. Increase Competitive Forces: More competition in domestic markets can push firms to innovate. High tariffs and non-tariff barriers currently protect firms, reducing their need to invest in R&D.
2. Encourage Global Market Participation: Firms that compete globally are more likely to invest in R&D. For example, South Korea and Taiwan have higher R&D spending due to their global market presence.
3. Reduce Market Protection: Reducing domestic market protection can compel firms to invest in R&D to stay competitive, as seen in other countries with higher R&D spending.

Question for practice: 

Examine why India’s current R&D spending is lower compared to countries like South Korea and China.