Innovation drive

THE Government has hit the nail on the head with its decision to create a research and development (R&D) innovation corpus of a reasonable size in the public sector, and let the private sector leverage it. The industry has promptly welcomed the ₹1 lakh-crore Anusandhan National Research Foundation, and especially lauded its two-tiered structure involving second-level fund managers.

In a capital-scarce country, where allocations of even the available funds are heavily skewed, and often help entrench market concentrations, R&D has never got a head-start. Though India was aptly placed for making rapid strides in labourintensive manufacturing for long years, the actual accomplishment has been suboptimal. Policies that safeguarded profitability of upstream players at the cost of the downstream value chain, low labour productivity, and logistical constraints prevented the country from winning its spurs.

India is now betting big on capital- and techintensive manufacturing and seeks to catapult itself to high-end services, while still extending some support to production processes where labour content could remain high. It has set tall targets to become a major global player in sunrise domains, besides eyeing digital economy.

A lot of emphasis is laid on indigenous defence production too. Yet, established private players, except a few, would still seek short-term profitability and market dominance, rather than put capital in risk-borne innovation ventures. Even now, just 0.6-0.7 pc of the country’s GDP is spent on R&D, as against China’s 2.4 pc and Israel’s 5.4 pc, both comparable being in the emerging-market-economies’ club. Also, India has had only moderate success in using foreign direct investment as a means to acquire technology, where China and many others have enviable track records. A recent Niti Aayog paper noted how China’s R&D spending of nearly $500 billion in 2024 ‘dwarfed’ India’s sub-$100 billion. The gap, according to other estimates, is even bigger, but the report correctly highlighted that India’s approach to innovation and research also remained “diffused”, and yielded few commercial outcomes.

This is one reason why the manufacturing sector has ceded share in the GDP in recent years. India has a measly share of 2.8 pc in global manufacturing now, compared to China’s 29 pc. In a recent interview with FE, Finance Minister Nirmala Sitharaman observed that while labour-intensive units are being given policy support, the choice is no longer a simple one – between labour and capital. The boundary lines are becoming thin as traditionally labour-intensive sectors are getting automated at a fast pace. The minister also highlighted how “old silos” are expanding horizontally, and the labour markets have turned fluid in the process.

Given that India’ labour market indicators aren’t keeping pace with the per capita GDP, the feasibility of sustainable rapid expansion of the economy will require a more dispersed income profile. The Fund of Funds scheme for start-ups has helped bolster India’s entrepreneurial ecosystem. Like infrastructure and start-up funding, R&D and innovation, too, require specialised, patient funds. The success of the new R&D corpus in the Government sector will hinge on objective and efficient allocation of funds to the deserving units, and enhanced academia-industry ties. It must be ensured that the corpus encourages the corporate sector to pitch in with much higher funds. The beneficiary pool must be broad-based, rather than being restricted to creamy layer of Corporate India.

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