R&D Underspending in India: Systemic & Cultural Roots

12 Jun R&D Underspending in India: Systemic & Cultural Roots

Posted at 12 Jun 2026 in Current Affairs by Ayush Ranjan 0 Comments

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This article covers “Daily Current Affairs”

SYLLABUS MAPPING : GS Paper 2 , 3 : Governance , Economy , Science and Technology

FOR PRELIMS : GERD, ANRF, GII, DSIR, DST, DPIIT, CSIR, DRDO, ISRO,

FOR MAINS : The Anusandhan National Research Foundation (ANRF) — with ₹50,000 crore and the Prime Minister as Governing Board Chairman — is India’s most ambitious R&D reform in decades. Yet only 15% of the previous year’s R&D budget was utilised. Examine the institutional bottlenecks that prevent India from effectively deploying its R&D budget, and suggest governance reforms to ANRF’s design that can improve fund utilisation, bridge the lab-to-market gap, and incentivise private sector R&D investment in India.

Why in the News

V. Anantha Nageswaran — India’s Chief Economic Adviser and one of the country’s most respected economists — penned a two-part series in The Indian Express (June 2026) arguing that India’s R&D underspending is not primarily a funding problem but a structural and cultural pathology. Key data points: India’s Budget 2026–27 allocated ₹20,000 crore to the R&D and Innovation fund — but only 15% (₹3,000 crore) of the previous year’s allocation was utilised; India’s GERD at 0.64% of GDP vs China’s 2.43%, USA’s 3.4%, Israel’s 5.6%, and South Korea’s 4.8%. The CEA cited William Lazonick’s Harvard Business Review research showing that between 2003 and 2012, 449 companies in the S&P 500 spent 54% of earnings on buybacks and 37% on dividends, leaving little for R&D. India’s corporate sector replicated this financialisation before developing manufacturing depth — a critical mistake. The article appeared alongside news that Union Budget 2026–27 allocated ₹20,000 crore to the newly established Anusandhan National Research Foundation (ANRF) — India’s $10 billion, 5-year attempt to transform its R&D landscape — yet utilisation bottlenecks remain the primary challenge.

0.64%

India’s GERD as % of GDP — vs 3.4% USA, 2.43% China

15%

Utilisation of India’s R&D Budget allocation (previous year)

$71B

India’s total R&D spend vs China’s $700B annually

40th

India’s rank — Global Innovation Index 2024 (WIPO)

54%

S&P 500 earnings spent on buybacks — Lazonick research (2003–12)

GERD Comparison — India vs Global Leaders

Gross Expenditure on R&D (GERD) as % of GDP — 2024 estimates

🇮🇱 Israel

5.6% — World Leader

5.6%

🇰🇷 S. Korea

4.8%

🇺🇸 USA

3.4%

🇩🇪 Germany

3.1%

🇨🇳 China

2.43%

🌏 OECD avg

2.2%

🇮🇳 India

0.64%

0.64% ⚠

Sources: OECD, DST India, World Bank 2024. India’s target: 2% of GDP by 2047 (Viksit Bharat).

Root Causes — Analytical Framework

🏪 1. Captive Domestic Market

India’s vast, protected domestic market allows firms to generate profits without world-class innovation. Export competition — the primary driver of R&D investment globally — is largely absent for most Indian firms. Why develop a better product when the existing one sells readily at home? CEA cites this as the most structurally respectable explanation.

💰 2. Financialisation of Corporates

India’s corporate sector underwent financialisation — shift from productive investment to financial return — before it developed manufacturing depth. India’s S&P 500 equivalents spend on buybacks and dividends rather than R&D. Lazonick: maximise shareholder value = maximise short-term stock price = suppress R&D. Executive stock options amplify this perverse incentive.

🏛 3. Colonial De-industrialisation

Colonial suppression of India’s textile industry and manufacturing communities re-oriented Indian enterprise toward commerce, intermediation, and arbitrage rather than production and innovation. The few families that retained/rebuilt manufacturing identity are evidence of what might have been — India’s manufacturing culture was systematically destroyed and never fully rebuilt.

🏢 4. Bureaucratic Inertia

Only 15% of the R&D budget was utilised in FY25–26 — proving the problem is not insufficient funding but institutional bottlenecks. Delays in appointing fund managers, rigid procurement processes, administrative compliance burden, and risk-aversion in public labs (CSIR, DRDO, DST departments) create structural underutilisation.

📚 5. Weak Industry-Academia Link

India produces massive research output (3rd largest in publications) but the “lab-to-market” translation gap is enormous. Academic research rarely becomes commercial technology; patent filing rates from universities are negligible; technology licensing revenues near zero. University-industry collaboration is structurally absent unlike in USA (Bayh-Dole Act model) or China (National Universities of Technology).

🧠 6. Cultural Factors

CEA notes cultural biases: risk aversion — Indians historically prefer safe government jobs; hierarchical epistemology — cultural deference to established knowledge over questioning; quick returns preferred — R&D’s 10–15 year payoff horizon conflicts with short-term profit culture. Democracy and uncertainty also make long-term R&D commitments structurally harder in polities seeking short-term political returns.

India’s R&D Ecosystem — Key Institutions & Initiatives

Institution / Scheme	Nature & Function	Key Issue / Current Status
ANRF (Anusandhan National Research Foundation)	Established by ANRF Act, 2023; India’s apex body for R&D funding. 5-year, ₹50,000 crore ($10B) programme. Chaired by PM; governs research strategy across STEM and humanities. Modelled on NSF (USA) and NRF (South Korea).	Only 15% utilisation of allocated funds in FY25–26; bottlenecks in fund manager appointments (only BIRAC and TDB empanelled); institutional architecture still being built
CSIR (Council of Scientific & Industrial Research)	Network of 37 national laboratories under DSIR; key focus on applied research — drugs, aerospace, mining, food. Has delivered strategic gains (Covaxin platforms, materials)	Commercialisation of research remains weak; lab-to-market translation poor; funding heavily public; private sector collaboration limited
DRDO (Defence R&D Organisation)	Primary defence technology developer — Agni missiles, Arjun tank, Tejas LCA, BrahMos (joint). Budget ~₹23,000 crore (2026). Provides strategic autonomy in defence.	Civilian spillover from defence R&D is limited; DRDO budget absorption has improved but time-to-deployment remains long; private sector now allowed into defence R&D (2020 reforms)
DST (Department of Science and Technology)	Apex body for S&T policy; funds individual research grants, fellowships (INSPIRE, SERB), and technology incubators; coordinates international R&D cooperation	Only 61% budget utilisation (2022–23); grant disbursement delays; project completion rates low; gap between sanctioned and released funds
DSIR / DPIIT — R&D tax incentives	DSIR certifies industry R&D labs for 150% tax deduction on R&D expenditure; DPIIT manages DESH/PLI schemes that incentivise manufacturing R&D	Tax incentive uptake low — Indian companies still prefer dividends/buybacks; PLI schemes are production-linked, not specifically R&D-linked
National IPR Policy (2016) + Startup India	Aims to boost patent filing and commercialisation; Startup India provides R&D-oriented startups with tax exemptions (3 of 7 years), faster certification, and incubation support	India’s patent filings improving (90,000+ in FY24) but still ~1/10th of China’s; most patents by foreign entities; domestic innovation patents remain low

Global Models for R&D Investment — What India Can Learn

China’s R&D Model — Lessons & Risks

China’s GERD: $700 billion annually — nearly 10× India’s $71 billion — enabling dominance in AI, semiconductors, EVs, and biotech within 20 years
State-directed R&D investment through 5-year plans with mandatory R&D targets for state-owned enterprises; 5% of revenue to R&D mandated for key industries
Made in China 2025 — forced technology transfer, massive subsidies for domestic firms in 10 strategic sectors; now leading globally in EVs (BYD), solar panels, 5G (Huawei)
National Universities of Technology — direct industry-academia pipelines; university IP commercialisation deeply embedded in Chinese university incentive structures
Risk for India: China’s model involves non-market practices (WTO-incompatible subsidies, IP theft allegations) that India cannot/should not replicate; but the scale of ambition is instructive

USA, Israel & South Korea — Structural Lessons

USA — Bayh-Dole Act (1980): Allowed universities to own IP from federally-funded research → catalysed Silicon Valley; universities licensed technology to spin-offs → Google, Genentech, many others emerged. India has no equivalent
Israel — 5.6% GERD/GDP; mandatory R&D investment by defence contractors (similar to USA’s DARPA model); Unit 8200 (military intelligence unit) alumni found most successful tech startups; military-to-commercial technology transfer pipeline
South Korea — Chaebol model: Samsung, LG, Hyundai mandated by government to invest heavily in R&D as condition for market protection; Korean firms now global technology leaders
Common thread: export competition drove R&D investment in all three countries; CEA’s point — India needs to create the same export-competitive pressure

The Financialisation Problem — CEA’s Core Argument Explained

What is Financialisation?

When corporations shift priorities from productive investment (R&D, capex, hiring) to financial returns (buybacks, dividends, M&A) — this is financialisation
USA’s Lazonick (HBR): S&P 500 companies spent 54% of earnings on buybacks + 37% on dividends (2003–12) → only 9% for everything else including R&D
“Maximise Shareholder Value” doctrine — optimising short-term stock price → suppresses long-horizon R&D (5–10 year payoff) in favour of quarterly earnings
Executive stock options tie CEO pay to share price → CEOs rationally prefer buybacks (boost share price immediately) over R&D (uncertain, long-term)
India replicated this problem before reaching the manufacturing depth that Germany, Japan, or Korea had when they financialised — making India’s situation structurally more dangerous

Private Sector Dominance in Global R&D vs India

Global norm: Private sector (industry) contributes 70–75% of a country’s GERD; government contributes 25–30%
India’s split: Government: 60%, Private: 40% — completely inverted. Indian corporates are under-investing in R&D relative to their global peers
In USA, Germany, Japan, Korea: top firms (Apple, ASML, Toyota, Samsung) each individually spend more on R&D than many small countries’ entire GERD
India’s top spenders: TCS, Infosys, Sun Pharma — primarily service/pharma R&D; manufacturing sector R&D extremely weak
The PLI schemes are production-linked, not specifically R&D-linked; may build manufacturing capacity without building innovation capability

Critical Perspectives

Opportunities & Bright Spots

ANRF (2023) is structurally the right response — modelled on NSF/NRF, apex R&D governance, ₹50,000 crore over 5 years; if institutional bottlenecks are resolved, it can transform India’s research landscape
India is 3rd largest in research publications globally (2024) — the talent and intellectual capacity exists; the challenge is converting publications into patents and commercial technology
Semiconductor Mission, Green Hydrogen Mission, Space Privatisation — create sectoral R&D anchors; if these missions succeed, they can kickstart innovation culture in specific high-tech domains
India’s startup ecosystem (3rd largest globally) has shown innovation capability — Zomato, CRED, Zerodha, Meesho are technology innovators even if not deep-tech R&D companies

Structural Barriers Remain Formidable

Money without reform doesn’t work — ₹20,000 crore budgeted, ₹3,000 crore used; the problem is institutional plumbing not fiscal allocation; giving more money to broken institutions produces more waste
Import dependence entrenched — India’s large firms find it cheaper to license technology from global leaders than to invest in domestic R&D; import substitution without R&D investment is a temporary fix
Brain drain unaddressed — India’s best researchers continue to migrate to USA, UK, Germany for better research infrastructure, higher salaries, and intellectual freedom; ANRF cannot compete with MIT or Stanford unless institutional culture changes fundamentally
Democracy-R&D tension — CEA’s provocative point: in a democracy with a large, diverse, uncertain electorate, long-horizon R&D investment is structurally harder to sustain across electoral cycles than in authoritarian systems (China)

Way Forward

Fix ANRF’s institutional plumbing first: The ANRF’s 15% utilisation rate signals institutional bottlenecks must be cleared before throwing more money. Immediately empower more fund managers beyond BIRAC and TDB; adopt DARPA-inspired programme manager autonomy; use milestone-based disbursement rather than compliance-driven releases.
Bayh-Dole equivalent for India: Enact a Technology Innovation and Patent Act that allows Indian public-funded universities and research institutes to own, patent, and commercialise their IP — creating the university spin-off ecosystem that produced Silicon Valley. Currently, IP from publicly funded research often reverts to the government with no commercialisation pathway.
Export competitive pressure on firms: India must use FTAs, trade missions, and PLI’s export obligations to drive Indian firms into export markets — where they will face quality and technology competition that forces R&D investment. The CEA’s captive market thesis implies the solution is reducing domestic market protection for incumbent firms.
Reform executive compensation: SEBI should restrict excessive stock buybacks by companies that spend below a minimum R&D-to-revenue threshold (say, 3% for manufacturing companies). Link CEO long-term incentive plans to R&D output metrics (patents, products commercialised) rather than purely to share price performance.
Military-to-commercial R&D pipeline: India must deliberately create a DRDO/defence-to-civilian technology spillover mechanism — on the Israeli/US model. Declassifying and commercialising defence R&D outputs (materials, radar, communications, cybersecurity) through DPIIT-facilitated licensing can jumpstart civilian innovation at low marginal cost.
Reverse brain drain with competitive research environment: ANRF fellowships and research chairs must offer globally competitive compensation, guaranteed 5-year research autonomy, and international collaboration rights. India’s diaspora (IITs-in-USA) must be actively recruited back with “Vaapsi” (return) incentive packages — following Denmark’s and South Korea’s successful brain-gain models.

Prelims Practice Question

Consider the following statements regarding India’s research and development (R&D) ecosystem and related institutions:

1. India’s Gross Expenditure on R&D (GERD) as a percentage of GDP has remained consistently below 1%, while the global average among OECD nations is approximately 2.2%.
2. The Anusandhan National Research Foundation (ANRF), established under the ANRF Act 2023, is chaired by the Prime Minister of India and is India’s apex body for funding and promoting scientific research across disciplines.
3. In India’s R&D funding pattern, the private sector (industry) contributes approximately 70% of total R&D expenditure — consistent with the global norm where private industry dominates R&D investment.
4. The Global Innovation Index (GII) is published annually by the World Intellectual Property Organization (WIPO) and ranks countries on innovation inputs and outputs.

(A) 1, 2 and 4 only
(B) 2, 3 and 4 only
(C) 1 and 4 only
(D) 1, 2, 3 and 4

✅ Correct Answer: (A) — 1, 2 and 4 only

Statement-wise Analysis:

Statement 1 — CORRECT: India’s GERD has remained below 1% of GDP — currently approximately 0.64% (2024). This compares unfavourably with the OECD average of ~2.2%, China’s 2.43%, USA’s 3.4%, and Israel’s 5.6%. Despite several policy interventions, India’s R&D investment as a share of GDP has been stagnant for over a decade — reflecting structural, not merely fiscal, challenges.

Statement 2 — CORRECT: The ANRF (Anusandhan National Research Foundation) was established under the ANRF Act, 2023. It is governed by a Governing Board chaired by the Prime Minister, with a separate Executive Council for day-to-day operations. ANRF is tasked with seeding, growing, and promoting R&D across STEM and humanities — modelled on the NSF (USA) and NRF (South Korea). It has a proposed 5-year budget of ₹50,000 crore ($10 billion).

Statement 3 — INCORRECT: This is the opposite of India’s actual situation. Globally, private industry contributes ~70–75% of GERD — but India’s split is inverted: Government contributes ~60% and Private sector only ~40%. This is a critical structural weakness — India’s private sector significantly underinvests in R&D relative to global peers. CEA Nageswaran’s article specifically cites financialisation as the reason Indian corporates prefer buybacks and dividends over R&D investment.

Statement 4 — CORRECT: The Global Innovation Index (GII) is published annually by the World Intellectual Property Organization (WIPO) in partnership with INSEAD and Cornell University. It ranks countries on 80+ indicators covering innovation inputs (institutions, infrastructure, market sophistication) and outputs (knowledge, technology, creativity). India ranked 40th in GII 2024 — above all BRICS nations except China.

Mains Practice Questions

“India’s R&D underspending is not primarily a fiscal problem — it is a structural and cultural pathology rooted in colonial de-industrialisation, the financialisation of corporate India, and a captive domestic market that insulates firms from competitive pressure.” Critically examine Chief Economic Adviser V. Anantha Nageswaran’s diagnosis of India’s R&D crisis. What institutional, policy, and cultural reforms are needed to move India’s GERD from 0.64% to 2% of GDP by 2047 as required for Viksit Bharat?