By Amit Kapoor
The objective of transforming India into a global hub for innovation has gained renewed momentum with a significant policy commitment—Rs 1 lakh crore dedicated to catalysing domestic research and development (R&D) and advancing national technological capabilities. The newly approved R&D and Innovation (RDI) scheme promises to offer long-term, low-cost capital to private enterprises working in strategic and emerging technologies such as semiconductors, artificial intelligence (AI), green energy, and quantum computing. Beyond the scale of the announcement lies a bigger question: Can this scheme shift India’s place in the global innovation race? For years, India’s ambitions to become a tech-driven powerhouse have run up against an enduring fact that the country spends just 0.64% of its GDP on R&D, far below global leaders like the US (3.5%), China (2.4%), and South Korea (4.8%). Moreover, unlike these nations where private industry drives over 75% of total R&D, only about 36.4% of India’s R&D spending comes from the private sector. This lopsided structure has limited the scale and commercial potential of Indian innovation. That is the gap the RDI scheme seeks to bridge.
The implications of this structural weakness extend far beyond domestic innovation; they directly shape India’s position in the global economy. In FY25, semiconductor imports exceeded Rs 2 lakh crore, continuing a sharp rise from Rs 1.71 lakh crore in FY24, with India still sourcing a majority of its chip demand from abroad. These chips are the backbone of everything from consumer electronics to defence systems. Import reliance here leaves India vulnerable to external shocks and geopolitical supply-chain disruptions. Similarly, India’s share in global private AI investment remains low despite its talent strength. According to Stanford AI Index Report 2024, while corporate AI investment reached $252.3 billion, India secured just over $1 billion, ranking 12th globally. These imbalances aren’t just economic, but they signal a strategic gap in domestic capacity. Through this scheme, India is making a strategic pivot from being a passive technology consumer to an active competitor in industries that will shape the global economy. The ability to innovate at home, rather than import critical technologies, is increasingly what defines national competitiveness in a world driven by control over supply chains, standards, and intellectual property (IP). Innovation is not limited to invention; it fuels productivity, job creation, and export competitiveness.
According to World Bank data, high-tech goods accounted for just 15% of India’s total merchandise exports in 2023, whereas in countries like China, the UK, and South Korea, they contribute over 25%. Hence, India’s goal to becoming a developed economy by 2047 cannot rest on services and consumption alone. It must deepen tech-driven manufacturing and scale up domestic innovation to move from assembling products to exporting core technologies backed by IP.
Realising the full potential of the RDI scheme will require swift, targeted, and efficient implementation. Delays in disbursing funds or selecting credible intermediaries could dilute its intent. The scheme must be backed by clear eligibility norms, time-bound approvals, and strong outcome tracking focused not just on spending but also on results like patents, pilots, and market-ready innovations. Equally important is physical infrastructure. Without access to advanced labs, testing facilities, and fabrication units, especially outside tier-I cities, innovation cannot scale up. Skilling, regulatory clarity, and deeper industry-academia collaboration must move in parallel. Capital alone will not build competitiveness; the ecosystem around it must be ready to absorb and accelerate innovation. India’s innovation trajectory will equally depend on the capacity of its regions to absorb and scale up new technologies. Achieving parity with leading innovation economies will require strengthening sub-national ecosystems alongside national efforts. According to the US-India Subnational Innovation Competitiveness Index by the Institute for Competitiveness and IT and Innovation Foundation, even India’s leading innovation hubs like Delhi, Chandigarh, and Tamil Nadu lag significantly behind US regions. Delhi, for instance, ranks nearly 38 points behind California, and no Indian region matches even the lowest-ranked US state in overall innovation capacity. While Indian regions perform relatively well in globalisation metrics such as foreign direct investment (FDI) inflows, the real gaps lie in R&D investment, talent density, and institutional support, which remain highly concentrated. The success of the RDI scheme will depend not only on national policy design, but also on how effectively it strengthens regional ecosystems ensuring that innovation infrastructure, funding access, and skilled manpower extend beyond a few urban clusters.
Major innovation economies provide useful benchmarks for India’s next steps. The US, through the National Science Foundation’s Technology, Innovation, and Partnerships directorate, links public research to commercialisation and industry partnerships. The European Union’s Horizon Europe programme channels about €93.5 billion (2021-27) into mission-driven R&D, with strong infrastructure and cross-border collaboration. China, meanwhile, embeds R&D in its industrial strategy by investing over 2.5% of GDP in R&D and driving sectoral dominance through targeted tech missions. India need not replicate these models, but it must internalise their core playbook—patient capital, strong infrastructure, and alignment between policy, research, and industry. The RDI scheme can be a turning point, but only if it is backed by the system that allows innovation to grow. By this, we mean that the scheme must be complemented by a supportive system that facilitates effective implementation and enables sustained innovation outcomes.
The RDI scheme reflects a strategic shift in India’s innovation outlook, recasting it from a scientific endeavour to a key pillar of economic competitiveness. Yet, its true value will not lie in the size of the outlay, but in whether it can build the ecosystems, institutions, and incentives that allow innovation to scale up. If India gets this right, it has a shot at not just catching up with global tech leaders, but shaping the frontier itself.
With inputs from Anandita Doda, researcher, Institute for Competitiveness.
The writer is chair, Institute for Competitiveness.
Disclaimer: Views expressed are personal and do not reflect the official position or policy of FinancialExpress.com. Reproducing this content without permission is prohibited.