By Dhanendra Kumar, the writer is chairman, Competition Advisory Services India LLP
India needs a comprehensive strategy to infuse technology and R&D across industry and services, with particular emphasis on micro, small, and medium enterprises (MSMEs). A multidimensional thrust—including increased investment, testing and capacity building, regulatory reforms, cluster-driven innovation, and state-level competition—is essential for India’s economic transformation.
MSMEs are the backbone of India’s growth, contributing about 30% to GDP and half the exports, employing millions, and fuelling regional development. However, most units lack back-end processes like integrated supply chain and procurement, with only about 15% adopting Industry 4.0 technologies. This limits productivity, competitiveness, and exports.
The key challenges to technology and R&D infusion are as follows.
Low R&D investment: Although it is rising, India’s overall R&D expenditure is only 0.66% of GDP, according to World Bank—well behind developed economies that allocate over 1.5%.
Weak infrastructure and connectivity: Unreliable electricity, weak digitalisation, unreliable internet, and high implementation costs hamper adoption of advanced technologies.
Limited awareness and access: Many MSMEs are unaware of, or not able to access, government schemes that support technological upgrades.
India should take the following steps.
Expand R&D investment and incentives: Substantially increase public and private R&D investments to at least 1.5% of GDP, supported by states, applied R&D allied with national missions. Also, widen eligibility for patent box regimes and incentives to cover designs, models, and substantial intellectual property development to fuel innovation and foreign direct investment.
Strengthen industry-academia collaboration: Build more innovation hubs and sectoral research centres, leveraging university capabilities to nurture long-term R&D talent and bridge skill gaps. Secondly, foster joint applied research projects and technical training programmes tailored for MSMEs, with government funding and incentives for participation.
Enhance infrastructure and cluster-driven technologies: Upgrade cluster-based infrastructure: reliable power, high-speed internet, and shared modern equipment to ensure tech diffusion. Promote sector-specific “competence centres” to support all manufacturers in a sector, drawing lessons from Finland, Sweden, and Germany.
Financial innovation and digital access: Launch innovation vouchers, direct grants, and soft loans structured for MSMEs; strengthen fund-of-funds models to fill financing gaps across the innovation lifecycle. Scale up digital transformation schemes and create platforms for market linkages and logistics partnerships, especially for MSME clusters in high-growth states, linkages with IITs, academia, and marginalised regions.
State-level competition: Foster healthy competition among states with incentives, through robust monitoring, benchmarking, data integration, and adaptive MSME policies. Encourage stronger stakeholder engagement in policy design, ensuring feedback and course correction.
Export orientation and global integration: Mentor MSMEs on global quality standards, branding, modern packaging and marketing; support direct export assistance to new exporters and those exploring new markets. Catalyse MSME participation in global value chains via targeted infrastructure, R&D support, and global benchmarking against best practices.
Global best practices for technology and R&D adoption: These use structured support programmes, collaborative innovation, network-based sector clusters, and targeted financial incentives to drive innovation.
Innovation vouchers and R&D grants: Countries such as Austria, Canada, and Germany offer innovation vouchers—small, targeted grants that enable MSMEs to access research expertise or new technologies from chosen research institutions, academia or other companies. These countries also offer direct R&D funding and loans to support technology adoption, new product development, and process improvement within MSMEs.
Cluster-centric competence centres: Scandinavian nations like Finland and Sweden have established competence centres focused on tech diffusion and adoption within industry clusters. These centres provide MSMEs with access to advanced equipment, technical training, and collaborative space for joint R&D. They support sector-specific tech clusters that drive innovation adoption in MSMEs by pooling resources and expertise.
Joint R&D Consortia: Japan has pioneered “Kohsetsushi centres”, public R&D hubs where research personnel gain experience and develop technical skills while collaborating on innovation projects. These create opportunities for MSMEs to adopt new technologies, hands-on learning, and direct technology transfer.
Industry 4.0 tech integration: OECD MSMEs have adopted Industry 4.0 components such as big data analytics, IoT, AI, and blockchain to improve process efficiency, reduce costs, and drive sustainable performance, aided by national policy frameworks and tech-assistance schemes.
MSMEs, backed by entrepreneurship and government-academia association, can achieve transformative productivity, competitiveness, and export capability.
A shift from incremental improvements to an integrated strategy on a “mission mode”—with intra-state competition where districts and associations are roped in, besides recognition and rewards—can be critical. They could include: coordinated national/state-level programmes to address cluster-level barriers; leveraging digital platforms for skill-building, financial access, and market outreach; building institutional linkages to nurture next-gen innovators with data-monitoring; regular benchmarking against global best practices and feedback-driven reforms monitored at dashboards at central, state and district levels; and prioritising inclusive growth, ensuring marginalised regions/ sectors are integral to transformation.