India’s ambition to become a global manufacturing power will not be secured by scale and low costs alone. It needs industrial research and development. Yet India’s industrial R&D spending remains close to 0.2% of GDP. That is too low for an economy that wants to move beyond assembly, protect jobs, raise exports, and build competitive small and medium enterprises.
India’s gross expenditure on R&D is just 0.66% of GDP. South Korea spends about 5%. China spends about 2.6%. The gap shows up in outcomes. South Korea and China ranked sixth and eleventh in the 2024 Global Innovation Index. India ranked 39th. India’s share in global manufacturing exports remains modest at about 1.7%.
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The target is not abstract. Higher R&D intensity can help lift manufacturing’s share in GDP from 17-18% towards 25-30%. It can also create high-skill jobs and move firms into higher-value production. Without that shift, India will remain exposed to price competition.
Industrial R&D and SME competitiveness
SMEs employ about 120 million people, contribute nearly 30% of GDP, and account for almost half of India’s exports. They are also the weakest link in India’s innovation chain.
Annual Survey of Industries data show that R&D intensity among SMEs in high-tech sectors fell from 1.9% in 2015-16 to 0.7% in 2021-22. Large firms moved in the opposite direction, from 1.34% to 1.68%. Large firms now account for roughly three-fourths of organised manufacturing R&D.
This has consequences. Large firms invest in biotechnology drugs, advanced antimicrobials, engineering goods, defence systems and aerospace. They have also increased new product launches, with gains of about 8.5% in low-tech segments and 19.4% in high-tech segments.
SMEs remain concentrated in incremental products: generics, consumer electronics, and less sophisticated equipment. Their new product launches are largely stagnant. Without affordable R&D support, they risk being locked into low-value production. That would hurt employment as much as competitiveness.
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Industrial R&D intensity remains too low
Industrial R&D spending doubled between 2015-16 and 2022-23. But R&D intensity fell from 0.58% to 0.35%. That is far below the 1% benchmark India should aim for.
Most spending goes into operational improvements and process tweaks. That may raise efficiency. It does not build technological depth.
The sectoral pattern is also narrow. Pharmaceuticals account for about half of industrial R&D. This has helped India in generics and vaccines. But defence, electronics, semiconductors, and medical devices remain weak, despite Make in India and Production-Linked Incentive schemes.
Passenger cars show another warning sign. Even as India pushes electric mobility, R&D in the sector has declined. Production incentives cannot compensate for weak technology investment.
Patent filings show progress, not depth
Patent filings rose from 46,904 in 2015-16 to about 93,000 in 2023-24. Grants rose from 13.5% to 45.3%. Computers, electronics, biomedical engineering, chemicals and pharmaceuticals drove much of this increase.
But the quality divide remains visible. Chemicals have a grant rate of about 82%. Complex areas such as computer electronics and biomedical technologies have much lower grant rates, at about 15.8% and 18.6%. That suggests higher scrutiny and greater technological difficulty.
Small entities and start-ups now account for 6.6% of patent filings, up from 1.5%. That is encouraging. It is still too small to shift the industrial base.
R&D policy needs better execution
The Anusandhan National Research Foundation and the Research Development and Innovation 2025 scheme are meant to raise private R&D in artificial intelligence, semiconductors, green energy and other strategic sectors.
The test will be execution. Funding must be easier to access. Industry-academia links must be real, not ceremonial. Corporate participation must rise. Outcomes must be tracked.
SMEs need a separate route. Tax incentives, low-interest R&D loans, shared testing facilities, and grants for high-tech sectors should be designed around their limits. A small firm cannot use the same R&D instrument as a large conglomerate.
PLI schemes also need a sharper design. They should reward R&D in electric vehicles, semiconductors, medical devices and defence. Production alone will not create technological capability.
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India needs reliable industrial R&D data
India’s R&D data are fragmented. The Department of Science and Technology and CMIE Prowess tend to capture larger firms or units registered with DST. ASI data show that 78.7% of R&D units operate outside DST’s scope. These units account for 62% of industrial R&D spending.
This is not a statistical footnote. Poor data lead to poor policy. The Prime Minister’s Advisory Council flagged measurement issues in 2019. A standardised industrial R&D database is still missing.
India needs a centralised R&D registry that tracks spending, sectors, firm size, patents, product launches and outcomes. Without it, policy will continue to support the visible firms, not necessarily the innovative ones.
India’s manufacturing strategy needs an innovation base. The immediate goal should be to raise industrial R&D intensity to 1% through public-private partnerships, matching funds and SME-focused support. The ANRF should include industry input and publish outcome metrics.
Manufacturing ambition will falter if India builds factories without research capacity. Scale can win contracts. Innovation sustains them.
Shailender Kumar Hooda serves as faculty member at Institute for Studies in Industrial Development (ISID), New Delhi.