Is India Inc investing enough in research and development?

The original version of the article was published on 15th February 2023 in “The Daily Guardian”

The recently announced Union Budget 2023–24 has outlined an ambitious vision for India’s future: an economy driven by technology and knowledge. This vision has been driven by the fact that a country’s economic growth is linked directly to its investment in research and development (R&D). India has come a long way in the Global Innovation Index (GII) from the 81st spot in 2015 to the 40th spot in 2022. As per the World Intellectual Property Organization (WIPO), India’s strengths lie in the graduates from science and engineering and global corporate research and development. Although India only has around 250 scientists per million of the population, it still ranks highly in the number of research papers published and patent filings, as compared to some of its counterparts. However, despite the country’s strengths and the ability of investment in R&D to transform industries and lead economic growth, the country’s overall R&D expenditure continues to be low. Let us take a look at the Amrit Kaal budget and how it has allocated funding for R&D across sectors. We analyse whether this is enough to foster innovation and development in the country.

WHAT ARE THE ALLOCATIONS FOR R&D IN BUDGET 2023?

Finance Minister Nirmala Sitharaman presented the Union Budget 2023–24 in the parliament earlier this month. As per the budget, the allocation to the Ministry of Education stands at Rs 1,12,898.97 crore for the next financial year. The Union Budget 2023–24 has shown a significant increase in the allocation of grants to central universities, rising from last year’s revised estimate of Rs 11,034.32 crores to ₹11,528.90 crores this year. This is certainly a step in the right direction, especially since the country aims to increase R&D investment as part of its blueprint for India@100. The government has also made a significant investment in the Prime Minister Research Fellowship (PMRF) by increasing its allocation from Rs 200 crore in 2022–23 to Rs 400 crore in 2023–24. Additionally, the Ministry of Education has announced plans to establish three Centres of Excellence in educational institutions, with the goal of advancing the development of Artificial Intelligence (AI) in India.

Funding allocations for various industries to foster R&D have also changed in Budget 2023–24. The Indian government has allocated 0.36 per cent of its overall budget, which amounts to Rs 16,361 crore, to the Ministry of Science and Technology for the 2023–24 fiscal year, which is only slightly higher compared to last year’s allocation of Rs 14,217 crore. Experts point out that this slight increase in funding is insufficient to cover the cost of inflation and also does not address the issues of research scholars, who often do not receive promised funding and equipment on time due to bureaucratic red tape. The government has made a commitment to the development of the pharmaceutical industry by increasing the budget allocation to Rs 1,250 crore for the 2023-24 fiscal year, a rise of over 1100 per cent compared to last year’s budget of Rs 100 crore. R&D in the social science sector is largely government-funded in India, and the allocation for Institutes of Excellence in Humanities and Social Sciences has been raised to Rs 400 crores in the 2023–24 budget (an increase of over 38.72 per cent).

WHERE DOES INDIA STAND IN COMPARISON TO OTHER COUNTRIES IN R&D FUNDING?

While the government has taken a proactive stance by investing more in R&D, the Gross Expenditure on Research and Development (GERD) in India has remained stagnantat around 0.7 per cent, which is significantly lower than the global average of 2.63 per cent and even further behind other countries such as the United States (3.45 per cent) and China (2.4 per cent). NITI Aayog’s India Innovation Index 2021 showed that India’s gross expenditure on R&D is one of the lowest in the world. India performs far worse than its BRICS and ASEAN counterparts, Brazil, Malaysia, and Russia. Additionally, GERD in India is also showcasing a downward trend over the past few years. A decline in a country’s GERD could render a country unable to retain its human capital in the long run. Lower spending on R&D translates to fewer innovation opportunities, which might lead to people moving to other countries for better opportunities. This phenomenon is known as brain drain and severely affects any country’s

development and the overall economy.While the foreign direct investment (FDI) equity inflow to R&D in India has increased substantially over the past few years, India still needs to raise its GERD to the long-promised level of 2 per cent of its Gross Domestic Product (GDP). In 2019, the National Research Foundation (NRF) was founded to provide “merit-based and equitable peer-reviewed research funding to universities and public institutions.” While the budget allocation for the NRF has increased, there is a need to implement an allocation mechanism which ensures that funds reach recipients in a timely manner to help realise the primary goal of the NRF.

However, it should also be noted that despite having lower expenditure on R&D as compared to other countries, India has published more research papers than Russia, Brazil, South Korea, and others. The NITI Aayog report detailed that another major reason for the low spending on R&D in India is that investments in the sector take a long time to show results. The report goes on to detail that in a country like India, there are often “bigger issues such as hunger, disease control and raising quality of life,” which often take centre stage and resources are diverted towards the same.

IMPROVING INDIA’S R&D EXPENDITURE: PATH FORWARD

Economic growth, development, and output cannot be improved without technological development and innovation. India needs to expand its scientific base for research while also enhancing the overall innovation ecosystem in the country to help improve its innovation and research standing. India has assumed the presidency of the G20, the intergovernmental forum of the world’s 20 major developed and developing economies, which offers the country the prime opportunity to establish its credibility as a leader of R&D and innovation. Industry insiders and experts recommend establishing a mandate for industry spending on R&D. If a mandate is established requiring industries to allocate a portion of their profits towards R&D in academic institutions, it will encourage innovation and cross-disciplinary collaboration between academia and industry. There is also a need to align the goals between the various ministries in the country and their corresponding academic departments so that funds, resources, and projects can be worked on in a more collaborative manner. Additionally, it is imperative to remember that the key to innovation is creating value from knowledge. Until the qual- ity of the educational institutions in the country is improved, particularly for higher education, the quality and speed of innovation in the country will not improve substantially. Investing in research and development creates a strong foundation for future economic development, while also helping improve the quality of life of people by addressing the most pressing societal challenges.

Shreya Maskara/New Delhi
From Polstrat, a non-partisan political consultancy which aims to shift the narrative of political discourse in the country from a problem-centric to a solutions-oriented approach. Read more about Polstrat here. Follow us on Medium to keep up to date with Indian politics.