India’s innovation gap can be seen in the financial numbers of Indian companies

The data, however, suggests that India’s innovation shortfall is fundamentally an industry story. What distinguishes India from global technology leaders is not an absence of policy intent, but the reluctance of corporates to invest meaningfully in research.

The recent CTIER Handbook on Technology and Innovation in India 2025 brings out a few critical aspects of India’s innovation landscape.

First, India’s R&D expenditure remains structurally low. In 2023, it stood at 0.6% of GDP, the lowest among major innovation economies, and has been stuck in a narrow 0.6–0.9% band for more than three decades.

Over the same period, peer economies have steadily intensified their commitment by gradually scaling up R&D investments. Israel and South Korea consistently spend over 4% of GDP on R&D, the US exceeds 3.5% and China has raised its R&D intensity to around 2.6%, reflecting sustained policy and industry commitment to tech leadership.

Second, India’s R&D ecosystem is heavily dependent on the government. In 2023, the public sector accounted for 55% of total R&D expenditure, while industry contributed just 36% and higher education 9%. This contrasts sharply with global patterns. Industry finances roughly 75–80% of R&D in the US and China, over 70% in South Korea and Germany, and close to 80% in Israel, underscoring the centrality of corporates in advanced innovation.

Third, recent trends are particularly concerning. Industry’s share of India’s R&D has fallen from 41% in 2018 to 36% in 2023, even as higher education’s share rose modestly from 7% to 9%. India’s industrial R&D expenditure in 2023 was under $7.4 billion. As a stark contrast, Nvidia, which is ranked 26th among the world’s top 2,500 R&D spenders, spends nearly as much as all of India’s industry on R&D, while Alphabet, the top global R&D spender, spends almost five times that sum.

Thus, at a time when corporate-driven R&D is driving frontier innovation globally, India’s weakening industrial research effort signals a growing risk to long-term competitiveness.

The pattern of industrial R&D spending in India points to a strong concentration rather than broad-based technological diversification. Corporate research investment is largely confined to a limited set of sectors such as pharmaceuticals, automobiles, oil and gas, and software services.

The first two of those together account for more than half our total industrial R&D expenditure, reflecting areas where firms benefit from established production strengths, regulatory familiarity and incremental innovation.

By contrast, Indian industry invests relatively little in sectors that anchor global R&D activity, including electronic and electrical equipment, healthcare technologies, advanced manufacturing and industrial engineering.

This narrow focus has consequences. In 2023, as the handbook reports, 827 US and 679 Chinese corporates featured among the world’s top 2,500 R&D spenders. India had just 22 corporates in that list. More telling is the sectoral absence.

Strikingly, Indian corporates are missing from six of the ten most R&D-intensive global sectors, including electronic equipment and healthcare technology. Even where Indian corporates are present globally, such as in pharma, their R&D intensity remains below that of their international peers.

The behaviour of large Indian corporates further underscores this pattern. The top 100 R&D spenders account for nearly 78% of all industrial R&D in India, indicating a highly concentrated research landscape.

Beyond a small group of conglomerates and established manufacturers, R&D spending drops off sharply. Many profitable Indian corporates with global revenues invest little in in-house research, relying instead on imported technology, licensing or incremental process improvements.

The handbook also highlights that India’s innovation constraints are evident across the talent, research and intellectual property pipeline. In 2022, India had just 260 full-time researchers per million people, far below China’s 1,849 and the US’s 4,825, and trailing all comparable economies, with South Korea (9,435) and Taiwan (9,200) at the global frontier.

While India performs better in doctoral output, producing 21,232 science and engineering PhDs in 2023, the third highest globally, this scale has not translated into high-impact research. India ranked fifth globally in publications, contributing 714,016 papers (5% of global output) during 2019–23, yet records among the lowest citation impact scores across peers.

Weak industry linkages compound this gap as only 1% of publications involve industry collaboration, compared with over 6% in Japan and Germany, while international collaboration remains modest at around 30%. Patent data shows some progress.

Resident filings exceeded non-resident applications at the Indian Patent Office in 2023, reversing earlier trends, but the scale remains well below China’s local innovation system.

India’s innovation gap is visible in corporate balance sheets, sectoral choices, the global absence of our firms from frontier technologies and quality research. India generates a large number of start-ups, but relatively few are built on proprietary hardware, advanced materials or complex engineering capabilities.

Recent initiatives such as the Anusandhan National Research Foundation, India AI Mission, and the $12 billion Research, Development and Innovation fund reflect a recognition of this imbalance. Their success, however, will depend on whether they can reshape corporate behaviour rather than merely add incremental funding.

India’s binding constraint is not capital availability, but risk appetite. Closing this R&D gap will require a decisive change in how Indian industry approaches research. Until R&D is recognized as the foundation of long-term competitiveness, this equilibrium is unlikely to shift. That, in turn, requires far deeper and more systematic collaboration between industry and academia to generate commercially relevant, patentable innovations.

Unless R&D is internalized as the bedrock of long-term competitiveness rather than an optional adjunct to growth, this deficit will persist.

The author is professor, Madras School of Economics.