We are a touchy people and we do not take kindly to criticism. Even with reiteration of well-known but undeniably uncomfortable facts that highlight shortcomings, we tend to be resentful. That is perhaps why the government’s chief economic adviser, V Anantha Nageswaran, chose to be circumspect when he wrote a two-part article in a national daily on the chronic reluctance of private industry to invest in research and development (R&D)—a failure which has resulted in a critical innovation deficit that is now threatening Indian industry’s survival. By choosing to dilate on the historical reasons why Indian industry has not bothered to invest in research that would have helped it to become globally competitive, Nageswaran appeared to be letting India’s industrialists off the hook, although he insisted he was in no way exculpating the R&D deficit. One is left wondering why Nageswaran was pulling his punches on the consequences of an egregious failure at a time when other nations are pushing the frontiers of technology at breakneck speed and ushering in innovations that are set to change the world forever.
It is an extremely critical moment for India. It had the potential to do much better but has been let down by its industrialists, who as a class are risk-averse, fixated on short-term profitability and preferred to import proven foreign technologies rather than fund capital-intensive, high-risk research that could have placed them in the vanguard of world-changing technological breakthroughs. True, the industry was cocooned for decades and until the opening up of the economy in 1991, it operated in a captive national market shielded by high tariff barriers that obviated the need for innovation to stay globally competitive. Nageswaran is right when he notes that this protectionist policy of the government created habits that still persist among most companies—there are honourable exceptions—when decisions had to be made on big-ticket investment in R&D.
However, when he cites the shadow of colonial deindustrialisation and the uncertainties of democracies and its competing pulls as other reasons for the country’s laggardly performance, Nageswaran is stretching the case too far. If these are tenable reasons, how do we explain the ability of countries such as Vietnam, Iran and Rwanda, which have gone through horrific wars and genocide, to do better? Vietnam fought a savage war of independence against colonial France and then faced a more brutal conflict with the world’s superpower, the US, for another 20 years. Democracies in other countries have been more turbulent and ravaged by conflict than India’s has been since Independence.
In this case, does stability kill the need to be competitive? Christophe Jaffrelot, a globally recognised French political scientist and sociologist who has specialised in the study of South Asia, India in particular, offers a more plausible reason for the poor performance of the country. India’s entrepreneurs, he says, were largely drawn from the “merchant castes who did not necessarily have an industrial culture, nor the taste for risk that was supposed to go with it”. It is natural for this class of entrepreneurs to stay focused on immediate returns and rapid growth especially when the cost of capital is high. Indian companies have by and large preferred not to invest in R&D because of the long time frame and uncertain outcomes. R&D is a hard grind, a painstaking step by step process that calls for commitment to long-term goals as companies in Japan, South Korea and Taiwan, among others, have demonstrated. On the whole, we lack that culture and grit.
Nageswaran’s analysis has provoked some straight talking. Naushad Forbes, co-chairman of Forbes Marshall which began its difficult R&D journey some 35 years ago when Narasimha Rao and Manmohan Singh opened up the economy to competition, says what is needed is more competition and not tariff barriers that continue to protect industry. There are far too many import restrictions “dressed up in fancy phrases” that insulate Indian industry. Referring to the country’s three largest conglomerates, the Tatas, the Ambanis and the Adani group, Forbes points out that each has committed thousands of crores for everything from semiconductors and petrochemicals to infrastructure and alternative energy, but their investment in technology— barring that by a handful of Tata firms—remains limited.
This is the unpalatable nub of India’s problem: the contribution of its entrepreneurs to the R&D spend is just 36 per cent, whereas it is over 70 per cent in leading economies. In many economies, business accounts for an overwhelming share of total R&D, says a World Intellectual Property Organisation (WIPO) report released at the end of 2025. Israel leads, with a stunning 93 per cent of its R&D financed by the private sector, which may not be surprising given its highly advanced economy and its high-income status. But how does one account for the 90.5 per cent in Vietnam, which like India, is classified as a lower-middle-income economy? The reason is that Vietnam has a dynamic, export-driven market economy that provides no tariff protection to its industry.
Overall, India’s ranking on the global R&D charts offers little comfort, although the country’s spending more than tripled from US $20.8 billion in year 2000 to $75.7 billion in 2024, says WIPO, with the caveat “if our estimates are correct”. This puts India among the top 15 R&D spenders, but way behind China whose expenditure soared almost 20 times from $40.7 billion to $785.9 billion. However, the figure that really matters is the intensity of the R&D expenditure as a percentage of the country’s GDP (gross domestic product). Here, India tumbles to the 55th spot because its spending is just 0.64 per cent of its GDP, a trough from which it has rarely risen, barring a brief period between 2005 and 2010. In recent years, much smaller economies, such as Rwanda, Egypt, Kenya, Tunisia and Iran figure much higher on the intensity scale, which reflects poorly on India.
More countries have realised that industrial sovereignty is indispensable now. That is why low-income country Rwanda is working on the goal of becoming an economy based on science, technology and innovation, and is ramping up its R&D budget. For India, there is a bigger consideration as it seeks to widen its sphere of influence. In an astute summing up, Nageswaran says the country’s capacity for strategic influence cannot be based on the state’s diplomatic skills alone. It also depends on boardroom decisions about R&D budgets and the willingness of the private sector to invest in building long-term technological capabilities.
This article was originally published in the July 1-15, 2026 print edition of Down To Earth