India’s innovation quagmire

Has the sheen of deep technology worn off for the Narendra Modi government? Why is it holding back critical support for promising deep-tech startups at a time when India is finding it harder to play catch-up with the frontier technologies that are remaking the world? And is it finally getting tired of coddling the corporate sector, which has shown itself impervious to the urgent need for innovation? These questions emerge from the rather curious developments in recent weeks over research and development (R&D) funding and the sharp asymmetries in the way innovation is approached in India. This is a different strand of the innovation story in India. It is, essentially, one of stasis, and it does not bode well for India at a time when a new generation of deep-tech start-ups is spawning new industries with their frontier research.

First, the big puzzle. At the end of September, it was revealed that the government had halted disbursements from its much publicised mega fund to ramp up innovation in key fields of deep tech. The Rs 100,000-crore Research, Development and Innovation (RDI) Fund, the biggest such fund to be set up in the country, was launched in November last year to kick-start advanced technology projects by private companies. The money was being funnelled from the Department of Science and Technology (DST) by the Technology Development Board (TDB), its nodal agency. After just one round of funding in which 22 companies were selected and given loans of Rs 2,192 crore in April, TDB announced in September that no more applications would be accepted for “administrative reasons”. Another 13 companies selected from more than 300 applicants in the second round in August did not get any funds. This is where the story gets curious. DST has already been allocated Rs 23,000 crore for the RDI fund and is still plush with funds, so the reasons must lie elsewhere.

According to The Indian Express, the lack of funds is just one strand in the story which combines the usual mix of red tape, delays and apathy, and bureaucratic overload in the implementation of the programme. The funding delay is majorly due to the slow expansion of the network of agencies that should have been managing the fund, the agencies that perform the critical function of evaluating and financing eligible applicants. There is also the whiff of corruption over the funds disbursed in the first round. The newspaper had reported earlier that 15 of the 22 companies selected had investment links to seven members of the TDB selection committee. However, the scandal died down because the members said they had recused themselves from the evaluation of the selected companies. This may be par for the course with this government, which has shown gross ineptitude in managing such schemes, but clearly it is irked by the attitude of its big industry and business which has shown little interest in furthering innovation, a major factor in holding back India’s entrepreneurial growth. Increasingly, it has taken to publicly ticking off the private sector on its unwillingness to invest in R&D. India’s R&D funding figures are truly a scandal.

India's spending on research is just 0.83 per cent of its gross domestic product (GDP), compared with 2.7 per cent in Organisation for Economic Co-operation and Development (OECD) countries and 3.5 per cent in the US. There are more telling figures of higher R&D spends in smaller countries (see 'India hobbled by industry’s failure to fund R&D', Down To Earth July 1-15, 2026), but these are the statistics that Union finance minister Nirmala Sitharaman uses repeatedly to prod the private sector to improve its record. Her point is that the scale of R&D investment has to rise significantly, particularly the private sector’s contribution to it—currently it is just 36 per cent of the national total—to strengthen India’s innovation capacity. India’s total expenditure on R&D touched Rs 244,767.81 crore (around US $29.3 billion) whereas China’s spend has risen to $549.7 billion in 2025, a 61 per cent jump in just five years. Perhaps it is an unfair comparison, given China’s breathtaking advance in cutting-edge technologies. Instead, let us compare how it has fared against a powerhouse, the US, to understand the scale of its achievement. China accounts for 27.4 per cent of world’s R&D spending, outranking the US to occupy the first spot.

But can this government, which has coddled industry and trade at the expense of other segments of the economy, break a historical trend? It is not that Indian companies are not profitable; some of them are rolling in money. It is not a question either of the country lacking entrepreneurs. The problem is that the established companies who control capital and have the best institutional access, are opting out of the riskiest but most transformative kind of building a vibrant new economy. Christoph Jaffrelot, an expert on India’s economic and socio-political history, notes that, unlike China that dismantled its traditional middle and merchant classes during its revolution, India preserved its business community. There is thus an established capitalist lineage that sees little profit in investing in innovation. Reliance, for instance, uses just 0.4 per cent of its revenue for R&D.

If you thought the IT sector would do much better, no, not at all. Take the leading firm TCS. It put aside just 1.30 per cent of its revenues on R&D. Where does the bulk of its humongous profits go? On dividend payouts! To understand the dramatic difference in China’s approach to R&D, we will take just one example: Huawei, a global giant that provides information and communications technology infrastructure and smart devices. It has slightly over 200,000 employees and spent 21.8 per cent of its revenue, that is, $27.9 billion on R&D. That figure is close to what India’s entire expenditure on R&D. An equally startling fact is that close to 54 per cent of its workforce is engaged in research.

With companies such as Huawei, it is little wonder that China continues to be in the top 10 innovative countries in the world in the index put together by World Intellectual Property Organization (WIPO). In its just-released 2026 index, WIPO notes that government and corporate research investments touched an all-time high in 2025 and gave rise to a new generation of deep-science start-ups that are translating breakthroughs into products and transforming the fields of life sciences, space, robotics and clean energy.

What did India, which ranks 36 on the index, do? It came up with a slogan. Sitharaman advised companies to eschew the earlier Made in India line to a snappier “Imagined in India and Made in India”. Who says we are not innovative?

This column was originally published in the October 16-31, 2026 print edition of Down To Earth