Innovation and technical progress are essential for economic growth. Central to this is the Schumpeterian paradigm of ‘creative destruction’ that posits new innovations render former innovations obsolete. This constant cycle of innovation is vital for an economy to thrive. For a country to compete globally, it must invest significantly in research and development (R&D). Despite this, India’s R&D expenditure as a percentage of GDP has remained stagnant at 0.6-0.7 percent over the past two decades.
In stark contrast, other innovative economies have significantly higher R&D investments. China spent 2.24 percent of its GDP on R&D in 2020 and plans to increase it by 7 percent annually, according to its 14th Five-Year Plan. This has allowed China to outpace even the US in scientific and technological outputs. Countries like Israel (4.93 percent), South Korea (4.64 percent), Japan (3.26 percent) and Germany (3.09 percent) demonstrate much higher R&D spending. The private sector in India is not doing enough for R&D, but that would be discussed some other time.
In recent years, Chinese institutions have asserted dominance in global research, as demonstrated by Nature’s 2024 research leaders’ index. The Chinese Academy of Sciences (CAS) is on top, with Harvard University coming second. Notably, seven of the top 10 institutions on the index are Chinese, reflecting the nation’s substantial investment in scientific research and its growing influence across natural and health sciences. This is a stark contrast to 2015, where CAS was the sole Chinese institution in the top 10, sharing the space with prominent institutions from the US, UK, Germany, France, and Japan.
This ascendancy of Chinese institutions correlates with a marked decline in rankings for institutions in other countries. For example, Stanford University has experienced a significant drop to 15th place in 2023, down from the 6th in 2022, highlighting the dynamic shift in global research power. This trend is not isolated; all Chinese institutions in the top 10 recorded increases in index points from 2022 to 2023, surpassing their international counterparts. China’s future economic growth will be heavily driven by R&D investments made today.
What about India? It is gradually increasing its presence on the index, signalling its potential. Still, a lot needs to be done. As per the PM’s Science, Technology and Innovation Advisory Council, “less than 1 percent of the country’s approximately 40,000 higher education institutions (HEIs) engage in research”. This includes institutions primarily involved in social science and primary scientific (STEM) research. Let alone diffusion of knowledge, 99 percent of HEIs are not contributing to knowledge creation. A few HEIs are responsible for the bulk of scientific innovation. There are also concerns about the quality of research output and commercialisation of innovation.
Financial constraint is not the only reason India’s R&D ecosystem is not thriving. Historically, India’s R&D efforts have suffered from a lack of cohesive direction. The government’s approach has been predominantly to fund research without providing strategic guidance, resulting in HEIs operating in silos. Research activities have often been compartmentalised, with limited collaboration among HEIs. This fragmented approach has stifled innovation. The government has recently established the Anusandhan National Research Foundation (ANRF) and, in June, announced the governing body headed by the PM and executive council headed by the principal scientific adviser to the government. But what should the ANRF do?
Learning from the US’s Defense Advanced Research Projects Agency or DARPA, the ANRF should adopt a mission-oriented approach to R&D. DARPA’s success lies in its strategic problem definition, integration of front- and back-end innovation, and a high-risk/high-reward mindset. DARPA’s model of using autonomous programme managers and encouraging bold, unconventional projects has led to significant technological leaps such as the development of the internet and mRNA vaccine technology.
Mariana Mazzucato’s mission-oriented R&D framework complements this by emphasising the need for a precise diagnosis of the technological, sectoral or national systems that an innovation policy aims to transform. The success of any mission-oriented policy hinges on effectively aligning various capabilities. The key aspects include defining missions clearly, which allows for establishing intermediate goals, deliverables and robust monitoring. Broad governance can become faulty and risk being captured by vested interests, so missions must be granularly defined.
A mission encompasses a portfolio of R&D and innovation projects rather than a single project, acknowledging the inherent uncertainty in R&D. Stakeholders must be willing to learn from failures and not face punitive measures for good-faith efforts. Ultimately, missions should establish a long-term public agenda for innovation policies, address societal needs, and use the country’s science and technology system to develop impactful innovations.
To boost R&D, the Union budget should aim for an R&D expenditure target of 1 percent of GDP. The government could also mandate 50 percent of corporate social responsibility spending to be allocated to R&D. Companies could invest directly in research projects, particularly in Institutes of National Importance and Institutions of Eminence known for strong research records. This would incentivise private sector involvement in R&D efforts and enhance the innovation ecosystem.
(Aditya Sinha is Officer on Special Duty, Research, Economic Advisory Council to the PM. Views are personal.)