India needs to raise R&D spending to 2 pc of GDP by 2035 to boost manufacturing: Report
India's manufacturing growth is hampered by low R&D spending, currently at 0.6% of GDP, a report highlights. To boost its manufacturing share, India aims to increase R&D expenditure to 2% by 2035, requiring greater private sector involvement and stronger innovation ecosystems. This transition to innovation-driven manufacturing is crucial for long-term global competitiveness.
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Context
A recent report by CareEdge Ratings highlights India's stagnant manufacturing sector, which has seen its share of GDP decline from 16% in 2015 to 13% in 2024. The report attributes this decline partly to inadequate spending on Research and Development (R&D), currently at a mere 0.6-0.7% of GDP, and recommends increasing it to 2% by 2035 to foster innovation-led manufacturing and global competitiveness.
UPSC Perspectives
Economic
The transition from a developing to a developed economy often hinges on a robust manufacturing sector, which provides mass employment and drives export-led growth. The decline in manufacturing's GDP share (from 16% to 13%) despite a 5% annual growth rate indicates structural bottlenecks, a phenomenon often described as premature deindustrialization. Unlike peers such as Vietnam and Bangladesh, which have expanded their manufacturing base through export-oriented policies and integration into Global Value Chains (GVCs), India struggles with low value addition. The report argues that to move up the value chain, India must shift from incremental, 'follower' manufacturing to innovation-led manufacturing. This requires substantial investment in R&D, which currently languishes at 0.6-0.7% of GDP, significantly lower than the US (3%), China (2.5%), and South Korea (up to 5%). The lack of significant private sector participation in R&D, risk aversion, and a focus on scale over innovation contribute to this stagnation. To address this, India needs policies that incentivize private R&D, perhaps through expanded tax incentives and better access to risk capital, to achieve the target of 2% of GDP by 2035.
Governance
The role of the state in fostering an innovation ecosystem is crucial. The current low R&D spending reflects not just a lack of private investment but also systemic governance challenges in creating a conducive environment for research. This includes strengthening the pipeline from research to commercialization. The initiative aimed to increase the manufacturing share of GDP to 25% by 2025, a target that has clearly been missed, highlighting the gap between policy intent and implementation. The reliance on incremental innovation deprives Indian firms of the 'first-mover advantage,' keeping them subservient to global technological leaders. The report highlights structural constraints such as weak industry-academia collaboration, which is essential for translating academic research into marketable products. Furthermore, India's low share in global patents (only 4%) points to low researcher density and an inadequate intellectual property rights (IPR) regime. Government interventions could include performance-linked funding models for research institutions and policies encouraging large corporate houses to invest heavily in pioneering innovation.
Social
The foundation of a strong R&D ecosystem lies in human capital, specifically in STEM (Science, Technology, Engineering, and Mathematics) education. The report points to the 'alarmingly low' per capita expenditure on education (around Rs 6,000), which directly correlates with poor learning outcomes and inadequate skill development. This lack of investment in human capital restricts the availability of a highly skilled workforce necessary for high-end R&D. The emphasizes critical thinking and research, but its effective implementation is vital to improve technical and vocational training. Furthermore, the talent outflow or 'brain drain' exacerbates the shortage of quality researchers domestically. Addressing this requires not only improving educational infrastructure but also creating lucrative and intellectually stimulating research opportunities within India to retain top talent and build long-term global competitiveness.