Blueprint for becoming a global knowledge power

India produces the highest number of science, technology, engineering, and mathematics (Stem) graduates in the world, after China. Indeed, it is bursting with tech talent, as is indicated by the fact that three-quarters of the top 500 multinational corporations in the world have established development centres in India.

All that talent means India can do a lot more to develop its own technological base, aiming to be among the top three science and technology (S&T) nations in the world.

However, it comes in currently at 39th on the Global Innovation Index, while China is placed 11th. In 2022, India spent 0.65% of its GDP on research and development (R&D), much lower than that of other Brics (Brazil, Russia, India, China and South Africa) nations (Brazil 1.15%, Russia 0.94%, China 2.43%), let alone advanced S&T powers like the US, Japan, Israel and South Korea.

India is at present a lower-middle income country that has still some way to go before it reaches its productivity frontier.

Is there a case to be made that it should focus, for now, on the diffusion of existing technologies that make its labour-intensive industries grow, and think later about enhancing R&D? The answer is that India is a large country with a diversified economy and needs to do both at once.

While the economy certainly needs to grow its labour-intensive sectors to pursue the Holy Grail of generating jobs at scale, India cannot ignore the fact that skill- and capital-intensive areas such as pharma, chemicals, automotive, etc, currently dominate its industrial sector. Further advancement here will require it to compete head-to-head with developed countries as well as other emerging economies. R&D is needed for deep-tech startups to thrive and for large Indian companies to take on global competition – in short, for the economy to grow to Indian aspirations.

Second, as labour costs rise, even labour-intensive sectors need local innovation to raise productivity, increase value addition and exports, and keep the Indian economy globally differentiated. China and South Korea are two prominent examples of countries that invested heavily in S&T even at low per capita income levels and reaped phenomenal growth as a result.

Apart from underfunding, Indian R&D is still anchored to an old model where research is not only funded majorly by the government and carried out chiefly under its auspices but also focuses on a few priority sectors such as defence and space. Globally, since the latter half of the 20th century, R&D investments have shifted from being primarily government funded to primarily privately funded, while research at higher educational institutions (HEIs) also plays a key role. Productive R&D establishments are characterised by intense collaborative exchanges between government, industry and academia.

One can conceptually separate the funding and performance of research, and there are massive advantages to making universities and HEIs key players in the latter.

They bring in competition, interdisciplinarity, new thinking and diverse interests to the performance of research, while churning out a steady stream of students trained in research. Stanford University, for example, played a central role in the early development of Silicon Valley and is still a significant contributor to its success.

Fortunately, new initiatives such as the Anusandhan National Research Foundation (ANRF) promise to revamp some of India’s outdated funding structures. ANRF received a shot in the arm during Prime Minister Narendra Modi’s visit to Washington in February this year, when the two governments agreed to get the US National Science Foundation (NSF) to partner ANRF for research in critical and emerging technologies.

The key to ANRF’s success will be understanding how effective research is done and developing strong project management capability.

ANRF can be given a structure analogous to NSF or the US Defense Advanced Research Projects Agency (DARPA), with efficient programme managers and competitive and transparent procedures for selecting projects to fund. A chief executive officer, supported by mission directors who deploy the funds, is a good model. While tracking the research projects funded, this organisation should also be allowed to take some risks.

Early-stage research needs open-ended exploratory work that won’t always be successful but produces breakthroughs that shape the future.

In the Union budget, the government also announced a ₹1 lakh crore innovation fund to provide long-term loans at low or nil interest rates for projects at the cutting edge of tech innovation. To stimulate India’s deep-tech ecosystem, this amount should be disbursed within the next three to five years. It can function in a manner complementary to ANRF: While the latter helps Indian HEIs become world-class institutions that carry out upstream research pushing forward the frontiers of knowledge, the former can help industry commercialise mature technologies for the market.

South Korea was poor in 1970 but experienced rapid growth over the next two decades — in the same period, its R&D spending went up from 0.4% to 2.5% of its (rising) GDP. Chinese spending on R&D also went up from 0.6% of its GDP during the late 1990s to 2.4% currently – also its best growth years.

India should step up its R&D spending by 1% of GDP over the next decade, going from 0.65% of GDP now to at least 1.6% of GDP by 2035.

Out of this 1% of GDP should be spent on R&D by India’s private sector (going up from 0.25% of GDP at present). It is worth remembering that between 1975 and 2005 — which was also the period when South Korea went from being a lower-middle income to a developed nation — R&D investments by its corporate sector soared 800 times in dollar value.

If India wishes to escape the middle-income trap, R&D that drives rapid economic growth is the only possible pathway. Historically, prior to the European Renaissance and the Industrial Revolution, India had always been at the forefront of economic as well as knowledge production. It should aspire to become vishwa guru once again. It has the potential, and deserves to be, one of the world’s great S&T powers.

Ashish Dhawan is founder-CEO and Swagato Ganguly is senior fellow at The Convergence Foundation. The views expressed are personal