No 'jugaad': Businesses must raise R&D spend, says Economic Survey

India's gross expenditure on R&D is 0.65% of GDP, significantly lower than top 10 economies' spend of 1.5-3%

Ramping up investment in research and development (R&D) will be key for India to become the third largest economy, and increased investment from the private sector will be vital for this, the Economic Survey said.

“Mere reliance on ‘jugaad innovation’ risks missing the crucial opportunity to innovate our way into the future. This requires a major thrust on R&D by the business sector. India’s resident firms must increase their share in total patents to a level commensurate to our status as the fifth largest economy in current US dollars. India must also focus on strengthening institutions and business sophistication to improve its performance on innovation outputs,” the Survey noted. 

Though India was ranked 48th among 131 innovating countries in the Global Innovation Index (GII) 2020, a huge leap from 81st in 2015, the Survey noted that the government does the heavy lifting on R&D and there is a need for businesses to contribute more to the sector.

India’s gross expenditure on R&D is 0.65 per cent of its gross domestic product (GDP), significantly lower than the 1.5-3 per cent of GDP spent by the top 10 economies. It remains low despite the Centre’s higher contribution to GERD (gross domestic expenditure on R&D). 

“India’s business sector needs to rise to the occasion and significantly ramp up its gross expenditure on R&D to a level commensurate to India’s status as the fifth largest economy. This requires boosting business sector contribution to total GERD from 37 per cent currently, to close to 68 per cent — the average business contribution in GERD of other top 10 economies. Indian business sector’s contribution to total R&D personnel and researchers also needs to be scaled up from 30 per cent and 34 per cent per cent, respectively, to the average level in other top 10 economies (58 per cent and 53 per cent, respectively),” the Survey noted.

The Survey compared India’s journey to that of China, which formulated a 15-year “Medium to Long-Term Plan (MLP) for the Development of Science and Technology” in 2006 to become an innovation-led economy. 

India has shown improvement in metrics like innovation inputs, creative outputs, knowledge and technology outputs, headcount, infrastructure, market sophistication, business sophistication and others, but lags in patent applications filed by resident Indians compared with non-residents. 

Indian residents’ share in total patents filed was 36 per cent, compared with an average of 62 per cent in other large economies. 

“India must focus on improving its performance on institutions and business sophistication innovation inputs. These are expected to result in higher improvement in innovation output,” the Survey added. 

While the Survey calls the Startup India programme an important part of increasing innovation, it also said no patents were granted to any start-ups between April and October last year, despite over a 1,000 applications being received.