 "'We've a long way to go': Zerodha CEO on India as 4th largest economy")
India recently surpassed Japan to become the world’s fourth-largest economy by gross domestic product (GDP), according to the latest data released by the International Monetary Fund (IMF). While this is a significant milestone for the nation, Nithin Kamath, co-founder and CEO of brokerage firm Zerodha, has offered a more cautious perspective, emphasising the need to look beyond the sheer size of the economy and focus instead on structural improvements that will determine long-term growth.
In an X post on Tuesday, Kamath wrote, “It’s amazing that despite all the challenges, we’re now the 4th largest economy in the world. Having said that, at the risk of sounding like a spoilsport, GDP comparisons only tell you so much.”
"When you look at important metrics like productivity, labour force participation, and perhaps most importantly, research and development (R&D) spending, we have a long way to go," he added.
Kamath's post included two studies: One using data from the Organisation for Economic Co-operation and Development (OECD) and another from India’s National Science & Technology Management Information System, showing that in 2020, business enterprises were the primary funders of R&D in most developed and emerging economies.
R&D allocation needs to go up: Kamath
He pointed to India’s relatively low performance in key areas such as productivity, labour force participation, and, most critically in Kamath's opinion, investment in R&D. Kamath noted that India allocates just 0.7 per cent of its GDP to R&D, compared to 2.4 per cent in China, 4.8 per cent in South Korea, and 6 per cent in Israel.
To support his argument, Kamath shared data comparing Gross Domestic Expenditure on Research and Development (GERD) across countries. The figures revealed that in most developed and emerging economies, private businesses drive the bulk of R&D investment. For example, in China, Japan, South Korea, and the US, over 70 per cent of GERD comes from business enterprises.
In contrast, India’s R&D landscape remains skewed towards public funding. The government bodies contribute around 50 per cent of total R&D expenditure, while the private sector accounts for just 41 per cent. The higher education sector’s share stands at a modest 9 per cent, significantly lower than countries like South Africa (27 per cent) and the UK (24 per cent).
“One of the biggest long-term challenges for Indian growth is this chronically low R&D spending,” Kamath stated. “To be clear, this is both a government problem and a private sector problem… Unless we build an ecosystem that invests in education and research, not only will our best minds leave India, but higher long-term growth rates will remain out of reach.”
Amid AI revolution, India can't rely on old tricks: Kamath
He also warned that in an increasingly fragmented world shaped by technological disruption and artificial intelligence (AI), India cannot afford to rely on past strategies alone. Kamath called for reforms in education, regulatory systems, and the overall innovation environment to harness the country’s demographic advantage and retain talent.
Zerodha CEO urges private sector, state, academia collaboration
This underlines a broader challenge: while India’s government has made notable efforts in supporting R&D, private sector involvement remains limited. Without greater collaboration between industry, academia, and the state, experts warn that India may struggle to maintain its growth momentum and keep pace with technological advancements.