The government does a disproportionate amount of heavy-lifting on R&D by contributing 56% of the gross expenditure, which is three times the average contributed by governments in the top 10 economies. Yet, India’s gross expenditure on R&D at 0.65% of GDP is much lower than that of the top 10 economies.
The reason for this, according to the survey, is low contribution by the private sector, which needs a significant thrust.
“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.” – Economic Survey 2021
Innovation: Thrust Must Come From Private Sector
India must give a significant thrust to innovation if it aims to become the third-largest economy in the world, said the Economic Survey 2021.
There has been progress in this direction, it pointed out, which is reflected in the fact that India has for the first time become a part of the top 50 countries in the Global Innovation Index rankings. But more needs to be done to compete with other major economies, the survey said.
Despite India giving more liberal tax incentives for R&D compared to the top 10 economies, the private sector’s contribution has been disproportionately lower, said the survey.
To highlight the need for an increase in R&D and encouraging innovation, Chief Economic Adviser Krishnamurthy Subramanian compared the position of India with other major economies and said:
India lags behind most other large economies (top 10 in terms of GDP current US$) on most indicators of innovation.
India ranks second-lowest, after Brazil, on the overall Global Innovation Index, whereas countries like the U.K. and China rank much higher for their expected level of development.
Government contributes 56% of gross domestic expenditure on R&D, while this proportion is less than 20% in each of the top 10 economies.
The survey also noted that while the country has seen a rise in patent applications being filed since 1999, it has primarily been on account of applications filed by non-residents.
“Indian residents’ share in total patents filed in the country stands at 36%. This lags behind the average of 62% in other largest economies. Resident share in patent applications must rise for India to become an innovative nation.” – Economic Survey 2021
As suggestions, the survey recommended:
India must focus on strengthening institutions and business sophistication to improve its performance on innovation outputs.
Resident firms must increase their share in total patents to a level commensurate to India’s status as the fifth-largest economy.
India’s innovation ranking is much lower than expected for its level of access to equity capital. This points towards the need for India’s business sector to significantly ramp up investments in R&D.
The Economic Survey 2020-21 was presented Friday afternoon in Parliament by Finance Minister Nirmala Sitharaman, ahead of the Union Budget representation on Feb. 1.