Innovation in Focus: How India Can Become A Global R&D Powerhouse

This article was originally published in The Economic Times on August 12, 2022. You can read the original publication here.

We are witnessing a new era of moonshot innovation, with groundbreaking mRNA vaccine technology enabling a historic pandemic response, the commercialization of artificial intelligence capabilities, and a global wave of investment into R&D and industrial capacity as countries both compete for geopolitical sway and collaborate on global challenges. In this new age of innovation, India is projected to be among the youngest, largest, and fastest growing economies, boasting scalable research capacity and an enormous talent pool in its 1.5 million post-graduate degree holders. With the right pro-innovation policy reforms, India could capture this moment and become a global R&D capital.

The Indian Government’s flagship development initiative “Make in India” has had a mixed record. While manufacturing’s share of the economy has been falling further from its target of 25% of GDP, the program has still had great success in boosting exports, attracting FDI into manufacturing, and enhancing the ease of doing business. However, Make in India’s own production-linked incentives are offset by persistent tariff barriers, and the program has not lived up to its promise to increase employment — particularly among India’s most educated workers, whose unemployment rate is nearly double that of their high school educated counterparts at 19.1%.

“Make in India” can be made better by shifting focus to employment in more labor-intensive industries, increasing India’s global trade competitiveness, and by the Indian Government fully embracing an ancillary “Innovate in India” campaign focused on facilitating India’s rise as a global R&D hub and generating employment for high-skill workers.

Global companies are already hungry to develop R&D capacity in India. GE Healthcare just opened its first 5G innovation lab in Bengaluru this month. Medtronic, manufacturer of the lifesaving ventilators delivered to India during the Delta wave, opened the first surgical robotics center in the Asia-Pacific in Gurugram last year; global food company Cargill and medical device manufacturer Stryker opened new R&D facilities in the city this year as well. Walmart Global Technology has entered into a research partnership with IIT-Madras and will conduct R&D in the IIT Madras Research Park, along with the pharmaceutical titan and vaccine manufacturer Pfizer. Medical technology leader Boston Scientific recently opened its second R&D center in Pune. In addition to dozens of major research and innovation centers, the number of Global Capability Centers (GCCs), which provide supportive R&D and IT functions, employ over one million people and are set to grow to over 1,900 by 2025—of these GCCs, approximately 65% belong to U.S. companies.

This intense interest by global industry is despite persisting disincentives to expand capacity into India—an underdeveloped IPR regime, schemes that discriminate against foreign firms, and uncertainty around data protection—which only serve to illustrate the more foundational strengths that makes India a prime candidate for R&D investment. Delhi can fully realize India’s R&D potential by making a concerted effort to address these disincentives. Data regulations should avoid imposing restrictions on data flows that impede service quality and innovation and the government should start leveling regulatory incongruities that undermine efforts to attract FDI. Additional moves to strengthen India’s innovation ecosystem include reforming the patent opposition process to prevent abuse and undue delays and reworking the pricing system in therapeutics to reward innovative IPs instead of penalizing them with price controls that focus on immediate costs rather than the promotion of a virtuous cycle of re-investment.

A logical next step would be to complement the successful Production Linked Incentive Schemes with Design and Research Linked Incentives, rewarding global firms that expand research capacities in India. A comprehensive “RLI” scheme can encourage even more global companies to open R&D centers in India — creating thousands of high-skill jobs. Currently, India spends among the lowest in the world on R&D as a share of GDP, falling to 0.7% in most recent figures. This is mostly due to underspending by the private sector — investments and incentives are long overdue.

These incentives can accelerate the solution to India’s distressingly high rate of unemployment among graduate degree holders. Currently, unemployment among the well-educated is three times the national average as ambitious young people fail to find jobs commensurate with their skill level. Innovate in India, powered by Research Linked Incentives, could provide an answer by attracting a large volume of high-skill jobs.

Transitioning India’s educated youth from classrooms into careers will also require reforms to strengthen industry-academia linkages. As part of Innovate in India, the Indian Government should spearhead an academic reform initiative incentivizing institutions to pursue IP creation, licensing relationships, and the creation of commercially viable inventions—as well as incorporating into curricula global best practices in research processes and training on international standards, product testing, and certifications.

To fully capture the benefits of these academic reforms, the Indian Government should also continue its spirit of creating digital public goods and establish a central repository of research to serve as an e-auctioning portal. Here, individuals and institutions could upload research and product designs to sell or license to buyers in an online marketplace, supercharging the transfer of innovations between academia and industry.

As we enter a new era of possibility, the time for reform is ripe, and we have the opportunity to leverage India’s human capital to make the nation a global R&D capital.

About the authors

Arjit Roshan

Agnideep Mukherjee