Case Study: Trends in Gross Expenditure on Research & Development in India

 

Case Study: Trends in Gross Expenditure on Research & Development in India

Objective:
The primary objective of this case study is to examine the trends in R&D expenditure in India over the past three decades, understand the growth pattern in absolute terms, analyze R&D spending as a percentage of GDP, and explore implications for the country's innovation and economic growth.

 

Introduction
Research and Development (R&D) is crucial for technological advancement and economic growth. Nations that invest heavily in R&D tend to develop faster due to the innovation and productivity it fosters. This case study examines India's R&D expenditure from 1990-91 to 2020-21, highlighting trends in spending, changes as a percentage of GDP, and implications for the country’s development strategy.

 

Analysis of Trends in R&D Expenditure

1. R&D Expenditure Growth
   From 1990-91 to 2020-21, India's R&D expenditure grew significantly, from ₹3,974.17 crore to ₹1,27,380.96 crore. This represents a steady rise in absolute expenditure, reflecting the government's commitment to supporting innovation.
2. Percentage of GDP
   Despite the growth in absolute terms, R&D as a percentage of GDP fluctuates between 0.61% and 0.82%, with a declining trend after 2010-11. For example, the highest R&D-to-GDP ratio was recorded in 2009-10 (0.82%), but it fell to 0.64% by 2020-21. This indicates that while R&D spending has grown in rupee terms, it has not kept pace with GDP growth.
3. Plateau in Growth (2018-19 to 2020-21)
   The years 2018-19 to 2020-21 show relatively minimal growth in R&D expenditure. This could be due to various factors, including economic constraints, shifts in policy focus, or external challenges like the COVID-19 pandemic, which impacted funding allocations.

Expanded Analysis of R&D Expenditure Data

1. Decadal Growth Analysis
   By examining the data in five-year increments, we can observe clear trends in R&D growth:
• 1990-91 to 2000-01: R&D expenditure saw a steady rise, increasing from ₹3,974.17 crore to ₹16,198.80 crore. This period marks the liberalization era in India, which opened up the economy and increased focus on science and technology.
• 2000-01 to 2010-11: There was significant growth, with expenditure increasing nearly fourfold from ₹16,198.80 crore to ₹60,196.75 crore. This period reflects the growing emphasis on technology and innovation, particularly in the IT and biotech sectors, where India was gaining international recognition.
• 2010-11 to 2020-21: The expenditure continued to rise but at a slower pace, from ₹60,196.75 crore to ₹1,27,380.96 crore. The growth rate in R&D expenditure appears to have plateaued in recent years, especially since 2018-19, likely due to policy shifts and economic constraints.
2. Decline in R&D as a Percentage of GDP
   Although the absolute R&D expenditure increased consistently, the percentage of GDP allocated to R&D shows a declining trend. Key observations include:
• Highs and Lows: The highest R&D-to-GDP ratio was in 2009-10 (0.82%), followed by a gradual decline to 0.64% in 2020-21. This drop suggests that while GDP grew, the rate of R&D investment did not keep pace, pointing to a need for a stronger commitment to R&D in proportion to the country's economic growth.
• Comparative Context: India’s R&D expenditure as a percentage of GDP is relatively low compared to global averages, especially when benchmarked against countries like the U.S. (around 2.7%), South Korea (over 4%), and China (above 2%). This gap indicates India’s potential underinvestment in R&D, which could impact its ability to lead in high-tech and innovative sectors.
3. Impact of Economic and Policy Factors
   Several economic and policy-related factors likely influenced the observed trends:
• Economic Liberalization and Tech Growth (1990s-2000s): During the 1990s and early 2000s, economic reforms and the IT boom provided momentum for increased R&D spending, as industries expanded and new sectors (like software and biotech) received government attention.
• 2008 Global Financial Crisis: The effects of the 2008 global financial crisis can be seen in the slight decline in growth rate around 2010-11. Despite this, India managed to keep R&D spending relatively stable due to strong domestic demand and a growing economy.
• COVID-19 Pandemic Impact (2020-21): The pandemic likely contributed to the decline in the R&D-to-GDP ratio by reallocating funds to health and social support sectors, which were crucial during the crisis. This redirection of funds may have limited R&D budget increases, especially in non-health sectors.
4. Sectorial Analysis and Private Sector Role
   India’s R&D is largely dominated by the government sector, with limited private sector involvement, which is unusual compared to developed economies where private companies contribute a significant share of R&D expenditure. Observing data trends:
• Public vs. Private R&D Investment: A significant portion of R&D funding in India comes from public institutions like the Department of Science and Technology, CSIR, and DRDO. In contrast, private sector participation in R&D remains relatively low. Countries with higher R&D-to-GDP ratios often have significant contributions from their private sector, which can drive high-tech innovation and productivity improvements.
• Encouraging Private Investment: To bridge this gap, policies that incentivize private companies to invest more in R&D are essential. For instance, tax incentives, partnerships between public research institutions and private companies, and grant funding for startup R&D can stimulate growth and bring India’s R&D spending closer to global standards.
5. Implications for Innovation and Competitiveness
   The consistent but limited growth in R&D expenditure as a percentage of GDP has implications for India’s innovation capabilities and competitiveness in the global market:
• Challenges in High-Tech Sectors: Lower R&D investment limits India’s capacity to develop cutting-edge technology in fields like AI, biotechnology, and advanced manufacturing. This, in turn, affects the country’s competitiveness in high-growth industries.
• Dependence on Imported Technology: Without strong domestic R&D, India may rely on importing technology, which can lead to higher costs and limit local innovation. Encouraging higher R&D spending is crucial to fostering self-reliance in critical technologies.
6. International Comparisons and Lessons
   Comparing India’s R&D expenditure trends with other countries highlights potential areas for improvement:
• South Korea and Israel: These countries have made R&D a national priority, with both public and private sectors heavily investing in innovation. India could adopt similar policies, focusing on sectors with high growth potential and actively encouraging private investment.
• China’s R&D Strategy: China’s R&D expenditure has seen rapid growth, helping it become a global leader in manufacturing and technology. India could take lessons from China’s integrated approach of combining state funding with incentives for private R&D investment and infrastructure support for technology sectors.

Chart VII.8: Gross Expenditure on R&D
Year	R&D Expenditure (Rs. Crore)	R&D Expenditure	R&D as % of GDP
1990-91	3974.17	4.0	0.67
1995-96	7483.88	7.5	0.61
2000-01	16198.80	16.2	0.74
2005-06	29932.58	29.9	0.81
2009-10	53041.30	53.0	0.82
2010-11	60196.75	60.2	0.77
2011-12	65961.33	66.0	0.76
2012-13	73982.79	74.0	0.74
2013-14	79355.89	79.4	0.71
2014-15	87473.44	87.5	0.70
2015-16	95452.44	95.5	0.69
2016-17	103099.26	103.1	0.67
2017-18	113825.03	113.8	0.67
2018-19	124740.14	124.7	0.66
2019-20	132567.01	132.6	0.66
2020-21	127380.96	127.4	0.64
Source: Inputs from Dept of Science and Technology

 

Implications for Economic Development

1. Stagnant R&D as a Percentage of GDP
   A relatively low and stagnant R&D-to-GDP ratio suggests that India’s growth in innovation and technological development may not be keeping pace with that of more developed economies. This may impact India’s global competitiveness, particularly in high-tech sectors.
2. Need for Policy Reforms
   The stagnation in R&D funding as a percentage of GDP suggests a need for renewed policies that encourage higher R&D investment. Increased collaboration between private industries and public research institutions, tax incentives for R&D activities, and partnerships with international research bodies could help boost innovation.

Recommendations

1. Increase Government Funding in Emerging Technology Sectors: Sectors such as AI, biotechnology, and renewable energy can benefit from targeted funding.
2. Incentivize Private Sector Investment: Tax breaks, grants, and public-private partnerships can encourage the private sector to contribute more to R&D.
3. Develop Infrastructure for Innovation: Building research hubs, innovation labs, and incubation centers can foster a culture of research and innovation.
4. Focus on Talent Development: Training and retaining skilled researchers is crucial for sustaining growth in R&D. Educational institutions should emphasize R&D-oriented skills and career paths.

 

Teaching Notes

1. Learning Objectives
• Understand the significance of R&D investment in economic growth.
• Analyze trends in India’s R&D expenditure and discuss reasons for stagnation.
• Explore the impact of R&D spending on a nation's global competitiveness and innovation capacity.
2. Discussion Points
• Why is R&D expenditure critical for national development?
• What factors could contribute to the stagnation of R&D spending as a percentage of GDP?
• How does India’s R&D expenditure compare with that of other countries, and what can India learn from these nations?
• What policy measures can India implement to increase R&D investment?

 

Questions for Discussion

1. What might be the reasons for the stagnation in India’s R&D expenditure as a percentage of GDP since 2009-10?
2. How can India increase private sector participation in R&D?
3. What role does R&D play in ensuring long-term economic growth and technological advancement?
4. How does R&D expenditure correlate with economic competitiveness on a global scale?
5. What strategies should the Indian government adopt to boost its R&D spending to match other developed nations?

 

Conclusion
India’s growth in absolute R&D spending over the past three decades is commendable, but the declining trend in R&D as a percentage of GDP highlights a potential risk to the country's innovation trajectory. Addressing this challenge will require a concerted policy effort to encourage greater investment in R&D, especially from the private sector, and to ensure that R&D expenditure grows at a rate that supports India’s aspirations for technological advancement and economic resilience. For India to become a global leader in innovation and reduce its dependence on foreign technologies, a stronger commitment to R&D is required. This includes not only increasing government funding but also encouraging private sector involvement and developing a strategic focus on high-growth technology sectors.