Why Can’t India Innovate? | Economy of India | Econ

Summary

India's R&D spending, though rising, remains low compared to global leaders like the US and China, limiting its competitiveness in high-tech industries. While India has become a hub for electronics assembly, it relies heavily on Chinese components and lags in innovation, patents, and cutting-edge technologies. Despite a strong tech workforce and a vibrant startup ecosystem, structural challenges, limited private R&D investment, brain drain, and risk-averse culture hinder breakthrough advancements. Notable exceptions like UPI demonstrate India's potential for impactful innovation. To compete globally, India must increase R&D investment, foster deep-tech startups, and cultivate a bold, ambitious approach to technological development.

Takeaways

• 😀 India's expenditure on R&D in 2023 was $71 billion, which is significantly less than the US and China. R&D spending as a share of GDP is only 0.7%, compared to 3.6% in the US and 2.4% in China.
• 😀 India has become a manufacturing hub for iPhones, assembling nearly one in five iPhones, but still depends on China for key components like chips, batteries, and camera modules.
• 😀 India’s electronics industry has grown fivefold in the last decade, but it remains far behind in advanced manufacturing and innovation.
• 😀 Despite a large tech workforce, India lags in developing leading AI models and ranks only 12th globally in private AI investment, far behind the US and China.
• 😀 India’s domestic firms invest too little in R&D, contributing just 0.3% of sales, much lower than the global average and far behind the US (8.8%) and China (2.1%).
• 😀 India has trained a significant number of engineers and coders, but its universities are not producing world-class research, with none ranking in the top 100 for scientific research.
• 😀 India ranks 39th globally in innovation, according to the World Intellectual Property Organization, significantly behind China (11th) and the US (3rd).
• 😀 Indian academic talent is being lost to the West, with more than 60% of top IIT students migrating abroad, exacerbating the country's intellectual brain drain.
• 😀 India's startup sector is thriving, ranking 3rd globally with over 100 unicorns, but its deep-tech startups (AI, robotics) have raised only 5% of the total startup funding, far behind China.
• 😀 Despite these challenges, India introduced the successful UPI (Unified Payments Interface), revolutionizing digital payments and becoming a model for other countries.
• 😀 While India has made strides in fintech and e-commerce, it still lags in expanding homegrown tech innovations globally, with few Indian firms successfully scaling outside the country.

Q & A

What is India's current spending on research and development in 2023?

India's expenditure on research and development in 2023 was 71 billion dollars.

How does India's R&D spending as a share of GDP compare to that of the US and China?

India's R&D spending is just 0.7% of its GDP, while the US spends 3.6% and China spends 2.4%.

What are the main challenges India faces in terms of innovation?

India struggles with underinvestment in R&D by firms, a lack of commercialization of research from universities, and a lack of incentives for entrepreneurs to pursue long-term innovation.

How has India's electronics manufacturing industry evolved in recent years?

India's electronics industry has grown fivefold over the past decade, and it now assembles nearly one in five iPhones. However, the country still relies on China for key components such as chips and batteries.

What are the rankings of India in terms of innovation according to the World Intellectual Property Organization?

India ranks 39th in global innovation capabilities, while China is 11th and the US is third.

What are some of India's strengths in the global tech industry?

India has more open-source developers than China, a strong tech diaspora leading major global tech companies, and a large number of chip designers.

Why does India struggle with developing its own artificial intelligence models?

Although India is a major user of AI tools like ChatGPT, it lacks significant private investment in AI, attracting just $1.2 billion in AI investment in 2024, compared to $109 billion in the US.

How does India's private sector contribute to R&D spending?

India’s private sector contributes only about a third of total R&D spending, which is significantly lower than global standards, where private firms typically contribute around two-thirds.

What is the significance of India's Unified Payments Interface (UPI)?

UPI is a real-time payment system that has expanded access to digital payments in India, even for rural areas and small businesses. It has become the most common transaction method in the country and is expanding globally.

What are the main issues facing Indian universities and research institutions?

Indian universities publish a lot of academic work but struggle with turning research into marketable products. They also face a brain drain, with many top academics leaving for opportunities abroad, especially in the US.