India's low R&D spending (~0.7% of GDP) is a key challenge for manufacturing growth, with the sector's GDP share falling to 13%, says a CareEdge report. It urges a shift to innovation-driven manufacturing to remain globally competitive.
India's low research and development (R&D) spending of around 0.6-0.7 per cent of GDP is emerging as a key structural challenge for the country's manufacturing growth, with the sector's share in GDP declining over the past decade despite steady output expansion, according to a report by CareEdge Ratings.
The report noted that India's manufacturing share in GDP declined from around 16 per cent in 2015 to nearly 13 per cent in 2024, even as manufacturing output grew from around USD 328 billion to USD 493 billion during the period.
"India's manufacturing sector is at a critical inflection point. While recent policy initiatives strengthened production capabilities, long-term competitiveness will depend on the ability to transition to innovation-driven manufacturing, leading to greater value-addition. With R&D spending currently at ~0.6-0.7% of GDP, India remains significantly behind global peers," said Ranjan Sharma, Senior Director, CareEdge Ratings.
Key Challenges and Structural Constraints
According to the report, India's R&D expenditure remains significantly lower than global innovation leaders such as the United States, China and South Korea, which spend between 2.5 per cent and 5 per cent of GDP on research and innovation.
The report highlighted that low researcher density, weak industry-academia collaboration and limited technology absorption have constrained India's innovation ecosystem, resulting in a relatively low global patent share of around 4 per cent.
CareEdge Ratings said India should target increasing R&D spending to around 2 per cent of GDP by 2035 in line with Asian peers, which would require stronger private-sector participation, improved innovation ecosystems and better research-to-commercialisation pipelines.
The report further noted that R&D spending among listed Indian companies remains concentrated in sectors such as automobiles, pharmaceuticals, chemicals and metals, while the broader industrial base continues to remain under-invested. It added that innovation by Indian firms largely remains incremental, with companies often following global technological developments rather than leading them.
"Structural constraints including low private-sector participation in R&D, risk aversion, talent outflow, and scale-first growth strategies have hindered the transition towards innovation-led manufacturing," the report said.
Comparison with Asian Peers
Drawing comparisons with Asian peers, the report said countries such as China and South Korea have maintained manufacturing contribution of around 25-27 per cent of GDP, while Vietnam and Bangladesh expanded manufacturing intensity through export-led strategies supported by low-cost labour and preferential trade agreements.
"India's manufacturing growth has been largely volume-driven so far; but sustaining global competitiveness will require a decisive shift towards innovation and R&D led industrialisation. Strengthening private-sector participation and improving research commercialisation will be critical to unlocking higher value addition," said Krunal Modi, Director, CareEdge Ratings.
Path Forward: Report's Recommendations
The report stressed the need for higher investment in science, technology, engineering and mathematics (STEM) education, industry-aligned technical courses, and integrated industrial ecosystems focused on sectors such as semiconductors, artificial intelligence, defence, energy and pharmaceuticals.
CareEdge Ratings also called for the development of sector-specific innovation hubs, expansion of tax incentives for R&D, improved access to risk capital, and stronger industry-academia collaboration to support India's long-term manufacturing competitiveness.
Government Initiatives for Innovation
The report's recommendations come at a time when the government has been increasing policy focus on improving India's research and innovation ecosystem to support advanced manufacturing and technology-led industrial growth.
As a policy push to strengthen India's innovation ecosystem, Prime Minister Narendra Modi launched the Rs 1 lakh crore Research Development and Innovation (RDI) Scheme Fund in November 2025, aimed at promoting a private sector-driven research and development ecosystem in the country, according to the Department of Science and Technology.
Apart from this scheme, India has also launched other schemes such as the Anusandhan National Research Foundation under the Anusandhan National Research Foundation Act, 2023, with a planned outlay of Rs 50,000 crore to support research, innovation and industry-academia collaboration across scientific disciplines.
In addition, schemes such as the Prime Minister's Research Fellowship aim to support high-quality doctoral research in frontier areas including AI, quantum technology and sustainability, while encouraging stronger industry participation in research.
The government's Atal Innovation Mission under NITI Aayog has also been focused on building innovation and entrepreneurship ecosystems through incubation centres, startup support and innovation programmes for students and research institutions. (ANI)
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