M-RCBG Associate Working Paper No. 255
BUILDING INDIA’S INNOVATION ECONOMY: Catalyzing Private R&D Activity Through the ANRF
Arjun Gargeyas
Kartik Sahni
2025 Policy Analysis Exercise prepared for India’s Anusandhan National Research Foundation
Executive Summary
Innovation is vital for India’s long-term economic dynamism and aspirations to become a developed industrialized nation by 2047 (“Viksit” Bharat”). While India’s position in global innovation indices has risen in recent years, the country still punches well below its weight. India’s government and private sector significantly underinvest in R&D. Notably, the domestic private sector plays a disproportionately minor role in innovation. Indian companies are not among the most innovative in the world and lag in research collaborations. The public-funded research model, while having contributed much to India’s goals, has not evolved fast enough to make Indian-origin technologies globally competitive.
In this context, the creation of the Anusandhan National Research Foundation (ANRF) by Parliament is a significant step. ANRF will be the primary body providing strategic guidance on scientific research, entrepreneurship and innovation in India. Its objectives include developing India’s long-term innovation capacity, promoting an innovation culture and encouraging technological solutions to important national and societal goals. Its mandate includes funding research itself as well as encouraging public and private sector enterprises to invest in its activities. ANRF has a budgetary provision of Rs. 14,000 Crores for its first five years ($1.6 billion, or $320 million per year) and targets raising an additional Rs. 36,000 Crores ($4 billion, or $800 million per year) from the private sector.
The objectives of this Policy Analysis Exercise are to: (i) understand the barriers & limitations to increasing R&D in India (ii) analyze global and domestic evidence around successful innovation models (iii) provide actionable recommendations for how ANRF can overcome these barriers to increase India’s long-term innovation capacity. Our recommendations are made to the Office of the Principal Scientific Adviser’s Policy Analysis and Insights Unit (OPSA-PAIU) and will serve as a knowledge input for the ANRF Executive Council. We take a mixed-methods approach combining qualitative and quantitative analysis combined with over 25 field interviews across all key stakeholder categories.
India spends only 0.64% of its GDP on R&D, two-thirds of which is public spending. This is significantly relative to advanced economies, developing country peers and India’s development stage in a historical perspective. This systematic underinvestment in innovation must be a starting point. India’s closed and centrally-planned early economic structure has a legacy of over-reliance on the government to perform R&D and to a large degree industrialization as well. Even today, public funding is concentrated in over 300 national autonomous research institutions (‘national labs’) under various government ministries and agencies. A key anomaly is that universities receive a surprisingly low share of public funds, perform a lower share of the research.
Indian companies lag in innovation, technology commercialization, IP generation and collaboration outcomes. The research performed in the country does not reflect in exponential commercial or growth outcomes, which ordinarily would encourage more private activity. Companies are deterred from investing in R&D due to various reasons including short-term public market pressures, lack of export competitiveness, lack of deep “risk capital” markets, limited prior experience in managing R&D, and difficulty in price discovery of intangible assets.
India has made a successful transition from agricultural to service-oriented economy, but without building a large manufacturing base. Recent industry policy initiatives seek to address this. India has most of the conditions required to foster an innovation-led market economy. Indian companies in a few sectors (e.g., space, life sciences, automobiles) have shown the ability to develop novel technologies domestically on their way to competing globally. India’s vibrant startup ecosystem suggests entrepreneurial activity and investor appetite can flourish under the right conditions. India also has a large pool of science and engineering talent that must be retained and nurtured.
The public sector typically plays a dominant role in the early stages of national innovation systems. By being a patient funder of research in uncertain areas and developing research ecosystem capacity more broadly, the government influences the overall innovation landscape. Public R&D expenditure can have a “leverage” effect on catalyzing private R&D activity. At all points in time, the interactions between the public and private sectors remain essential. In India too, the public funding must seek to encourage additional private R&D investments, including by absorbing some of the technological and financial risks associated with developing commercial technologies. As conditions improve, the Indian private sector will invest more. This should be a key guiding principle for ANRF’s overall policy approach.
There is also a need to reevaluate how innovation generally is ‘done’. Fundamental curiosity-driven research (‘discovery’) and application-focused development (‘invention’) must reinforce each other. This means the research process should have greater multidisciplinarity, closer interaction between science and engineering, and collaboration between industry, academia and government.
In improving the general conditions for innovation, ANRF should take a view of the entire R&D ecosystem and its interconnected parts. Crucially, universities must be brought into greater focus, and their long-term innovation capabilities need be strengthened.
We identified five key barriers to increasing private R&D activity in India: (i) ineffectiveness & unaccountability of public R&D spending; (ii) financing gaps in the innovation lifecycle; (iii) unavailability and inaccessibility of R&D infrastructure; (iv) constraints in developing long-term human capital; and (v) gaps in intellectual property rights protection. These elements together contribute to the overall robustness of the R&D ecosystem. Based on our client’s feedback, we prioritized three of these barriers for providing detailed policy recommendations to ANRF:
1. Closing Financing Gaps across the Innovation Lifecycle
2. Increasing Access and Availability of Scientific Infrastructure
3. Developing Long-term Human Capital for Research & Innovation