Can the new RDI scheme be a game-changer for R&D in India?

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Can the new RDI scheme be a game-changer for R&D in India?

Can the new RDI scheme be a game-changer for R&D in India?

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Jul 30,25

India spends just 0.64 per cent of its GDP on R&D (compared to global average of above 2 per cent). The new Research Development and Innovation (RDI) scheme, with a corpus of Rs 1 trillion, can change this equation, says Rakesh Rao.

Can the new RDI scheme be a game-changer for R&D in India?

In April 2025, China introduced strict export licensing rules for key rare earth elements such as terbium and dysprosium—critical components in the production of high-performance Neodymium Iron Boron (NdFeB) magnets widely used in electric vehicles and consumer electronics. The decision sent shockwaves across industries like automotive, solar, and electronics, as China commands nearly 70 per cent of global rare earth mining and 90 per cent of rare earth magnet production.

For India, the impact has been particularly severe, as rare earth magnets are indispensable for the efficient functioning of electric vehicles. With limited inventory, industry leaders have warned of major production disruptions. Rajiv Bajaj, MD of Bajaj Auto, told The Economic Times that the company may be forced to declare a “zero production month” in August due to the shortage of rare earth magnets. Similarly, industry body ELCINA has cautioned that over 21,000 jobs in India’s audio electronics sector are at risk because of China’s export restrictions.

Such developments underline the urgent need for sustained investment in research and development (R&D) to discover alternative materials, improve manufacturing processes, and enhance product efficiency. The lesson is especially critical for India—currently the world’s fourth-largest economy—as it strives to achieve developed nation status by 2047.

History shows a direct correlation between a nation’s R&D spending and its economic strength, as research drives technological breakthroughs, new product creation, and process innovations that fuel long-term growth and global competitiveness. “When you see developed countries like the US and China, the cornerstone of their economies is innovation and entrepreneurship, backed by indigenous manufacturing as well as talent hunt and retention. This is also going to be the foundation of India's Make-in-India and Aatmanirbhar Bharat vision, pushing the country towards actual self-reliance and a developed economy,” emphasises Dr Nikhil Agarwal, Managing Director, Foundation for Innovation and Technology Transfer (FITT), IIT Delhi.

Without strong R&D, India risks remaining merely an assembly center, reliant on foreign technologies. As Dr Agarwal explains, “Investing in indigenous innovation allows India to move up the value chain, generate high-tech jobs, and export globally competitive, IP-based products. It supports key industries such as defence, health, AI, and clean energy, and provides solutions specific to India's challenges. R&D also enhances national honour and brings in foreign investments and collaborations. In short, innovation is non-negotiable if India needs to grow economically and become a global leader.”

Figure 1: Gross expenditure on R&D (GERD) by countries

Source: Economic Survey 2024-25

Innovation drives economic competitiveness by enabling countries to create new markets, improve productivity, and strengthen their global standing. Countries that invest heavily in R&D witness faster GDP growth and better job creation. For example, the US and China have consistently increased R&D spending, with China’s GERD rising from 0.9 per cent in 2000 to 2.64 per cent of GDP in 2023, which has helped it dominate sectors such as AI, 5G, and semiconductors. Israel spends around 5.6 per cent of GDP on R&D, and its vibrant start-up ecosystem has transformed it into a hub for deep-tech innovation.

Importance of R&D for manufacturing sector

R&D is fundamental to the success of the Make in India initiative, which seeks to transform India into a global manufacturing hub. According to Yogesh Pandit, Director of Product Acceleration at FSID (Foundation for Science Innovation and Development), Indian Institute of Science (IISc), “R&D in manufacturing leads to the development of new technologies, more efficient processes, and innovative products, all of which are key to scaling up India's manufacturing capabilities. We need a paradigm shift where R&D is treated as a long-term investment, rather than a short-term expense. While it may take time for R&D to yield tangible results, the benefits in terms of technological advancements and economic growth are significant.”

S Sunil Kumar, Country President, Henkel Adhesive Technologies India, adds, “True self-reliance does not come from assembling products. It comes from designing them, improving them, and owning the IP related to them. That is where R&D becomes the strategic differentiator. India has maintained a steady R&D expenditure at around 0.64 per cent of GDP, laying a consistent foundation for innovation. There is significant opportunity for growth, especially in enhancing private sector participation, which currently accounts for about 36 per cent of total R&D spending. With advanced economies seeing over 70 per cent industry contribution, India is well-positioned to unlock similar potential through increased collaboration and investment.”

Industries such as electronics, automotive, semiconductors, defence, and construction particularly rely on cutting-edge R&D to maintain global competitiveness. The growing demand for semiconductors and next-generation connectivity infrastructure further emphasises the need for robust indigenous innovation. Sectors such as renewable energy, electric mobility, and space technology will also play a decisive role in defining India’s future manufacturing capabilities.

“R&D is crucial for the growth and sustainability of any industry, and this is especially true for the electronics and semiconductor sectors, states Ashok Chandak, President, India Electronics and Semiconductor Association (IESA). “One of the major bottlenecks for India has been the absence of homegrown electronics and semiconductor product companies. India has been highly dependent on global brands for products like mobile phones, televisions, air conditioners, and medical equipment. While some industries like air conditioners have a few Indian brands, others, including mobile phones and TVs, are still dominated by foreign companies,” he elaborates.

Figure 2: Contribution of various entities in R&D spend in India

Source: Economic Survey 2024-25

This dependency on global brands indicates that India lacks a robust R&D ecosystem for creating its own products. Chandak states, “Without significant R&D, India remains largely in the realm of electronic manufacturing services, where profit margins are limited—often less than 10 per cent. By focusing on developing our own products through R&D, India can increase value addition and retain higher profit margins domestically. Creating our own product ecosystem, rather than just assembling products, is essential for building a competitive electronics industry and for retaining economic value within the country.”

Present status of R&D in India

India’s gross expenditure on R&D (GERD) has remained stagnant at around 0.64 per cent of GDP for over a decade, with private sector investment contributing less than 0.3 per cent. By contrast, China spends about 2.6–3 per cent of GDP on R&D, while the USA spends about 3 per cent. Germany has historically spent even more in certain sectors, crossing 6 per cent of GDP in targeted high-tech domains.

In 2023, a total of 3.55 million patent applications were filed worldwide. India accounted for 90,298 of these filings, reflecting a year-on-year growth of 17.2 per cent over 2022 and 25.2 per cent over 2021. While this growth is encouraging, India still lags far behind countries like China, the USA, and Japan in both the volume of filings and the share of patents granted to domestic innovators.

Pandit explains, “India’s journey towards industrialisation began post-independence, when we were not in a strong financial position to heavily invest in R&D. As a result, our focus shifted to manufacturing with limited resources. This historical context has created a manufacturing-first mentality, where the focus is on immediate output rather than long-term technological development.”

Another major hurdle is cultural aversion to risk. R&D is inherently uncertain and requires a long gestation period before results materialise. MSMEs, which form the backbone of India’s economy, often lack the capital and risk appetite to invest in high-cost, long-term innovation. Moreover, there is a significant skills gap—despite producing over 1.5 million engineers annually, India faces a shortage of talent trained in deep-tech and research-oriented fields.

Figure 3: R&D expenditure by leading industries in India

Source: Economic Survey 2024-25

Role of industry-academia collaboration in R&D

One of the most vital enablers of R&D-driven innovation in India is the strengthening of ties between academic institutions and industry. While academia is a powerhouse of theoretical knowledge and foundational research, much of its output remains confined to laboratories or academic journals. As Yogesh Pandit notes, “Academia generates a significant amount of research, but much of it remains confined to labs and academic journals. To truly benefit from this research, it must be translated into commercially viable products and solutions. This is where industry partnerships play a crucial role.”

A significant gap currently exists between the two ecosystems. While universities often specialise in early-stage research such as conceptual development and prototyping, they typically lack the infrastructure and market access required to transform these ideas into commercial products. Conversely, industries usually expect ready-to-deploy solutions and may be hesitant to invest in unproven academic concepts. Pandit emphasises the need for closer alignment between academia and industry to ensure seamless progression from idea to implementation. Institutions such as the Indian Institute of Science (IISc) and IITs serve as models of successful collaboration, acting not only as research hubs but also as innovation enablers. However, to scale such success stories, both sectors must proactively work toward shared goals—academia aligning its research with practical challenges and industries engaging earlier in the R&D pipeline.

Dr Nikhil Agarwal echoes this sentiment: “It is absolutely essential. Academia generates world-class research and talent, yet without industry engagement, much of that research never sees the light of day outside the lab. Industry contributes resources, real-world challenges, and market knowledge to take research and turn it into practical applications. Together, they drive innovation, product development, and patents. With effective collaboration — through research parks, incubators, and government-supported programs — we can accelerate commercialization and establish India as a real global R&D hub. Without this synergy, our research can remain academic and undervalued.”

To foster a more synergistic ecosystem, it is imperative to create structures that bridge this divide. Sunil Kumar outlines key recommendations to enhance India’s R&D capabilities through deeper collaboration:

Joint research initiatives: Programs like the Uchchatar Avishkar Yojana (UAY) and IMPRINT are designed to encourage cooperative research between premier institutions such as the IITs and industrial partners. These schemes help in transforming academic insights into technologies that are scalable and ready for market deployment.
Infrastructure upgradation: Developing centres of excellence and applied R&D hubs across key sectors like electric mobility, cyber-physical systems, and biotechnology is vital. These facilities enable faster prototyping, testing, and commercialisation, and can be tailored to meet domestic and sector-specific demands.
Skill development and talent retention: Structured fellowships like the Prime Minister’s Research Fellowship (PMRF), along with industry-aligned training under the Skill India initiative, aim to cultivate a new generation of researchers equipped with interdisciplinary skills and practical exposure. This dual focus on academic excellence and real-world application ensures the availability of a skilled workforce ready to drive the next wave of innovation.

The collaborative potential between academia and industry remains largely untapped in India, but targeted programs and joint ventures are showing promise. For India to evolve into a global R&D powerhouse, this partnership must go beyond project-based engagements and develop into a long-term, strategic alliance focused on nation-building through innovation.

Start-ups boosting R&D

Start-ups have emerged as vital players in India's innovation ecosystem. “Start-ups will be key in transforming India's R&D landscape. They lead the way in innovation, effectively bridge the industry-academia gap, and accelerate the commercialistion of research,” says Dr Agarwal. In FY24, India granted a record 103,057 patents—a 17-fold increase from FY15—indicating a surge in homegrown innovation.

Start-ups, due to their agility and risk-taking ability, can work on frontier technologies, deep-tech solutions, and prototypes that larger corporations may avoid due to perceived risks. According to Rajesh Subramaniam, CEO & Founder of embedUR Systems, “While R&D investments relative to GDP is low, the increase in total R&D spend aligns with the growth in high-tech and innovation-led start-ups. Start-ups are responsible for a growing share of patents, product prototypes, deep-tech research, and collaborative innovation, which boost output beyond just input metrics.”

Government initiatives such as Startup India, the National Research Foundation, and the Atal Innovation Mission have created an enabling environment for entrepreneurs. However, challenges remain, particularly in providing affordable access to advanced prototyping labs, chip fabrication facilities, and AI compute clusters. Establishing regional infrastructure and simplifying grant processes will further empower start-ups to contribute to India’s R&D goals.

Investing in deep-tech research

Deep-tech sectors—such as AI, semiconductors, biotech, and clean energy—demand high initial investments and long gestation periods. Subramaniam highlights that access to advanced prototyping labs, chip fabrication facilities, and AI compute clusters remains concentrated in a few hubs. To democratise innovation, he suggests establishing regional AI compute clusters and embedded systems prototyping labs under public-private partnership (PPP) models, along with simplifying tax incentives for R&D spending.

Deep-tech R&D will be crucial for areas like generative AI, quantum computing, and advanced materials. For instance, AI in defence applications—such as surveillance, cyber warfare, and autonomous systems—can significantly strengthen national security. Similarly, AI-driven solutions in healthcare, like remote patient monitoring, drug discovery, and personalised medicine, can make quality healthcare more accessible and affordable.

The RDI scheme: A booster dose for R&D

On July 1, 2025, the Union Cabinet approved a landmark $12 billion Research, Development, and Innovation (RDI) scheme aimed at significantly enhancing R&D in India’s technology and electronics sectors. This initiative follows years of industry demand for stronger support in developing indigenous design capabilities, moving beyond India’s traditional role of assembling imported technologies.

Describing the decision as a turning point for India’s innovation journey, Baba Kalyani, Chairman & MD of Bharat Forge Ltd, says, “The Rs 1 trillion RDI scheme marks a defining moment as India accelerates its transformation towards a technology-led, innovation-driven economy and a products nation. This bold initiative will go a long way in catalysing the research & innovation ecosystem of the country.”

Echoing this optimism, Sunil Kumar adds that the scheme directly addresses one of India’s long-standing challenges—low private-sector R&D spending, “RDI Scheme marks a transformative shift in India’s science and innovation strategy. With a bold outlay of Rs 1 trillion, the scheme aims to significantly boost private-sector R&D investment and catalyse industry-led innovation. By providing long-term, concessional funding and creating structured support mechanisms, the RDI scheme is poised to unlock high-impact research, accelerate commercialisation, and position India as a competitive innovation-driven economy. It will encourage companies to invest in high-impact research, especially in emerging sectors like semiconductors, green technologies, electronics, and artificial intelligence. This will not only bridge the gap between academic research and market application but also strengthen India’s position in global value chains by promoting self-reliance and reducing import dependence,” he explains.

Highlighting its potential impact on private R&D participation, Rajesh Subramaniam says, “India currently spends only ~0.65 per cent of GDP on R&D—well below global averages (~2.7 per cent). The RDI scheme offers long-term, low or zero-interest loans and equity to private firms in AI, deep tech, semiconductors, EVs, biotech, clean energy, and other strategic sunrise sectors. Industry leaders see it as a ‘game changer’ for deep-tech and AI, although bureaucratic delays and governance efficiency remain critical for success. This could reverse the current 70:30 public-private R&D funding ratio, shifting more weight to private investment and is expected to unlock Rs?11.5?billion over the initial years, directly tackling private R&D constraints.”

A key strength of the RDI scheme is its focus on public-private partnerships (PPP), encouraging collaboration among industries, start-ups, and academic institutions. Such partnerships will accelerate the development of market-ready solutions, strengthen IP creation, and drive the scaling of indigenous technologies.

Ashok Chandak opines, “The government’s RDI scheme is a timely and important initiative. It encourages collaboration between industry and academic institutions. Under this scheme, industries will be able to sponsor projects in collaboration with institutes, with funding from both the government and industry. This partnership will foster innovation by allowing industries to present problem statements, which academic institutions can address through R&D activities, including Intellectual Property Rights (IPR) creation.”

Chandak emphasises that while R&D is a long-term process requiring 3–5 years for tangible outcomes, the benefits will be significant. “As R&D efforts scale up, we will witness the creation of new product ideas and technologies that will enhance India’s competitiveness, improve profit margins, and open doors for exports. This initiative will allow industries to focus more on product creation, which is essential for India’s sustained growth in electronics manufacturing. Unlike manufacturing services, which can be a short-term strategy, R&D offers long-term benefits, positioning India as a leader in electronic product creation,” he adds.

The RDI scheme’s Rs 1 trillion allocation will span multiple sectors, with a strong emphasis on electronics and semiconductors. Chandak highlights two critical focus areas:

1. Semiconductor product development – creating materials, gases, chemicals, and other inputs essential for chip manufacturing.

2. Electronic product innovation – designing high-impact products such as smartphones, data centre power systems, smart meters, IoT sensors, medical devices, and strategic electronics for defence and aerospace.

He notes, “These sectors offer immense potential for India to drive innovation, reduce import dependence, and create products that meet both domestic and global demand.”

Synergy between RDI and other schemes

Industry experts view the new RDI scheme as part of a broader, integrated strategy that also includes the Production Linked Incentive (PLI) scheme for manufacturing and the Design Linked Incentive (DLI) scheme for chip design. While the PLI scheme is designed to scale up domestic manufacturing, the DLI scheme specifically supports innovation in semiconductor and chip design—both essential for building a strong electronics ecosystem in India.

When combined with the RDI scheme, these initiatives create a comprehensive framework to foster indigenous brands and high-value product development. As Ashok Chandak explains, “It’s a long-term process, and the industry has to be patient. We cannot expect immediate results from R&D; however, once product creation through R&D gains momentum, India will be well on its way to creating globally competitive brands. This transformation will also reduce the country’s dependence on imported electronics and boost exports. R&D is the key to the puzzle. When you look at countries like China and South Korea, they have invested heavily in R&D to create their own electronics and semiconductor products. India is on the right path with these initiatives, and we expect significant growth in domestic product creation in the next 5 to 10 years.”

This multi-pronged approach is expected to strengthen India’s position in global value chains, drive self-reliance, and establish the country as a hub for next-generation electronics and semiconductor innovation.

The road ahead for R&D in India

China’s transformation from a low-cost manufacturing hub to a global leader in advanced technologies such as AI and quantum computing has been fuelled by sustained investments in research and innovation. Between 2000 and 2023, China increased its Gross Expenditure on R&D (GERD) from 0.9 per cent to 2.64 per cent of GDP, signalling a strong national commitment to capability-building. Without adopting a comparable long-term strategy, India risks remaining primarily a consumer of foreign technologies rather than emerging as a global innovator.

Dr Nikhil Agarwal stresses, “India has to emphasize R&D in areas that have a direct bearing on our strategic autonomy and international competitiveness. Fields such as artificial intelligence, quantum computing, and semiconductors are fundamental to determining the direction of technology and national security. No less crucial are clean energy, battery storage, and climate tech to serve our energy priorities and ecological challenges. Biotechnology, space technology, defence innovation, and health technology too need to be focus areas. The objective should not just be to create innovative solutions but to make this R&D translate into local, scalable technologies that enhance India's indigenous capabilities and international credibility.”

Table 1: Share of Patents filed in India by entity

Entities	FY23; 100% (Total: 83K)	FY24; 100% (Total: 92K)
Individuals	19%	17%
Start-ups	3%	3%
SMEs	2%	4%
Educational Institutions	23%	26%
MNCs	45%	42%
Indian Entities	8%	8%

Source: Nasscom's "PATENT PULSE 2025: Decoding India's Ascent in the AI Patent Landscape"

Data from NASSCOM highlights India’s growing innovation potential. Between 2010 and 2025, India filed approximately 86,000 AI-related patents—over 25 per cent of all technology patents during that period. Machine Learning accounted for more than half of these filings, with Generative AI emerging as a significant driver of innovation. However, despite this progress, India’s AI patent grant rate remains only 0.37 per cent, far lower than countries like China and the US, underscoring the need for greater focus on commercialising research outcomes.

According to Rajesh Subramaniam, key priority areas for deep-tech R&D should include:

AI in defence: Applications such as surveillance, cyber warfare, real-time decision-making for drones, and advanced combat systems. Institutions like ISRO, DRDO, and IITs are already playing a vital role in these initiatives.

AI in healthcare: Solutions for affordability, accessibility, and efficiency, including AI-powered remote patient monitoring, faster diagnosis, and drug discovery. These innovations can help India become a global hub for biopharma research.

Semiconductors: Strengthening the India Semiconductor Mission (ISM) to develop fabless semiconductor ecosystems, advanced packaging technologies, and integrated circuit (IC) design capabilities.

The prospects for R&D in India are promising but hinge on substantial, sustained investments from both government and private sectors. As the Make in India initiative advances, domestic innovation will be crucial to ensuring that India does not merely assemble products but designs and manufactures the core technologies powering them. “I see a growing recognition within the government and industry about the importance of R&D. Initiatives like PLI scheme are a step in the right direction, as they provide incentives for domestic manufacturing and innovation. However, we need to focus not just on scaling up production but on developing the technologies that make manufacturing more efficient, sustainable, and globally competitive,” observes Yogesh Pandit.

Innovation must be seen as the foundation of growth, not just a by-product of industrial expansion. True progress cannot simply be bought—it must be developed internally through long-term commitment to R&D. Looking ahead, building a robust and inclusive R&D ecosystem will be essential. This means investing in talent, encouraging closer industry-academia partnerships, and ensuring long-term funding for research and infrastructure. Pandit concludes, “The government must continue to play an active role by creating policies that encourage R&D and by providing the necessary infrastructure and funding support.”

Baba Kalyani, CMD, Bharat Forge Ltd
The Rs 1 trillion RDI scheme marks a defining moment as India accelerates its transformation towards a technology-led, innovation-driven economy and a products nation.

Ashok Chandak, President, IESA
As R&D efforts scale up, we will witness the creation of new product ideas and technologies that will enhance India’s competitiveness, improve profit margins, and open doors for exports.

Dr Nikhil Agarwal, MD, FIIT, IIT Delhi
Start-ups will be key in transforming India's R&D landscape. They lead the way in innovation, effectively bridge the industry-academia gap, and accelerate the commercialistion of research.

S Sunil Kumar, Country President, Henkel Adhesive Technologies India
True self-reliance does not come from assembling products. It comes from designing them, improving them, and owning the IP related to them. That is where R&D becomes the strategic differentiator.

Yogesh Pandit, Director of Product Acceleration at FSID, IISc
Academia generates a significant amount of research. To truly benefit from this research, it must be translated into commercially viable products and solutions. This is where industry partnerships play a crucial role.

Rajesh Subramaniam, CEO & Founder, embedUR Systems
Industry leaders see RDI scheme as a ‘game changer’ for deep-tech and AI, although bureaucratic delays and governance efficiency remain critical for success.

Steps to become R&D leader
To become a leader in technology-driven manufacturing, according to Yogesh Pandit, India needs to prioritise several key steps:
1. Increase R&D investment: The government should aim to allocate a larger share of GDP to R&D, similar to the levels seen in developed countries.
2. Foster industry-academia collaboration: This can be achieved by creating more platforms for collaboration, where academic research can be translated into market-ready products.
3. Focus on talent development: India needs to invest in developing a skilled workforce that is capable of driving innovation. This includes not only engineers but also research scientists, product developers, and managers who understand the importance of R&D.
4. Encourage private sector investment: This can be done through tax incentives, government-backed funding schemes, and creating a culture where long-term R&D investments are seen as critical for growth.
5. Support for deep-tech innovations: India must focus on deep-tech innovations that have the potential to disrupt industries. By focusing on developing breakthrough technologies, India can create products that are not just competitive but also unique on the global stage.

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