How India’s 1 Trillion Innovation Fund Can Fuel Deep Tech and Growth

According to the latest data from the World Bank, India's gross domestic expenditure on R&D (GERD) was only 0.65% of its GDP in 2019, well below the global average of 2.4%.

Introduction

India is a country with immense potential for innovation and research, especially in the fields of emerging and advanced technologies. However, it has been lagging behind its global peers in terms of R&D spending, patent filings, and private sector participation. To address this gap, the government has announced a bold and ambitious scheme in the interim budget 2024: the Anusandhan fund, which aims to provide 1 trillion rupees (about $13.6 billion) for long-term financing of R&D projects in sunrise domains, including deep tech and defence technology.

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Why India Needs an Innovation Fund

India’s R&D spending is relatively low, compared with developed nations and even BRICS countries. According to the latest data from the World Bank, India’s gross domestic expenditure on R&D (GERD) was only 0.65% of its GDP in 2019, well below the global average of 2.4%. Among the BRICS countries, Brazil, Russia, China, and South Africa allocated approximately 1.2%, 1.1%, over 2%, and 0.6% of their GDP to R&D, respectively.

India’s low R&D investment also results in fewer patent filings compared to its peers. A recent paper by the Economic Advisory Council to the Prime Minister (EAC-PM) revealed that India filed only 58,502 patents in 2020-21, just 4% of China’s filings and 9% of the US’s.

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Private Sector’s Reluctance

A major barrier to increasing R&D spending in India is the private sector’s reluctance to invest and a heavy dependence on government funding. In India, the government accounts for more than half of R&D expenditure, unlike in other countries where the private sector leads. While the corporate sector contributes about two-thirds of gross domestic expenditure on R&D (GERD) in leading economies, its share in India is only 37%.

One of the reasons for the private sector’s hesitation toward R&D investment is the lack of adequate and affordable funding options. R&D projects are often risky, uncertain, and long-term in nature, requiring high upfront costs and offering low returns. Therefore, conventional sources of finance, such as banks and equity markets, are not suitable or attractive for R&D financing. Moreover, India’s financial system is dominated by banks, which are risk-averse and prefer lending to established and profitable businesses rather than start-ups and innovators.

Another reason for the low private sector involvement in R&D is the weak intellectual property rights (IPR) regime and enforcement in India. India ranks 40th out of 53 countries in the International Intellectual Property Index 2021, scoring 38.4 out of 100, below the global average of 50.01

Therefore, India needs a dedicated and large-scale fund to support R&D and innovation in the private sector, especially in the domains of emerging and advanced technologies, such as deep tech, artificial intelligence, biotechnology, nanotechnology, quantum computing, and so on.

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What is the Anusandhan Fund?

The Anusandhan fund, announced by Finance Minister Nirmala Sitharaman in her interim budget speech on February 1, 2024, is a bold and ambitious scheme that aims to bridge the gap between India and the global R&D leaders. The fund proposes to provide 1 trillion rupees (about $13.6 billion) for long-term financing of R&D projects in sunrise domains, including deep tech and defence technology. It would offer 50-year interest-free loans to innovators and researchers, with long-term refinancing and repayment options. The fund would also provide grants and equity support to start-ups and MSMEs engaged in R&D and innovation. fund has been welcomed by the industry and academia, as it could significantly boost R&D investments and outcomes in India. Some of the benefits of the fund are:

-It is also more than 10 times the size of India’s National Research Foundation, which has a budget of ₹50,000 crore (about $6.8 billion) for 2021-2026.

It could increase the R&D spending in India, both in absolute and relative terms, and help India achieve its target of 2% of GDP on R&D by 2030.

It enhance the private sector participation in R&D, especially in the domains of emerging and advanced technologies, and reduce the dependence on government funding.

-It could improve the patent filings and quality in India, and create more intellectual property assets and value for the country.

Conclusion

The Anusandhan fund is a visionary and timely scheme that could transform India’s innovation landscape and propel India to the forefront of the global R&D scene. The fund could be a catalyst for creating a culture of innovation and entrepreneurship in India, and unleashing the power of deep tech and defence technology for the country’s security and development. The fund could also be a model for other developing countries that aspire to become R&D and innovation leaders in the world. It could be a win-win proposition for India and the world, as it could contribute to the advancement of science and technology, and the creation of a more prosperous and peaceful world.

Editorial Team
Editorial Team
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