The government spending on R&D accounts for 50% of the total investment, whereas the industry infuses only 41% despite various incentives offered by the government through various schemes
Economic Survey 2024-25 released on Friday highlighted concerns regarding limited progress on design and component manufacturing despite much buzz around domestic manufacturing and ‘Make in India’ initiatives. Citing India’s electronic market, which accounts for only 4% of the global market, Chief Economic Advisor (CEA) V Anantha Nageswaran stated the private sector in India has focused more on assembly than design and component manufacturing.
“The industry has largely focused on assembly, with limited progress in design and component manufacturing,” the economic survey stated.
Nageswaran in the survey listed out the number of schemes and initiatives undertaken by the government to boost manufacturing in India, like ‘Make in India’, ease of doing business and the production-linked incentive (PLI) scheme to push manufacturing in 14 key sectors including electronics.
Addressing the press conference post survey release, Nageswaran raised concerns regarding limited and sector specific investment on research and development by the private sector. The government spending on R&D accounts for 50% of the total investment whereas the industry infuses only 41% despite various incentives offered by the Indian government compared to peer countries, he added.
“Only 41% R&D investment happens from the private enterprises... This is one area where the private sector can contribute...whatever R&D happens in the private sector is not only low but is also sectorally concentrated, that is one area of improvement,” said CEA Nageswaran.
However, this isn’t the first time CEA has flagged this issue. The economic survey of 2023-24 stated the private sector’s R&D spending accounted only for 36.4% as compared to 77% in China and 75% in the United States. According to Outlook Business analysis, by the end of FY24, average R&D spending as a percentage of net turnover of Nifty50 companies accounted for only 0.79%.
Mukesh Ambani-led Reliance Industries R&D expenditure was only 0.4% of its consolidated revenue in FY24. Tata Consultancy’s spending on R&D too accounted for just 0.17% of its consolidated revenue in FY24.
Last year in December, the Electronics and Computer Software Export Promotion Council (ESC) urged finance minister Nirmala Sitharaman to launch a design-linked incentive (DLI) scheme to promote R&D and innovation in capital-intensive electronics. Additionally, ESC also suggested an additional income tax reduction for corporates spending more than 3% of their turnover on R&D.
“Calibrated incentive system designed to empower industry players could motivate nascent industry units to move in the R&D value chain in cutting-edge technology domains,” said ESC in a release, according to PTI.