One reason why the Indian industry was lagging behind China in the global supply chain was a lack of resource allocation for research and development. As a result, innovation suffered, and so did manufacturing. Manufacturing share in India’s gross domestic product (GDP) has been hovering around 15-16 per cent for decades, and reaching the 25 per cent goal has remained a pipedream.
With the world powers aiming for diversification of the supply chain, which is concentrated in China, India finally has a chance to achieve the goal of a 25 per cent share of manufacturing in GDP in the next two decades.
On July 1, the Union Cabinet approved the Research Development and Innovation (RDI) scheme with a corpus of Rs 1 lakh crore to support RDI in sunrise domains, finance technology projects, acquire technology and set up a deep-tech fund of funds.
The objective is to cover the entire journey from R&D to product development using indigenous technology without any fear of making losses. The government will have the companies back by providing low-cost or interest-free long-term loans, such as loans that could even be up to 50 years. Essentially, these soft loans are more like grants.
This will encourage the private sector to scale up research and innovation significantly in sunrise domains. This scheme will combine the powers of India’s youth and technology.
The scheme should boost Indian technology in emerging areas, not imported technology. Indian research institutions come up with various technologies through their research and development. But this technology might already have been available abroad. Normally, Indian firms take tested foreign technology as they would not likely go for untested local technology.
The culture of preferring foreign technology over indigenous tech should change for good.
If the government provides long-term, cheap loans, then the ability of a company to develop the technology, even if it takes three years or five years, is pretty significant. There’s no excuse now for companies to say capital is a constraint.
The key objectives of the scheme are to encourage the private sector to scale up RDI in sunrise domains and other sectors relevant for economic security, strategic purpose, and self-reliance. Secondly, it will finance transformative projects at higher levels of technology readiness levels (TRL).
It will also support the acquisition of technologies which are critical or of high strategic importance and facilitate the setting up of a deep-tech fund of funds.
Since the Governing Board of Anusandhan National Research Foundation (ANRF) will be chaired by the prime minister himself, it shows that the scheme is closely aligned with India’s aim of becoming a developed nation with a well-grounded manufacturing muscle.
The RDI Scheme will have a two-tiered funding mechanism. At the first level, there will be a special purpose fund (SPF) established within the ANRF, which will act as the custodian of funds. From the SPF funds, shall be allocated to a variety of second level fund managers.
Financing in the form of equity may also be done, especially in case of startups. Contribution to deep-tech fund of funds (FoF) or any other FoF meant for RDI may also be considered.
India spends annually close to Rs 1.8 lakh crore on defence capital expenditure, a substantial portion of which is used to acquire military gear from other countries, thereby creating jobs overseas. If the defence capital expenditure is almost fully spent in India, many large Indian companies will emerge in the sector and create jobs locally. These domestic players can also be part of the global supply chain and export to other countries.
The RDI scheme could be a boon for deep-tech technologies, which will help the defence sector become Aatmanibhar (self-reliant). Deep tech refers to technologies that are based on scientific discoveries and engineering innovations, often requiring substantial R&D investments and having the potential for significant impact across various industries.
India’s defence acquisition has the potential to become an active enabler in ensuring smooth implementation and timely funding of hi-tech defence gear projects, particularly from start-ups, MSMEs, and the private sector.
Similarly, the government and private sector should collaborate to promote indigenous technology to be adopted by the private sector in cutting-edge areas. These would be technologies of the future in energy, and electronics, among others.
India has a large pool of highly skilled engineers, scientists, and researchers, many of whom are engaged in cutting-edge research and development in deep tech areas. India has a natural advantage in cutting-edge technology areas in IT, product, and software development, which often have functions that can affect multiple industries.
Initiatives such as industry-academia partnerships, technology incubators, and accelerators facilitate collaboration and support the commercialisation of deep tech research. While India has made significant strides in deep tech, there are still challenges to overcome, such as the need for greater investment in R&D, improvement in infrastructure, and addressing regulatory and policy hurdles.
India’s gross expenditure on R&D was one of the lowest among major economies at around 0.7 per cent of GDP compared with its BRICS peers— China (2.4 per cent), Brazil (1.3 per cent) and Russia (1.1 per cent).
India is the latest large country which is trying to cover the gap with many developed/developing countries which have adopted large-scale funding mechanisms for R&D to produce cutting-edge technology.
The RDI scheme has the potential to transform India’s energy security and transition, climate action, quantum computing, robotics, and space. Companies can take advantage of the scheme for the application of Artificial Intelligence to India-specific challenges in agriculture, health, and education.
Other areas which could benefit include biotechnology, bio-manufacturing, synthetic biology, pharma, medical devices and digital agriculture. It should also benefit technologies required for strategic reasons, economic security, self-reliance or public interest.