How an increase in R&D spending can boost the small business ecosystem
India
is falling behind in research and development (R&D), revealing a notable disparity across key sectors. In fact, there is a stark difference in the gross expenditure on research & development (
GERD
) between India and other countries.
While the GERD is a mere 0.64% of the gross domestic product (GDP) in India, business enterprises contribute over 50% to the GERD in most developed and emerging economies. In fact, the Eco Survey stated that this share exceeds 70% in countries like China, Japan, South Korea and the USA.
What factors contribute to India's lag in R&D spending? Why is R&D central to boosting MSME performance?
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Rohinton Sidhwa, Partner, Deloitte India, said that R&D boosts innovation and has a remarkable effect on the competitive advantage of its
small business
ecosystem. 'MSMEs depend on inputs that help serve their market with an element of stability. One of these inputs is innovation and technology, and since they are dependent on this input coming and being paid for from overseas, it significantly strains their overall business models. The last few years have seen a huge increase in currency-related costs and fractured trade relations. Locally sourced R&D can give MSMEs and startups a huge advantage,' he says.
The Economic Survey also pointed out that the industrial R&D in India is not only low but also concentrated within specific sectors. Drugs and pharmaceuticals are leading the way, followed by information technology, transportation, defence, and biotechnology.
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The Survey also noted that historically, India's R&D focus has been on basic research rather than applied research. 'This often lacks the practical applications needed to attract private investment. This gap needs to be bridged to streamline and drive innovations and investment across multiple sectors. To bridge this gap, we need to foster industry/academia collaboration, enhance private-sector participation, and prioritise applied research. And the private sector needs to respond to the R&D challenge wholeheartedly,' the Survey stated.
MSMEs are of the view that investing more in R&D can enable the sector to do more than merely remain competitive, as it makes them drivers of innovation. Drawing a parallel with developed economies, they say that small companies flourish here within established innovation ecosystems. 'Take Germany, for instance, where many mid-sized appliance makers work closely with research institutions to embed IoT and automation into conventional home appliances. India needs a similar ecosystem, especially for MSMEs. Home-grown innovations, like voltage-stabilised electronics or water-efficient washing systems, have the potential to create significant local impact when backed by the right R&D support,' says Abhishek Gupta, Director of Finance and Operations at Summercool Home Appliances.
Previously, the firm had allocated Rs 2 crore annually toward research and process upgrades. This year, they have ramped it up to nearly Rs 3 crore in light of a broader product portfolio. 'This increased focus is facilitating us to develop more advanced, user-centric appliances, improve energy efficiency, and stay ahead of new directions in technology. Our efforts are on delivering smarter air coolers, energy-saving washing machines, and technology-fused televisions aligned with Indian consumers' evolving needs,' he adds.
Echoing similar sentiments, Devesh K Singhal, Director and CEO (Technical) of paper manufacturing company Chandpur Paper, says that enabling MSMEs in this journey is important to India's overall innovation and sustainability strategy as an emerging economy. 'Targeted R&D allows us to investigate options such as alternative sources of fibre, lower consumption of water and energy, and better product quality. Paper per capita consumption in India is far less than global standards, indicating vast untapped potential,' he states.
The firm commits 2-3% of their yearly operational expenses to research and innovation. 'Our recent efforts have included enhancing the surface finish and printability of our MG Poster and Chromo (C1S) papers, in addition to adopting water-saving practices and energy-saving technologies,' he adds.
Rooting for a more robust policy environment in favour of MSME-driven R&D, Singhal states that this can translate to effective changes on the ground. 'An increased focus on industry-oriented educational curriculum and training and availability of small target-oriented training modules by academic institutions will help the sector be at the forefront of India's manufacturing future,' he emphasises.
On the occasion of
World MSME Day
on June 27, 2025, ET Digital will also open registrations for its sixth edition of the
ET MSME Awards 2025
. The coveted award programme celebrates India's top MSMEs for their achievements and contribution to the nation's economic development.
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