RDI scheme: India can't count on loans to set off an R&D boom

Mint

a day ago

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In the final budget for 2024-25, the government had announced a scheme with a corpus of ₹ 1 trillion to promote research, development and innovation (RDI) in India's private sector. Almost a year later, the Centre has unveiled a broad outline for this programme. Sure, it is better than nothing, but, as it stands, it seems unlikely to ignite much innovative passion.
In the final budget for 2024-25, the government had announced a scheme with a corpus of ₹ 1 trillion to promote research, development and innovation (RDI) in India's private sector. Almost a year later, the Centre has unveiled a broad outline for this programme. Sure, it is better than nothing, but, as it stands, it seems unlikely to ignite much innovative passion.
Given the dismal track record of our private companies on R&D—as a nation we spend less on it than what Amazon does in a year and only 37% of that sum is by private entities—we need a whole lot more than the offers of cheap finance that this RDI scheme proposes to make. Large established businesses are turning their attention to such exciting sectors as paint, jewellery retail and ethnic-wear.
For innovative work in deep tech and other frontier fields, we need smaller R&D-focused firms and ambitious startups to make headway. These businesses need far more than mere access to funds, even if this is a prerequisite.
An entire sphere of opportunity is opening up in indigenous defence production. As Nato countries propose to step up their defence outlays from the bloc's average of 2.5% to 5% of GDP by 2035, 70% of it on arms and the rest on strategic infrastructure, their combined spending would enlarge significantly. Japan and South Korea are also being pushed by the isolationist drift of US foreign policy to arm themselves better.
As these rich countries spend more on their armoury, they are likely to generate demand that will outpace supply and push up prices across the world. India has been among the world's largest importers of arms for several years and our acquisition budgets would be wasted on the bloated prices of scarce equipment. We have no option but to gradually replace imports with Indian-made hardware that's at least just as good. This challenge is most acute in categories that are evolving fast to enable new modes of combat. Drone warfare, for example, is about infotech sophistication.
Data communication, which involves satellites, needs a defence apparatus of its own, since bursts of microwave radiation can fry electronics in orbit and jamming an adversary's network could confer a battlefield advantage. Artificial intelligence is in play too. Clearly, we need tech advances at home that don't just keep up with those of others, but aim to get ahead.
All this calls for specific kinds of R&D, for which a common set of expensive equipment would be required. Ideally, the Centre should set up fully-equipped contract manufacturing facilities across the country in partnership with private players. Startups could then use these on a time-share basis or by contracting specific research tasks to them. Our lack of R&D infrastructure is not the only concern.
Given the uncertain outcomes and risky financial rewards of R&D, it rarely takes off on the strength of loans, no matter how low their rates of interest are. As the global experience shows, it calls for grants or equity funds. A good way to boost the supply of venture capital is not to tap the Union budget, but to get pension funds to allocate a sliver of their giant corpuses to well-aimed innovative ventures.
The returns may vary from zilch to spectacular, but a diverse portfolio could pay back well on the whole. If pension scheme subscribers are asked if they would be willing to let some money be deployed for national defence, they'd probably say 'yes.' For an R&D boom that gets us ahead, we need to widen our approach. Effective RDI calls for much more than the current RDI scheme. Topics You May Be Interested In