India has demonstrated remarkable capabilities in complex technology sectors through government-driven initiatives. According to reports from Business Standard, the country has successfully built a ballistic nuclear-powered submarine, a feat achieved by only four other countries globally. India's space and missile programs have achieved world-class status, with the Agni VI representing a truly intercontinental ballistic missile capability. The fast breeder reactor programme and digital public infrastructure have also proven unique and scalable solutions serving millions of Indians.
Despite government successes, India's innovation landscape shows a stark private sector divide. As reported by Business Standard, more than 60% of R&D spending in India is government-funded, contrasting sharply with other countries where private sector dominance prevails. While smaller companies and startups demonstrate innovation activity in areas like space tech, defence, electrification, and additive manufacturing, larger Indian companies show minimal cutting-edge research capabilities, with exceptions primarily in the pharmaceutical sector. The analysis suggests that large companies prioritize short-term financial metrics over long-term R&D investments.
According to India's Chief Economic Advisor V Anantha Nageswaran, the lack of private sector R&D investment stems from multiple systemic and cultural factors. A large captive market insulates producers from export competition, reducing incentives for frontier innovation as companies can grow serving a billion-plus consumers without venturing beyond the Subcontinent. The competitive demands of popular democracy create uncertainty that pushes up discount rates, making long-term R&D investments unviable. As Nageswaran explains, "The greater the uncertainty about the conditions under which a long-horizon investment must eventually pay off, the higher the discount rate applied to it." The volatile environment of the last 15 years, including the 2008 financial crisis, Eurozone debt crises, Covid lockdowns, and geopolitical tensions, has further discouraged decade-long R&D commitments.
India's innovation challenges stem from deep-rooted historical and cultural factors that have shaped business orientation. According to Nageswaran's analysis, India's dominant business communities have been mercantilist and trading-oriented rather than manufacturing or innovation focused, with manufacturing instincts systematically suppressed during colonial rule. The de-industrialisation documented by economic historians, including the destruction of India's textile industry, reshaped enterprise toward commerce and intermediation rather than production and innovation. Additionally, India's corporate sector absorbed financialised capitalism before developing manufacturing depth, unlike Germany, Japan, and South Korea, which financialised only after decades of compounding returns on productive investments.
The report identifies two potential catalysts for India's innovation transformation. According to Business Standard, enhanced competitive intensity across sectors through new market entrants, whether startups or foreign players, could force established companies to invest in R&D. Alternatively, a major research success delivering billions in cash flow could serve as a wake-up call for corporate India, demonstrating the asymmetric returns possible from innovation investments. The analysis emphasizes that without significant changes in how large Indian companies approach R&D, the country risks falling behind in global innovation despite having adequate human talent and startup momentum. Nageswaran concludes that India's ambitions for influence in a multipolar world depend on the technological capabilities of its private sector, stating that "Strategic leverage in the 21st century is not purchased with diplomatic skill alone. It is underwritten by industrial capacity."
