According to the latest Niti Aayog report titled Ease of Doing Research & Development in India - Removing Obstacles, Promoting Enablers, the government is proposing to restore the 5% GST slab for R&D procurement to increase effective usable funds available to research institutions. As reported by Niti Aayog, a 5% GST slab was available till June 2022, but the Centre did away with the concessional rates at the 47th GST Council meeting, following which public-funded institutions have been paying standard GST rates of 12-18% for research-related procurements. The report states that "this reduces the actual availability of already limited R&D funds" and emphasizes the need to restore this concessional rate to strengthen the nation's research and development capabilities. The restoration is particularly crucial as higher taxes are making it harder for research centers, especially those already on tight budgets, to do their work.
According to the latest Niti Aayog report, India should significantly enhance its investment in research and development from the current level of 0.64% to at least 2% of GDP in the next four to five years. As reported by Business Standard, this recommendation aims to strengthen the country's R&D ecosystem through increased national investment in research and development activities. The report highlights that India's R&D spending as a percentage of GDP is considerably lower than other major economies, with China investing about 2.4%, the United States around 3.5%, and South Korea over 4.9%, while the global average is estimated at 1.18% or more. India's R&D spending has remained stagnant for years, fluctuating between 0.6% and 0.7% of GDP. The report hopes this boost will spark more innovation and help tackle big challenges facing the country.
A major barrier to India's R&D progress is the consistently low involvement of the private sector, which accounts for only 36-41% of R&D spending compared to over 70% in leading innovation economies. The report notes that only about 60% of allocated R&D funds were utilized in a recent financial year, raising significant concerns about execution and administrative preparedness. Bureaucratic hurdles, including complex application processes and rigid financial rules, further hinder the effective use of research grants, leading to delays and underutilization. Despite progress in research publications and innovation rankings, these inefficiencies impact India's long-term competitiveness and ability to translate promising early-stage research into scalable commercial products.
The report suggests that India needs to introduce time-bound, incremental fiscal incentives to boost private sector investment in R&D. According to Niti Aayog, the government should consider restoring a 5% GST slab for R&D procurement to provide better support for research activities. Additionally, the report recommends adding the reporting head of R&D expenditure under Schedule III of the Companies Act 2013, Section 129, to provide better data about private sector investment in R&D and sensitize companies to consider higher investments. The report also suggests better use of Corporate Social Responsibility (CSR) funds and offering higher tax deductions for individual contributions to R&D under Sec. 133 of the Income Tax Act 2025.
The report recommends creating an inter-departmental committee within the Ministry of Science & Technology that meets at regular intervals to target synergy and complementarity of schemes and calls across constituent departments and funding agencies. According to Niti Aayog, this committee would ensure avoiding or minimising duplication of schemes across departments, addressing the current inefficiencies in the funding ecosystem. The report notes that while overall allocations have increased in absolute terms, the level of investment relative to GDP remains low, with the funding ecosystem heavily dependent on public sources. The committee would also potentially add a dedicated R&D expenditure reporting category under the Companies Act to improve transparency and accountability in private sector R&D investments.
The report highlights significant challenges related to human resources in India's research ecosystem. Despite India's large pool of young talent, the overall density of researchers remains low, with India having fewer researchers per million people compared to other leading countries. The postdoctoral ecosystem is particularly underdeveloped, limiting the continuity and depth of research. The R&D funding system is also unevenly distributed, with a large portion of funds going to a few top institutions, leaving state universities with fewer resources. This imbalance, combined with red tape in releasing funds and inflexible institutional structures, can stifle innovation and make it hard to keep talented researchers in the country. The repeated issue of underutilized funds suggests that simply increasing budgets won't be enough without improving governance and processes.
