India’s R&D expenditure low at 0.6-0.7% of GDP, should be raised to 2%: CareEdge
Says countries like the US spend nearly 3-3.5% of GDP on R&D, while China spends close to 2.5% and South Korea about 4-5%
- May 20, 2026,
- Updated May 20, 2026 3:41 PM IST
India’s import bill has been rising steadily with the government now looking to curb non-essential imports, but a key reason for domestic manufacturing capabilities not keeping pace with economic growth could be low spending on research and development (R&D).
India’s R&D expenditure remains low at about 0.6–0.7% of GDP, significantly below global innovation leaders, said a new paper by CareEdge Ratings. Countries like the US spend nearly 3-3.5% of GDP on R&D, while China spends close to 2.5% and South Korea about 4-5%, it said.
According to the report, R&D spending among listed Indian companies is concentrated only in a few sectors, primarily automobiles, pharmaceuticals, chemicals, and metals, while the broader industrial base remains under-invested.
Further, innovation that emerges from this spending tends to be incremental rather than path-breaking, with Indian firms generally following global developments instead of leading them. “As a result, the country has yet to secure a meaningful first-mover advantage in novel discoveries. For example, top innovator pharma companies on an average spend about 20% of revenue on R&D, which remained at nearly 6% for top Indian pharma companies,” said the report.
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It contended that low R&D investment in India has also limited the development of advanced manufacturing, keeping the economy focused on low-to-mid-tech production. This makes it harder for India to compete with innovation-driven exporters such as China, South Korea, and developed economies such as the US, Germany, and Japan.
For instance, China has leveraged sustained R&D investment to transition into high-technology sectors such as electric vehicles, advanced battery materials, drones, semiconductors, and telecommunications, while South Korea demonstrated strong corporate-led innovation through private firms that can underpin global export competitiveness, it said.
“India should target to increase its R&D spend to ~2% by 2035 in line with its Asian peers, to enhance the share of manufacturing in GDP, which will require, greater private-sector participation, stronger innovation ecosystems and improved research-to-commercialisation pipelines,” said Ranjan Sharma, Senior Director, CareEdge Ratings.
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Despite several measures from the government, manufacturing output in India has not expanded significantly. The report, in fact, pointed out that India’s manufacturing output increased to $493 billion in 2024 from $328 billion in 2015, but its share in GDP declined to 13% from 16% in the same period.
“India’s manufacturing growth has been largely volume-driven so far; but sustaining global competitiveness will require a decisive shift towards innovation and R&D-led industrialisation. Strengthening private-sector participation and improving research commercialisation will be critical to unlocking higher value addition,” said Krunal Modi, Director, CareEdge Ratings.
India’s import bill has been rising steadily with the government now looking to curb non-essential imports, but a key reason for domestic manufacturing capabilities not keeping pace with economic growth could be low spending on research and development (R&D).
India’s R&D expenditure remains low at about 0.6–0.7% of GDP, significantly below global innovation leaders, said a new paper by CareEdge Ratings. Countries like the US spend nearly 3-3.5% of GDP on R&D, while China spends close to 2.5% and South Korea about 4-5%, it said.
According to the report, R&D spending among listed Indian companies is concentrated only in a few sectors, primarily automobiles, pharmaceuticals, chemicals, and metals, while the broader industrial base remains under-invested.
Further, innovation that emerges from this spending tends to be incremental rather than path-breaking, with Indian firms generally following global developments instead of leading them. “As a result, the country has yet to secure a meaningful first-mover advantage in novel discoveries. For example, top innovator pharma companies on an average spend about 20% of revenue on R&D, which remained at nearly 6% for top Indian pharma companies,” said the report.
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It contended that low R&D investment in India has also limited the development of advanced manufacturing, keeping the economy focused on low-to-mid-tech production. This makes it harder for India to compete with innovation-driven exporters such as China, South Korea, and developed economies such as the US, Germany, and Japan.
For instance, China has leveraged sustained R&D investment to transition into high-technology sectors such as electric vehicles, advanced battery materials, drones, semiconductors, and telecommunications, while South Korea demonstrated strong corporate-led innovation through private firms that can underpin global export competitiveness, it said.
“India should target to increase its R&D spend to ~2% by 2035 in line with its Asian peers, to enhance the share of manufacturing in GDP, which will require, greater private-sector participation, stronger innovation ecosystems and improved research-to-commercialisation pipelines,” said Ranjan Sharma, Senior Director, CareEdge Ratings.
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Despite several measures from the government, manufacturing output in India has not expanded significantly. The report, in fact, pointed out that India’s manufacturing output increased to $493 billion in 2024 from $328 billion in 2015, but its share in GDP declined to 13% from 16% in the same period.
“India’s manufacturing growth has been largely volume-driven so far; but sustaining global competitiveness will require a decisive shift towards innovation and R&D-led industrialisation. Strengthening private-sector participation and improving research commercialisation will be critical to unlocking higher value addition,” said Krunal Modi, Director, CareEdge Ratings.