Innovation in focus: How India can become a global R&D powerhouse

So far, GoI's flagship 'Make in India' initiative has had a mixed record. While manufacturing's share of the economy has been falling further from its target of 25% of GDP, the programme has still had great success in boosting exports, attracting FDI into manufacturing and enhancing the ease of doing business. However, Make in India's own production-linked incentives (PLIs) are offset by persistent tariff barriers. The programme has also not lived up to its promise to increase employment - particularly among India's most educated workers, whose unemployment rate is nearly double that of their high school-educated counterparts at 19.1%.

Make in India can be made better by shifting focus to employment in more labour-intensive industries, increasing India's global trade competitiveness and by GoI fully embracing an ancillary 'Innovate in India' campaign focused on facilitating India's rise as a global R&D hub and generating employment for high-skill workers.

Global companies are already hungry to develop R&D capacity in India. GE Healthcare just opened its first 5G innovation lab in Bengaluru last month. Medtronic, manufacturer of life-saving ventilators delivered to India during the Delta wave, opened the first surgical robotics centre in the Asia-Pacific in Gurgaon last year. Global food company Cargill and medical device manufacturer Stryker opened new R&D facilities in the city this year as well. Walmart Global Technology has entered into a research partnership with IIT Madras, and will conduct R&D in the IIT Madras Research Park, along with pharma giant Pfizer. Medtech leader Boston Scientific recently opened its second R&D centre in Pune.

In addition to dozens of major research and innovation centres, the number of global capability centres (GCCs), which provide supportive R&D and IT functions, employ over 1 million people and are set to grow to over 1,900 by 2025. Of these GCCs, some 65% belong to US companies.

This intense interest by global industry is despite persisting disincentives to expand capacity into India - an underdeveloped intellectual property rights (IPR) regime, schemes that discriminate against foreign firms and uncertainty around data protection. Which only serves to illustrate the more foundational strengths that make India a prime candidate for R&D investment. GoI can fully realise India's R&D potential by making a concerted effort to address these disincentives. Data regulations should avoid imposing restrictions on data flows that impede service quality and innovation.

GoI should start levelling regulatory incongruities that undermine efforts to attract FDI. Additional moves to strengthen India's innovation ecosystem include reforming the patent opposition process to prevent abuse and undue delays, and reworking the pricing system in therapeutics to reward innovative IPs, instead of penalising them with price controls that focus on immediate costs rather than the promotion of a virtuous cycle of reinvestment.

A logical next step would be to complement the successful PLI schemes with design- and research-linked incentives (RLI), rewarding global firms that expand research capacities in India. A comprehensive RLI scheme can encourage even more global companies to open R&D centres in India, creating thousands of high-skill jobs. Currently, India spends among the lowest in the world on R&D as a share of GDP, falling to 0.7% in most recent figures. This is mostly due to underspending by the private sector. Investments and incentives are long overdue.

These incentives can accelerate the solution to India's distressingly high rate of unemployment among graduate degree-holders. Currently, unemployment among the well-educated is three times the national average, as ambitious young people fail to find jobs commensurate with their skill level. Innovate in India, powered by RLIs, could provide an answer by attracting a large volume of high-skill jobs.

Transitioning India's educated youth from classrooms into careers will also require reforms to strengthen industry-academia linkages. As part of Innovate in India, GoI should spearhead an academic reform initiative incentivising institutions to pursue IP creation, licensing relationships and the creation of commercially viable inventions - as well as incorporating into curricula global best practices in research processes and training on international standards, product testing and certifications.

To fully capture the benefits of these academic reforms, GoI should also continue its spirit of creating digital public goods and add to the India Stack a central repository of research to serve as an e-auctioning portal for innovations. Here, individuals and institutions could upload research and product designs to sell or license to buyers in an online marketplace, supercharging the transfer of innovations between academia and industry.

The time for reform is ripe, and we have the opportunity to leverage India's human capital to make the nation a global R&D capital. Innovate in India is a good place to start.