Promoting Innovation Among Private Sector in India

Abstract

Since the 1991 reforms, India has bet its growth on the private sector. But a private company's success now rests less on liberalisation and more on its ability to innovate. This paper argues one thing: India's innovation policy points in the right direction, yet it keeps failing at the same step, putting patient, risk-sharing money behind private research. A state cannot invent its way to a knowledge economy by doing R&D itself; its real job is to de-risk private innovation. The single most useful reform is therefore not another slogan, and not the vague pledge to “raise R&D to 2% of GDP,” but one concentrated, rules-based instrument: a matching innovation fund modelled on the United States' SBIR programme and Switzerland's Innosuisse, and housed inside India's new Anusandhan National Research Foundation (ANRF).

From liberalisation to a “decade of innovation”

In 1991, India's industrial policy turned towards privatisation, liberalisation and globalisation, and the private sector has grown its influence in almost every sector since. Yet that growth is not sustained by open markets alone, it depends on the private sector's capacity to create new products, processes and technologies.

In 2010, then-President Pratibha Patil declared 2010 to 2020 “the decade of innovation.” India had, and still has, an extraordinary demographic advantage: about 379 million people, roughly 31% of the population, were aged 18 to 35 (Census of India, 2011). But a young, educated workforce is only an asset if it can build things and find work, and much of this cohort has struggled to do either. The government's bet has been that supporting innovation strengthens entrepreneurship, which in turn creates jobs and accelerates growth. Programmes from the National Innovation Council (2010) and the Science, Technology and Innovation (STI) Policy 2013 to Startup India, Stand Up India and Skill India after 2014 all rest on that logic.

The real bottleneck: India under-spends on R&D, and business barely shows up

Here the diagnosis has to be precise, because the usual figures are out of date. India's Gross Expenditure on R&D (GERD) was 0.64% of GDP in 2020 to 21 (about ₹1.27 lakh crore), not the ~0.9% often quoted (DST, 2023). That is among the lowest ratios of any large economy. Worse, the money came overwhelmingly from the state: the central government alone accounted for about 43.7% of GERD, and the whole business-enterprise sector for only around 40% over the preceding five years (DST, 2023). In a country whose growth story is supposedly private-sector-led, private industry was funding under half the nation's research.

There is one genuinely encouraging turn. In 2023 to 24, India's total R&D spending reached about ₹2.45 lakh crore, and, for the first time, private-sector R&D (₹1.27 lakh crore) overtook government spending (₹1.18 lakh crore) (The Tribune, 2026). That is exactly the direction this paper wants to accelerate. But the level is still far too low: innovation leaders such as Switzerland spent about 3.2% of GDP on R&D in 2023, roughly five times India's intensity (The Global Economy, 2023). India has promised to reach 2% of GDP since at least the 2013 STI Policy, and has not come close.

Behind that headline sit the familiar, self-reinforcing problems the private sector runs into: fragmented and overlapping innovation policies wrapped in red tape; funding procedures that are slow, cumbersome and built to expect quick, quantifiable returns, when innovation pays back late and uncertainly; thin early-stage, risk-sharing capital; weak links between industry (especially MSMEs) and academic or R&D labs, which can usually only offer lab- or pilot-stage technology; a schooling system tuned to grades rather than problem-solving; and a weak, slow, expensive intellectual-property regime. These are not nine separate crises. They are symptoms of one binding constraint: there is almost no patient public capital that shares the technical risk of private research and pulls private money in behind it.

What India has tried, and why it hasn't moved the needle enough

The policy scaffolding is real and, in places, working. The STI Policy 2013 promised to lift GERD toward 2% of GDP, to build a public-private R&D foundation, and even to create a “risky idea fund” (Ministry of Science and Technology, 2013). After 2014, Startup India, Stand Up India and Skill India added recognition, tax benefits and loan facilitation. The results are visible: India had about 1.59 lakh DPIIT-recognised startups by January 2025 and is now the world's third-largest startup ecosystem (The Tribune / DPIIT, 2025).

But look closely at what these schemes actually provide: recognition, tax holidays, and easier debt. Almost none of them offer a matching R&D grant that shares the technical downside of a hard, uncertain project, the one thing a risk-averse entrepreneur and a cautious banker cannot supply. That gap is why India's rise in the Global Innovation Index has stalled at the door of the top 40. India climbed impressively from 81st in 2015 to 40th of 132 economies in 2023 and 39th of 133 in 2024 (IBEF, 2023; IBEF, 2024), proof the author's core claim is right, that the direction is sound. But the last steps are the hardest precisely because business R&D and early-stage risk capital remain thin.

One more important update: several of the bodies earlier policy leaned on have been superseded. In 2023, Parliament created the Anusandhan National Research Foundation (ANRF) as the apex body for research and innovation funding, subsuming the older Science and Engineering Research Board. ANRF is built around a ₹50,000-crore corpus for 2023 to 28, explicitly designed to draw contributions from industry and philanthropy alongside government funds (DST, 2023). In other words, India already has a vehicle designed to crowd in private money. What it lacks is a sharp instrument to run through it.

The flagship: an SBIR-style matching innovation fund, run through ANRF

Instead of eight scattered suggestions, this paper proposes one flagship mechanism, borrowed from the two systems that do this best.

The United States runs the SBIR/STTR programme, “America's Seed Fund”, which awards over US$4 billion a year to small firms (sbir.gov). Its genius is the funding rule: rather than depending on an annual budget fight, every federal agency with an extramural R&D budget above US$100 million must set aside 3.2% of it for competitive small-business R&D grants (with a further 0.45% for university-industry projects under STTR) (CRS, 2025). It disburses in phases, a small Phase I proof-of-concept grant (currently up to about US$323,000), a larger Phase II development grant (up to about US$2.15 million) only if Phase I milestones are met, and a Phase III commercialisation stage that the programme itself does not fund (sbir.gov; UIC, 2024).

Switzerland's Innosuisse shows the same principle at a smaller scale: total approved funding of about CHF 341 million in 2024, of which roughly CHF 144 million funded collaborative projects pairing a company with a research partner and about CHF 49 million funded start-up innovation projects, with over 640 young firms coached (Startupticker, 2024). Crucially, Innosuisse pays the research partner while the company co-invests, public money leverages private money rather than replacing it.

India should build the same instrument and put it inside ANRF, whose corpus and public-private mandate already fit. Concretely, the proposed Bharat Innovation Matching Fund would work like this:

• A statutory set-aside, not an annual grant. Each central science-funding ministry and research PSU ring-fences a fixed share, say ~3%, mirroring SBIR, of its extramural R&D budget for this competitive window. The fund then grows automatically with the R&D budget instead of surviving on discretion.
• A compulsory private match. The applicant firm (or its investors) must put in ₹1 for every ₹1 of public grant. This is the Innosuisse rule: the state de-risks, but the private sector must have skin in the game, which directly attacks the low-business-R&D problem.
• Phased, milestone-gated disbursement. A modest Phase I proof-of-concept grant (for example, up to ₹50 lakh over 9 to 12 months); a larger Phase II development grant (for example, up to ₹4 to 5 crore) released only on meeting Phase I milestones; and a Phase III that offers no further grant, only facilitation and public-procurement preference, exactly SBIR's structure.
• Eligibility that forces the missing linkages. Open to DPIIT-recognised startups and MSMEs, but each project must name an academic or national-lab research partner, borrowing Innosuisse's “implementation partner” model to rebuild the weak industry-academia bridge the author identifies.
• Transparent, single-window rules. One application portal through ANRF; every grantee, tranche and outcome published on a public dashboard (the author's demand that resources be “transparently displayed on a website”); and an automatic, no-fault exit and write-off for projects that fail at Phase I, so that failure is a data point, not a disgrace.

One instrument answers most of the nine problems at once: it supplies patient capital, replaces cumbersome procedures with a single window, hard-wires the industry-academia link, shares the downside so entrepreneurs can take real technical risk, builds in the exit policy the paper asks for, and channels money to academic labs. It replaces the empty target “raise R&D to 2% of GDP” with a machine that actually moves money into private research.

Three supporting reforms

The flagship needs a few complementary moves, all consistent with the author's original recommendations:

• Decentralise, like Switzerland. Switzerland's 26 cantons run their own regional innovation programmes on top of the federal system. India's states should likewise be allowed to operate matching windows layered on the national one, tuned to local sectors, with the Centre focused on infrastructure and standards rather than picking technologies.
• Fund internationalisation to slow brain drain. Innosuisse explicitly supports export and internationalisation for Swiss start-ups. India loses many of its sharpest minds abroad for want of world-class labs and networks; funding market access and global partnerships for domestic start-ups keeps more of that talent, and its value, at home.
• Open strategic sectors to private R&D. As the author argues, the state should “minimise itself and focus on governance,” opening capital-heavy frontiers such as space and defence to private research, a shift India has already begun in the space sector.

Conclusion

India has a large, young, hungry population and, for once, an innovation policy pointed the right way. The problem is not direction but execution: the country keeps announcing intentions and under-funding the private research that would deliver them. The evidence is stark, R&D at 0.64% of GDP against Switzerland's 3.3%, and business only recently overtaking the state as India's biggest research spender. The answer is not another mission statement but one concentrated, rules-based, risk-sharing instrument that makes the private sector, not the government, the engine of innovation. Build the matching fund inside ANRF, fund it by statute, make it match private money, gate it by milestones, and open it to failure without shame, and India can finally turn the zeal of its youth into the growth its policy has been promising for a decade.

Sources

1. Department of Science & Technology, “Research and Development Statistics at a Glance 2022 to 23”, India's GERD at 0.64% of GDP in 2020 to 21; central government ~43.7% and business enterprise ~40% shares of GERD.
2. The Tribune (2026), “Private sector leads India's R&D spending for first time… ₹2.45 lakh crore in FY24”, total R&D ₹2.45 lakh crore; private ₹1.27 lakh crore overtakes government ₹1.18 lakh crore.
3. IBEF (2023), “India's Holding 40th in the Global Innovation Index in 2023”, India 40th of 132 economies in GII 2023, up from 81st in 2015.
4. IBEF (2024), “India climbs one position to 39th rank in Global Innovation Index 2024”, India 39th of 133 economies in GII 2024.
5. Department of Science & Technology (2023), “Lok Sabha passes the Anusandhan National Research Foundation Bill 2023”, ANRF to be set up at a total estimated cost of ₹50,000 crore over 2023 to 28, with an interface for industry participation and contribution.
6. Department of Science & Technology, “Anusandhan National Research Foundation (ANRF)”, ANRF as the apex body for research and innovation; the Science and Engineering Research Board (SERB) subsumed into ANRF.
7. The Global Economy, “Switzerland: Research and development expenditure, percent of GDP”, Switzerland's R&D expenditure at about 3.22% of GDP in 2023.
8. Startupticker (2024), “Data and facts on Innosuisse's activities in 2024”, Innosuisse approved about CHF 341 million in 2024, including CHF 144.3 million for innovation projects and CHF 48.9 million for start-up innovation projects, with over 640 start-ups supported.
9. U.S. SBIR/STTR, “About SBIR and STTR” and sbir.gov homepage, “America's Seed Fund,” about US$4 billion invested each year; Phase I award up to ~US$323,090 and Phase II up to ~US$2,153,927.
10. Congressional Research Service (2025), “Small Business Research Programs: Selected Issues for Reauthorization”, SBIR's 3.2% extramural R&D set-aside (agencies >US$100 million) and STTR's 0.45% set-aside (agencies >US$1 billion).
11. University of Illinois Chicago, Office of Technology Management, “SBIR and STTR”, the three-phase structure (Phase I feasibility, Phase II development, Phase III commercialisation, which SBIR/STTR does not fund).
12. The Tribune / DPIIT (2025), “DPIIT-recognised startups generate over 16.6 lakh jobs in about 8 years”, about 1.59 lakh DPIIT-recognised startups as of January 2025; India the third-largest startup ecosystem.