India needs to raise R&D spending to 2 pc of GDP by 2035 to boost manufacturing: Report

A report by CareEdge Ratings identified India's low research and development expenditure — at 0.6-0.7% of GDP — as the primary structural constraint on manuf...

What Happened

A report by CareEdge Ratings identified India's low research and development expenditure — at 0.6-0.7% of GDP — as the primary structural constraint on manufacturing sector growth.
The manufacturing sector's share of GDP has declined from approximately 16-17% a decade ago to around 13-15% in recent years, pointing to a structural stagnation despite policy interventions.
CareEdge Ratings recommended that India target R&D spending of 2% of GDP by 2035, aligning with the trajectory of Asian innovation peers, which would require substantially greater private sector participation.
Separately, Niti Aayog urged raising R&D investment from the current 0.64% to at least 2% of GDP within the next four to five years, signalling policy-level convergence on the target.
The report highlighted that listed Indian companies concentrate R&D spending in pharmaceuticals, automobiles, chemicals, and metals, leaving the broader industrial base under-invested in innovation.

Static Topic Bridges

India's R&D Ecosystem and Gross Expenditure on R&D (GERD)

Gross Expenditure on Research and Development (GERD) as a percentage of GDP is the standard international metric for measuring a country's commitment to innovation. India's GERD has remained persistently low, trailing peers in both Asia and the OECD, and the composition skews heavily towards the public sector rather than industry.

India's GERD: approximately 0.64% of GDP (latest available data), compared to China (~2.4%), South Korea (~4.9%), USA (~3.5%), Israel (~5.6%).
In India, government and public sector institutions account for approximately 55-60% of R&D spending; industry accounts for around 36-40%.
In most innovation-leading economies, industry contributes 65-75% of total R&D.
Science, Technology and Innovation Policy (STIP) 2020 set a target of 2% GERD, with a 50:50 public-private split as an aspirational goal.

Connection to this news: The CareEdge and Niti Aayog assessments both focus on closing the GERD gap as the central enabler of India's manufacturing competitiveness ambition.

Make in India and the National Manufacturing Mission (NMM)

Make in India, launched in September 2014, set a goal of raising manufacturing's share in GDP to 25% — a target that has not been achieved, with the manufacturing share remaining around 15-17% of GDP through the decade. The National Manufacturing Mission (NMM), announced in Union Budget 2025-26, is a successor framework designed to address structural bottlenecks.

Make in India launched: 25 September 2014; original 25% of GDP manufacturing target by 2022, extended to 2025, now further extended to 2035 under NMM.
NMM's five focal areas: ease and cost of doing business, future-ready workforce, MSME ecosystem, technology access, and quality product standards.
NMM includes a ₹20,000 crore R&D fund for AI, semiconductors, biotech, and Industry 4.0.
PLI (Production-Linked Incentive) scheme covers 14 sectors; has generated approximately ₹1.5 lakh crore in investments and ₹13 lakh crore in production value.
NMM target: manufacturing share of 25% of GDP by 2035, 143 million new jobs, merchandise exports of USD 1.2 trillion.

Connection to this news: The CareEdge report's recommendation that India raise R&D spending to 2% of GDP by 2035 directly supports the NMM's goal of transitioning from cost-driven to innovation-driven manufacturing.

Innovation-Driven Manufacturing: Total Factor Productivity and Global Value Chains

Sustainable manufacturing competitiveness in a middle-income economy requires a shift from factor-input driven growth (cheap labour, capital accumulation) to Total Factor Productivity (TFP) driven growth through technological upgrading, process innovation, and integration into high-value segments of global value chains (GVCs).

Total Factor Productivity (TFP) accounts for the residual of output growth not explained by capital or labour inputs — it captures innovation, efficiency, and organisational improvements.
World Bank research shows that for economies above USD 5,000-6,000 per capita, sustaining 6-7% growth requires TFP contributions exceeding 30-40% of growth.
Global Value Chain (GVC) integration requires indigenous R&D capability to move from assembly/low-value tasks to design, engineering, and IP generation.
Countries that successfully industrialised to high-income status (South Korea, Taiwan, Singapore) devoted 3-5% of GDP to R&D during the critical 1980s-2000s transition period.

Connection to this news: The report's emphasis on private-sector R&D and innovation ecosystem strengthening addresses precisely the TFP and GVC integration gaps that constrain India's manufacturing aspirations.

Production-Linked Incentive (PLI) Scheme and Its Limitations

The Production-Linked Incentive (PLI) scheme, launched in 2020, provides financial incentives to manufacturers in targeted sectors based on incremental production. While it has accelerated investment, its design primarily rewards scale of production rather than R&D intensity, raising questions about its sufficiency for innovation-led manufacturing.

PLI scheme announced: March 2020; covers 14 sectors including semiconductors, mobile phones, pharmaceuticals, EVs, solar PV, textiles, food processing, and specialty steel.
Total financial outlay under PLI: approximately ₹1.97 lakh crore over five years.
Investments generated: approximately ₹1.5 lakh crore; production value: approximately ₹13 lakh crore.
Critique: PLI incentivises production volumes, not innovation; does not directly address R&D spending gaps.

Connection to this news: The CareEdge report's focus on R&D spending alongside PLI reflects recognition that incentivising production alone is insufficient — technology upgrading and indigenous innovation must be layered on top.

Key Facts & Data

India's current GERD (R&D as % of GDP): approximately 0.64%.
Target GERD: 2% of GDP by 2035 (CareEdge Ratings recommendation; Niti Aayog guidance within 4-5 years).
Global comparators: South Korea ~4.9%, USA ~3.5%, China ~2.4%, Israel ~5.6%.
India's manufacturing share of GDP: declined from ~16-17% (2013-14) to ~15-17% (2023-24) — broadly stagnant despite Make in India.
Make in India launched: 25 September 2014.
NMM announced: Union Budget 2025-26; R&D fund: ₹20,000 crore.
NMM targets: 25% manufacturing share of GDP by 2035, 143 million jobs, USD 1.2 trillion merchandise exports.
PLI scheme: 14 sectors, outlay ~₹1.97 lakh crore.
Science, Technology and Innovation Policy (STIP) 2020 target: 2% GERD with 50:50 public-private split.