The Union Budget 2026-27 has allocated 200 billion rupees (US$2.2 billion) to the Research, Development and Innovation fund, signaling a possible renewed commitment to scientific development.
However, only 30 billion rupees ($331 million) of the previous budget’s allocation has been utilized, or about 15%, underscoring the notion that India’s R&D crisis is not a matter of insufficient funds but a problem of institutional structure and strategic direction.
Poor utilization of allocated R&D funds reflects a structural misalignment of scientific investment. Delays in appointing second-level fund managers, currently restricted to the Biotechnology Industry Research Assistance Council and the Technology Development Board, have created bottlenecks effect that no budget increase alone can resolve.
This is not an isolated case. In 2022-23, the Department of Biotechnology utilized only 72% of its budget, while the Department of Science and Technology used just 61%. These spending shortfalls underscore persistent structural constraints.
Comparative disadvantage
India’s R&D expenditure has stagnated at 0.64-0.66% of GDP, well below the global average and far behind leading countries such as South Korea (4.9%), China (2.4%), and the US (3.5%). More critically, the private sector accounts for just 36% of research spending in India, compared with 70% in leading innovation economies.
This disparity reflects broader ecosystem failures, including weak intellectual property protection, regulatory uncertainty and a fragile university-industry interface.
With less than 13% of R&D spending devoted to applied research and fewer than 10% of research institutions maintaining strong links with industry, the gap between the laboratory and the market is inevitable.
India also faces a human capital paradox. While the country produces more than 40,000 PhDs annually, an estimated 85,000 Indian researchers work abroad. India thus has just 262 researchers per million people, compared with 8,714 in South Korea. This is not a shortage of talent but a failure to retain it within the existing ecosystem.
India has remained a middle-income country since the 1990s, with R&D expenditure stuck at 0.64%. This is not merely an innovation challenge but a structural economic problem. Without R&D-intensive industries generating high-productivity jobs, India risks premature deindustrialization.
With the demographic dividend window closing by 2040, delays in building a robust R&D ecosystem mean more young workers are absorbed in low-productivity sectors, squandering the opportunity to catapult India into a higher income status.
More than money
The key policy question is whether the current institutional framework can translate higher spending into real impact.
India’s research funding remains highly concentrated, with 54% of the country’s $17.2 billion R&D expenditure channeled into just four organizations, while universities receive disproportionately small shares. A more balanced allocation could significantly increase efficiency.
Bureaucratic barriers compound the problem. At its core lies a classic principal-agent dilemma: bureaucrats overseeing R&D funding prioritize risk avoidance over innovation.
Their incentives favor preventing public scrutiny of failed projects rather than enabling successful ones. The result is excessive due diligence, overly conservative project selection and prolonged delays that contribute to waste and underutilization.
Persistent underutilization also erodes credibility. When announcements outpace spending, future commitments lack credibility and lose trust. Why should private enterprises invest in research collaborations when government spending is perpetually stalled? Why should researchers return home when promised research grants are stuck in limbo for years?
This policy disconnect between promises and implementation undermines the very innovation ecosystem that government spending is intended to foster.
True institutional autonomy is also essential. A hierarchical, risk-averse system that discourages young researchers is structurally incapable of producing sustained innovative breakthroughs.
Credibility gap
India’s R&D challenge goes beyond scientific output to long-term competitiveness. China’s $700 billion annual R&D spending, compared to India’s $71 billion, widens the innovation gap each year. With private-sector participation remaining well below global norms, closing that gap becomes increasingly difficult.
What is missing is reform of the governance structures that allocate and disburse research funding. Greater coordination, accountability and outcome-based evaluation, rather than process-driven oversight, are essential.
The R&D crisis in India cannot be solved by higher allocations alone. Chronic underutilization reveals an incentive system that promotes caution over risk-taking, delays application and excludes universities from the innovation ecosystem.
The resulting credibility gap between allocation and disbursement deters private sector investment in innovation, which in turn accelerates brain drain and further weakens the innovation ecosystem that public spending is supposed to spark.
Without time-bound disbursement, institutional autonomy and a shift from announcement-driven budgeting to execution-focused governance, increased funding risks deepening inefficiencies at the expense of innovation-led growth.
Akhil Yadav is a law student who regularly writes for Indian newspapers on constitutional law, public policy and socio-economic issues.
