India Private Sector – A New Era for Innovation Introduction

• India stands at a transformative crossroads in its research and innovation journey. 
• As the government moves towards privatizing research funding, the nation is gearing up for a future where private sector contributions play a critical role in shaping emerging technologies like artificial intelligence (AI), deep tech, and space exploration. 
• A key milestone in this shift was the Union Budget 2025-26, in which Finance Minister Nirmala Sitharaman allocated a significant ₹20,000 crore to the Department of Science and Technology (DST) for the creation of a private sector-driven Research and Development (R&D) fund. This bold step aims to enhance India’s research ecosystem, promote innovation, and elevate its position in the global innovation race.

Current State of R&D Funding in India

• India’s investment in research remains modest by international standards. 
• According to the Economic Survey 2022, India’s Gross Expenditure on R&D (GERD) is just 0.64% of GDP. This is far behind countries like China (2.4%), Germany (3.1%), South Korea (4.8%), and the United States (3.5%), all of which invest a larger percentage of their GDP in R&D. 
• However, India holds a solid position globally, ranking third in research publications and sixth in patents granted, reflecting the untapped potential of its research landscape.
• The private sector’s contribution to R&D in India is at 36.4% of the country’s gross expenditure on R&D (GERD), whereas China and the US have contributions of 77% and 75%, respectively.
• With the AI market expanding rapidly in India, projected to reach USD 17 billion by 2027, private sector-driven innovation is poised to play a larger role in future growth and development.

Global Examples of Private Sector-Driven Research

• France: While defense research is publicly funded, private defense firms are responsible for conducting most of this research, enhancing efficiency and innovation in the sector.
• USA: The United States has long relied on the private sector for research, with 80% of NASA’s budget contracted out to private firms and universities. A prime example is the Jet Propulsion Laboratory (JPL) at Caltech, which, since 1954, has been funded by NASA but operated by a private university, making it a beacon of innovation.
• China: In China, the success of private AI initiatives like DeepSeek has demonstrated the vital role of the private sector in driving technological innovation and global competitiveness.
• These international models highlight the effectiveness of combining public funding with private sector innovation, providing valuable lessons for India as it navigates the transition towards a more privatized research landscape.

Key Programs Supporting Private Sector Research in India

• Ministry of Education’s STARS Program: This program funds private institutions conducting basic research, fostering an inclusive research environment that encourages innovation. In 2021, STARS allocated ₹200 crore to private institutions across India, focusing on research areas like quantum computing, renewable energy, and nanotechnology. 
• DBT-BIRAC (Biotechnology Industry Research Assistance Council): BIRAC provides funding to private biotech firms, helping them develop innovative solutions in the rapidly growing biotechnology sector. BIRAC has funded over 2,000 biotech projects since its inception, with more than 80% of the funding directed towards private biotech firms. In 2022 alone, ₹450 crore was disbursed to support early-stage biotech ventures, emphasizing the sector’s potential.
• State University Research Excellence (SERB-SURE): SERB-SURE enhances research capabilities in state universities and colleges, enabling collaborations with the private sector to address real-world challenges. In 2021, the SERB-SURE program received ₹250 crore in funding to facilitate collaborative research. This included 120 research projects, involving more than 30 private sector collaborations focused on emerging fields like deep-tech and green technologies.
• Department of Science and Technology (DST): DST has supported private universities through initiatives like the Fund for Improvement of Science and Technology Infrastructure (FIST), which aids in strengthening research infrastructure across institutions. As of 2022, FIST has provided over ₹1,500 crore in funding to more than 250 institutions, aiding the creation of cutting-edge research facilities. FIST has enabled significant advancements in research in fields such as AI, biotechnology, and advanced manufacturing, contributing to India’s competitiveness in global R&D.
• Fund for Industrial Research Engagement (SERB-FIRE): This initiative promotes collaboration between industry and academia, bridging the gap between theoretical research and practical application. Over the past five years, SERB-FIRE has allocated ₹350 crore to over 150 industry-academia collaborative projects. In 2022 alone, 45 new partnerships were established, primarily in sectors like manufacturing, AI, and energy.

Recent Budgetary Announcements for Private Sector Research

• The Union Budget for 2025-26 has underscored the government’s commitment to private sector-driven R&D with several key announcements:
• AI Investment by MEITY: The Ministry of Electronics and Information Technology (MEITY) has procured 18,693 GPUs to support artificial intelligence (AI) research in India. These GPUs will be made available to private IT firms at a nominal cost of $1 per hour, ensuring access to high-performance computing infrastructure that is vital for AI model training and data processing. 
• ₹1 Lakh Crore for Sunrise Technologies (2024-25 Interim Budget): In the 2024-25 Interim Budget, the Indian government introduced a ₹1 Lakh Crore interest-free loan to promote private sector investments in emerging fields such as AI, deep-tech, and biotechnology. 

• As part of this initiative, the government has set aside ₹40,000 crore in the 2024-25 fiscal year for deep-tech and AI startups. The fund is expected to drive job creation in high-tech sectors, with projections indicating that these emerging technologies could generate over 10 lakh jobs by 2030 in areas such as AI research, robotics, and machine learning.
• The government-backed Sunrise Technologies Loan Fund has already supported startups like SigTuple (a health-tech AI company) and InMobi (a mobile advertising platform), both of which have successfully scaled and contributed to job creation and global recognition in their respective fields.

• Anusandhan National Research Foundation (ANRF): The newly established Anusandhan National Research Foundation (ANRF) will allocate ₹2,800 crore annually to fund early-stage research in private institutions. The ANRF is expected to support over 1,500 research projects annually in critical areas such as space technology, nanotechnology, and renewable energy. The foundation has already announced its collaboration with IIT Kanpur and Tata Group to launch a joint research initiative on advanced materials for space exploration. 
• ₹20,000 Crore for Private Sector R&D: The government has allocated ₹20,000 crore to promote private sector-driven R&D in crucial sectors like AI, space technology, and advanced manufacturing. This funding will help India establish itself as a leader in innovation. According to the Indian Ministry of Science and Technology, the allocation will fund over 250 R&D projects across private institutions, with an emphasis on translating research into commercializable technologies. These funds will support innovation in high-demand sectors such as robotics, autonomous vehicles, and biotech innovations. 
• ISRO’s Private Contracts: The Indian Space Research Organisation (ISRO) has started purchasing launch vehicles from private firms, enhancing the private sector’s role in India’s growing space industry.

•  In 2023, ISRO awarded contracts worth over ₹3,000 crore to private companies for the development and launch of small satellite launch vehicles. These collaborations are expected to enhance India’s global position in the space industry, with projections showing a 60% increase in private sector involvement in space missions by 2030.
• Skyroot Aerospace, a private company in India, recently became the first private firm to launch a rocket into space, marking a historic achievement for the country’s space sector. 

The Importance of Public Funds in Supporting Private Research

• Fostering Collaborative Innovation: Private universities often lead in innovation and prototype development. Public funding ensures that collaborations between academia and industry can flourish, resulting in research that addresses societal needs and contributes to economic growth. At present, R&D funding in India is predominantly sourced from govt entities. In contrast, in many developed and emerging economies, business enterprises contribute over 50% to Gross Expenditure on R&D. 

• Enhancing Research Output: India’s research output, although significant, still falls short in key metrics such as researchers per capita. India contributes 4.8% of global scientific publications, which is a quarter of China and the USA’s output. Additionally, no Indian university ranks in the top 300 of the Times Higher Education Index, and only two are in the top 400. With just 15 researchers per lakh population compared to China’s 111 and Israel’s 825, public funding is essential to bolster India’s global research standing and increase the number of researchers to meet the global demand for talent and innovation. 

• Ensuring Global Competitiveness: With India’s GERD significantly lower than global standards, increasing public funding is crucial to meet the 2% GDP target for R&D and compete with the world’s research powerhouses.
• Developing Research Infrastructure: Public funding enables the creation of cutting-edge research infrastructure that private institutions require to compete at a global level. One notable success of public funding in developing research infrastructure is the Indian Institute of Technology (IIT) Madras, which has received over ₹200 crore through FIST to upgrade its research labs. This funding has enabled the institution to build high-performance computing centers and robotics labs, significantly improving its research capabilities. IIT Madras is now a leader in AI research and has partnered with private sector giants like Microsoft and Google to develop AI applications for healthcare and urban development. 

The Benefits of Private Sector-Led Research

• Economic Growth: Private sector research often aligns closely with market needs, resulting in faster commercialization and job creation in high-tech sectors, thereby driving economic growth. The growth of Indian AI startups, such as CureMetrix (an AI-driven healthcare company), showcases how private sector-driven R&D can lead to rapid commercialization. This startup, focused on AI in radiology, has attracted investments exceeding $50 million in the last two years alone, contributing to job creation and growth in the health-tech sector.

• According to the Indian Private Equity and Venture Capital Association (IVCA), investments in emerging technologies like AI, deep-tech, and biotech saw a 36% growth in 2023 compared to the previous year. This boom is expected to drive employment growth in these sectors, contributing significantly to India’s GDP.

• Stronger Industry-Academia Collaboration: Closer ties between academia and industry facilitate the development of real-world solutions and provide valuable training opportunities for students and researchers. The collaboration between IIT Kanpur and Indian Oil Corporation in energy-efficient technologies has resulted in the development of biogas-powered generators. These collaborations not only address energy sustainability issues but also offer students hands-on experience with cutting-edge industry practices. Industry-academia collaborations in India have led to the development of over 120 successful startups in the last 5 years, according to the National Association of Software and Service Companies (NASSCOM). These startups focus on sectors like AI, data science, and clean energy, demonstrating how such partnerships enhance both education and innovation. 
• Greater Societal Impact: Private sector research can lead to substantial societal benefits, from driving GDP growth to addressing public health challenges and enhancing overall quality of life. The development of affordable vaccines by private firms in India, such as Bharat Biotech’s Covaxin, has not only provided a critical solution during the COVID-19 pandemic but also established India as a global leader in vaccine production. These innovations have had a profound impact on public health both domestically and internationally.
• Efficiency and Innovation: Operating in a competitive market, private firms are incentivized to innovate, leading to quicker advancements and more efficient research outcomes.  For instance, India’s R&D sector has demonstrated impressive growth, with nearly one lakh patents granted in FY24, a substantial increase from under 25,000 patents in FY20. Also, India’s ranking in the Global Innovation Index has improved by 42 positions over the last 9 years, with the country now ranked first among the 38 lower-middle-income economies.
• Diversified Risk: Relying on multiple private firms reduces the dependency on government-run labs, creating a more resilient and diversified research ecosystem. In the aerospace sector, companies like Skyroot Aerospace and Astra Microwave have partnered with ISRO and other private players to develop space launch vehicles and microwave technology. This collaboration diversifies the research ecosystem, reducing dependency on a single entity like ISRO. 

Challenges in Shifting to Private Sector-Led Research

• Accountability Issues: There are concerns about the alignment of private sector research with national priorities. Transparent funding mechanisms and strong oversight are essential to ensure that research benefits the nation. According to the National Science Foundation’s (NSF) 2023 report, 72% of India’s research funding from the National Research Foundation (NRF) comes from the private sector. This dependency raises questions about whether research objectives align with public good, as private interests may not always prioritize national welfare.
• Belief-Based Research Focus: There are concerns that the government’s focus on traditional and unproven areas like Indian Knowledge Systems could divert resources from more evidence-based research. he Ministry of Science and Technology allocated ₹2,000 crore to the Indian Knowledge Systems (IKS) in 2022, which has sparked debates on its potential to divert funds from more pressing scientific research areas, such as climate change and biotechnology. While IKS has cultural and historical value, its focus should not undermine the need for evidence-based research in addressing contemporary global challenges.
• Limited Knowledge Dissemination: Expertise remains concentrated in select institutions like ISRO, rather than being spread across the wider academic and industrial landscape. More collaborative research is needed to ensure knowledge is shared broadly. In 2021, IIT Madras collaborated with Tata Consultancy Services (TCS) on a project focused on AI and data analytics in agriculture. This partnership led to the development of an AI-driven system that optimizes water usage for irrigation, helping farmers increase crop yield. Such collaborations are key to distributing knowledge beyond elite research institutions. 
• Low R&D Investment: India’s GERD is still below the 2% target. To remain competitive, India must ramp up public funding for R&D to foster innovation. Although India’s share of high-quality research articles increased by 44% over the past four years, it remains significantly lower than that of China and the US, each of which produces over 20,000 articles. On the human resources front, the total number of PhD enrollments in India rose to 2.13 lakh in FY22 from 1.17 lakh in FY15, indicating a growing focus on advanced research training.
• Bureaucratic Hurdles: Administrative delays and complex clearance processes can hinder research progress. Streamlining these processes is essential for timely execution of research projects. Institutions in India develop technologies, but their transformation rate from the lab to the society for the benefit of the people remains low. According to the Indian Government’s Annual Report on Research in 2023, an average of 6-12 months is required to secure funding for a research project, due to the bureaucratic delays in approval and financial clearance. This significantly impacts the transformation rate of research into practical solutions that can benefit society. 

The Way Forward for R&D in India

• Increase Public Investment in R&D: India must aim to raise its GERD to at least 2% of GDP to ensure that the nation remains competitive globally. Public funding will be crucial in closing existing research gaps.
• Strengthen Legal and Financial Frameworks: Transparent mechanisms for public-private partnerships (PPP) will ensure that funds are allocated efficiently and that research aligns with national priorities.
• Encourage Academia-Industry Collaboration: The government can incentivize private sector investments by offering tax benefits and grants. Establishing Centers of Excellence (CoEs) in emerging fields will also facilitate stronger collaboration between industry and academia.
• Improve Accountability and Evaluation: The creation of monitoring frameworks will ensure that research outcomes are tracked, encouraging high-quality results and boosting India’s global research standing.
• Support Deep-Tech Entrepreneurship: The government should provide grants and venture funding for startups in sectors like AI, biotechnology, and space technology. Expanding incubators and accelerators will help promote innovation and entrepreneurship.