India: To Keep Pace with China, Invest in R & D

GLOBAL R & D SPENDING AS PERCENTAGE OF GDP [SOURCE - WIPO]

India’s ambitions to keep pace with China and other large global and technologically progressive economies is hampered by low investments in Research and Development. Will adequate sums be made available in Budget 2025-26 with the opium of subsidies for the masses? What are the comparative statistics, here is a look.

India’s Union Budget will be presented by the finance minister Ms Nirmala Sitharaman on 01 February 2025. This will be the Second budget of the Modi government's third term and Ms Sitharaman's 8th consecutive budget presentation, including one interim budget.

On January 24, 2025 [today], at 5 PM, the Central Secretariat's North Block hosted the customary Halwa ceremony, marking the last phase of preparations for the Union Budget 2025–26. This is the commencement of the lock-in phase of budget preparations thus committing everyone who is involved in the preparation to secrecy through physical confinement.

While the macro numbers are expected to be churned out, one figure that needs consideration from a medium to long term perspective is national spending on Research and Development [R & D]. India has been spending around 0.63to 0.65 percent of the GDP on R & D in the past few years. Indeed, if India seeks to catch up with the global economies in the World apart from other spheres including military, national GDP expenditure has to be increased to beyond 2.0 percent.

Comparative Spending on R & D

Comparative spending on R & D denotes why some countries including China enjoy an advantage and will continue to maintain a lead in the years ahead.

A Xinhua report indicated that China's spending in research and development (R&D) exceeded 3.6 trillion yuan (about 500 billion U.S. dollars) in 2024, up 8.3 percent year on year as reported by National Bureau of Statistics (NBS).

This was 2.68 percent of China's gross domestic product in 2024, up 0.1 percentage points from the previous year.

As per a report by the World Intellectual Property Organization of December 18, 2024, the United States leads global R&D spending with nearly USD 784 billion in 2023, closely followed by China at USD 723 billion.

In fact there is a huge gap between these two and the rest wherein, Japan ranks third with about USD 184 billion (a quarter of China's spending), followed by Germany with USD 132 billion (less than a fifth of China's), the Republic of Korea (less than a sixth of China's), the UK at USD 88 billion (less than an eighth of China's), and India with USD 71 billion (about a tenth of China's).

As a percentage of GDP, the report states that Israel and South Korea are exceptionally R&D intensive economies are, with R&D expenditures at approximately 6% and over 5% of GDP, respectively.

Nine countries exceed the 3% R&D-to-GDP threshold, including the US, Belgium, Sweden, Japan, Switzerland, Austria, Germany and Finland.

18 countries exceed the 2% threshold, including Finland, UK, Denmark, Iceland, China, the Netherlands, France, Singapore and Slovenia.

Among middle-income economies, China stands out as the only country surpassing the 2% threshold. It is followed by Türkiye (1.32%), Thailand (1.21%), Brazil (1.15%), and Egypt (1.02%), which have R&D-to-GDP ratios above 1%

In 2023, India was the seventh in global R & D spending at 71.30 Billion US $ but lags far behind even countries as Turkiye and Egypt in terms of GDP percentage as is seen from the details at para above.

Will the Finance Minister give a push to R & D Spending in the 2025-26 Budget?

 Given the trend of freebees being announced even for small state like Delhi for elections on February, 05 the hopes of surplus for perspective investments in the economy appear limited.

So how does India catch up with China and the rest of the global economies, not without investment in R & D apart from other factors.