Mint Primer | How a $12 bn R&D scheme could change the way India makes technology

How will the government’s scheme work?

With a net outlay of $12 billion ( ₹1 trillion) spread over multiple years, the scheme to finance the R&D budgets of companies will operate under the Anusandhan National Research Foundation (ANRF) of the Department of Science and Technology. Through a ‘special purpose fund’ within ANRF, the Centre will appoint an investment committee, which will be managed by ANRF’s executive council. A group of secretaries under the Cabinet secretary will oversee the allocation of funds and appoint fund managers specially for this task.

Which companies can apply for funds?

Under the scheme, parties eligible to receive R&D grants will include companies working on green energy solutions, biotechnology device manufacturers, pharmaceuticals and medical devices, artificial intelligence solutions and devices catering to agriculture, health and education, digital economy stakeholders such as financial services, deeptech applications such as quantum computing, robotics and space, and “strategic” technologies that serve national security and public utilities.

Why is such a scheme necessary?

India’s technology ecosystem largely works on secondary layers of applications and innovations. In simpler words, although India builds applications in AI, robotics and other sectors, they are mostly built on foundational, patented technologies developed by companies in the US, China, Japan, Korea and the European Union. This means that the fundamental innovation layer in most technologies is not owned by India today.

Industry stakeholders have repeatedly voiced their concerns that in current geopolitical conditions, this leaves India at the risk of facing economic sanctions in case of a conflict with other nations. Furthermore, not owning the fundamental design patent of critical technologies such as communications network infrastructure leaves India vulnerable to cyber warfare and other such concerns—a mass-scale cyber-attack that took down Maharashtra’s power grid during India’s Galwan Valley skirmish with China in 2020 is a major example of thi

New Delhi is keen to change this and replace technology and telecommunications infrastructure supplied to India by Chinese tech companies with locally developed ones. To do this, building core patents requires significant investments in research and development initiatives. But India does not do enough of it.

Google invests almost 15% of its quarterly revenue in R&D. Ajai Chowdhry, chairman of industry body Epic Foundation, said that private companies in China and Japan invest up to 5% of their revenue in R&D.

In India, however, the median level of R&D investment in the private sector is about 0.6%. Tata Consultancy Services, India’s largest technology firm by valuation, invests 1.1% of its yearly revenue in R&D. The RDI scheme now hopes to boost this figure by offering low-interest loans of up to 50 years to boost the R&D budgets in India’s private companies.

Can this make a major difference?

Potentially, yes. So far, Dixon Technologies, Bhagwati Products, Kaynes Technology, Amber and Bharat Foxconn International Holdings have been assembling electronic devices in India at scale. In semiconductors, India’s first chip fabrication plant by Tata Electronics is expected to produce its first demonstrator chip by the end of next year. Kaynes, HCL and US-based Micron are creating chip-testing facilities in India, which are set to become operational by the end of this year.

But none of this involves the development of patented foundational technologies that are ready for domestic or international usage. In the semiconductor industry, while India is home to almost one-fifth of the world’s chip design engineers, it does not own any semiconductor intellectual property (IP) and is reliant on the US quartet of Advanced Micro Devices (AMD), Intel, Nvidia and Qualcomm for chip reference designs.

These core electronics designs today power all consumer devices, but more importantly, critical networking hardware, financial services, connected cars, power grids, smart oil rigs and industrial infrastructure. In case of a conflict with any nation that owns patents sourced by India, the country could face the risk of not being able to build its critical infrastructure. Assembly plants, therefore, are only secondary innovation layers and cannot replace the importance of a patent held by other countries.

While much will depend on execution, the RDI scheme will seek to help private companies and research institutes to build such patents and help India develop its own critical technology infrastructure.

Does this mean that all tech in India will be indigenous?

Not overnight. Building patents requires years of investing in research and creating a technology that is fundamentally unique to not infringe upon IP owned by other companies. Another crucial factor is that the US and China do not just own patents, they also build technologies at scale, which allows them to sell chips, devices and other hardware at significantly low costs.

For India, building this scale will take time. Eventually, India’s goal, as detailed by the ministry of telecommunications, is to replace tech infrastructure sourced from other countries with an indigenous stack. In the long run, indigenisation will be one of the end results of the RDI scheme.

This, though, does not mean that all technologies will work in silos. In the long run, Indian technologies will look to comply with global tech infrastructure and be interoperable with what the US and China build.