India Needs $30-40 Bn Annual R&D Boost: Mohandas Pai
The storied investor and former Infosys CFO urges greater R&D funding to drive Indian innovation
TV Mohandas Pai, Chairman at Aarin Capital Partners and former CFO at Infosys, on Thursday stressed on the critical need for increased investment in research and development (R&D) to drive innovation in India.
Pai said that India’s current R&D expenditure, which stands at a mere 0.7 per cent of GDP, is insufficient to support a thriving innovation ecosystem.
“We need money. Money (in India) is in short supply. We invest 0.7 per cent of GDP in R&D. We must take it up to over 1 per cent. We get only USD 12-13 billion for our startups, we need up to USD 40-50 billion,” asserted Pai, speaking during an event in Bengaluru.
India’s startup ecosystem has faced significant funding challenges in recent years. Funding in India dropped to USD 8.4 billion in 2023, a steep decline from USD 24 billion in 2022, which itself was a 33 per cent decrease from 2021. Despite these figures being nearly double the amounts recorded in 2019 and 2020, Pai underlined the necessity of substantially increasing financial support to sustain and grow innovation.
“We need to invest USD 30 to USD 40 billion, incremental, in R&D and innovative companies every year in the next five years,” added Pai.
The comparison of India’s R&D expenditure with other countries starkly illustrates the gap. While India’s R&D spending is at 0.7 per cent of GDP, the United States spends 2.8 per cent, China 2.1 per cent, Israel 4.3 per cent, and South Korea 4.6 per cent. This disparity is reflected in the low number of researchers per 100,000 people in India, which stands at 25 compared to 441 in the United States, 130 in China, 834 in Israel, and 749 in South Korea.
“Indians don’t have the habit of filing patents culturally. The objective of research and innovation needs to be patents. Now, we’re getting more of that,” he said. Despite this progress, Pai stressed the need for a cultural shift towards prioritising patents as one of the objectives of research and innovation.
Pai identified three critical components for a robust innovation system: human capital, physical capital, and financial capital.
Additionally, he pointed out the significant funding gaps, particularly in university research, which receives about USD 800 million annually across India. He called for increased public funding to bridge this gap, noting that “various areas of government have promised that they’ll put USD 6-7 billion to work in the next five years.”
Need for Increased Risk Appetite
Adding to Pai’s remarks at the India Global Innovation Connect (IGIC) 2024 in Bengaluru, Avinash Vashistha, Chairman and CEO at Tholons and former Chairman and CEO of Accenture (India), spoke on the necessity of risk capital.
“One thing I’ll add is the importance of risk capital. Even if you bring in risk capital, without increasing your risk appetite, that capital remains undeployed. That’s probably the biggest difference I've seen in India,” he said.
“Companies invest in risk capital outside India, but when they come here with Indian partners, their risk appetite diminishes,” Vashistha added.
In 2023, domestic funds contributed to 90 per cent of total startup fundraising. Also, global crossover funds were responsible for approximately 65 per cent of exits, while they reduced new capital deployment, with the number of deals decreasing from 57 to 5 between 2022 and 2023.
