At the beginning of this month, India took a landmark step towards improving its research and innovation performance.

On 1 July, the country¡¯s union cabinet, chaired by prime minister Narendra Modi, approved a research funding scheme unprecedented in scale and scope, with the aim of creating a robust national innovation ecosystem in what it calls ¡°strategic and sunrise sectors¡±. In a , Modi called the move a ¡°game changer in the world of research and innovation¡±.

Specifically, the 1 lakh crore rupee (?8.7 billion) will offer Indian firms loans on generous terms for collaborative research projects with academia in sectors considered crucial for driving economic growth and in which technological self-reliance is seen as strategically important. These include quantum computing, green energy, artificial intelligence and semiconductors.

Historically, the Indian private sector has not viewed research as a strategic priority, tending to prioritise short-term profits over long-term investment. Hence, private industry currently accounts for less than 40 per cent of India¡¯s gross expenditure on R&D (GERD) ¨C which, despite doubling over the past decade, remains at about 0.7 per cent of GDP, below the global average.

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To address this, the RDI scheme offers flexible, long-term, low-interest loans to encourage private firms, especially mature start-ups, to carry out R&D in partnership with higher education institutions and to acquire relevant intellectual property and advanced technology licences. Building on the much smaller-scale (NMITLI), which ran from 2000 to 2019, the favourable loans are expected to encourage private investment in research partnerships with leading universities, research institutions and colleges in particular.

The likes of the Indian Institutes of Technology (IITs), the Indian Institute of Science (IISc) and some of the are well placed to step up their research in emerging sectors and focus on projects for commercialisation, and Indian businesses and start-ups will also be permitted to use the concessional RDI funding to collaborate with international universities and research institutions.

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Despite the relatively low private investment, it would be a mistake to think that India is starting from zero. Its tech sector, in particular, is flourishing. Once primarily known for providing affordable, high-quality IT services via global players such as TCS, Infosys, HCLTech and Wipro, the sector has developed a lot in the past decade. The emergence and growth of start-ups and scale-ups such as Zoho, Freshworks and Postman has shown that, along with providing services, India also can be a leader in tech innovation.

Innovation is also increasing in other advanced sectors, such as space, biotech and robotics. For example, in the space sector, private companies like and are working on affordable space launch solutions. The net result is that India already has the world¡¯s third-largest tech start-up ecosystem.

However, a lot of the existing 150,000 start-ups officially recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) are clustered in big cities, such as Bengaluru, Hyderabad, Mumbai and Delhi-NCR. It is hoped that the RDI scheme will especially facilitate the creation of new start-ups in that have easy access to risk capital.

The scheme also marks a coming of age for the body that will oversee it. The chaired by the prime minister, was only established in 2023, with the objective of fostering a culture of research and innovation throughout India¡¯s universities, colleges, research institutions and R&D laboratories. Even since its establishment, India¡¯s research funding landscape has remained fragmented, characterised by an uncoordinated array of ministries and agencies, with overlapping mandates, at both national and state levels. But by administering such a huge scheme, the ANRF has the potential to establish itself as the country¡¯s premier research funder if it can ensure proper coordination between government, academia and industry.

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To realise its full potential, the RDI scheme must also overcome another longstanding challenge in India: the lack of advanced laboratories and skilled faculty in deep-tech fields at most of India¡¯s hundreds of higher education and research institutions ¨C especially those under the state governments. An innovation-driven economy depends on a ready supply of highly educated talent, both in academia and in the private sector. Investment, therefore, is essential in infrastructure, faculty training and talent development outside the top institutes.

Without such investment, the current inequalities risk preventing non-elite institutions from participating in the RDI scheme. That will only widen the gulf between them and the country¡¯s relatively small cadre of elite institutions. And, in doing so, it will only narrow the array of talent flowing into the innovation-driven ecosystem that the government aims to produce.

Eldho Mathews is a programme officer (internationalisation) at the Kerala State Higher Education Council, India.