The big challenge before India’s innovation economy

As global innovation becomes concentrated in large firms, frontier clusters, and capital-intensive technologies, system quality matters as much as output

Over the past decade, India has recorded visible gains in global innovation metrics, rising from 81st in 2015 to 38th in the Global Innovation Index 2025 and ranking 1st among lower-middle-income economies. India is also identified by World Intellectual Property Organisation (WIPO) as an innovation overperformer for the 15th consecutive year.

India produces substantial numbers of STEM graduates and doctoral researchers each year, yet researcher density remains around 260 researchers per million people, far below major innovation economies. (HT Archive)

Yet these gains sit within a more difficult reality. As global innovation becomes more concentrated in large firms, frontier clusters, and capital-intensive technologies, the quality of innovation systems matters as much as their visible outputs. India’s output rank (32nd) now exceeds its input rank (52nd), suggesting that it converts a relatively thin input base into measurable outcomes, but also that the base itself remains too shallow.

This is what gives India’s rise both its significance and its limits. Gross domestic expenditure on R&D (GERD) remains about 0.65% of GDP, far below the US, Japan, and China. Just as important, the composition of that spending remains unusually skewed — the public sector accounts for 63.6% of GERD while the private sector contributes only 36.4%. This may support early capability-building, but it becomes a constraint once growth depends on scale, commercial risk-taking, and repeated firm-level investment. Countries where businesses do not lead R&D investment face growing risks of shallow innovation, weak ownership of outcomes, and limited influence over future technologies and value chains.

This bottleneck begins upstream, where only about one in four publicly funded R&D organisations provides incubation support to startups, and just one in six supports deep-tech ventures. Just 15% collaborate with overseas industry partners, and only about half open their facilities to external researchers and students. These gaps shape whether scientific capability can translate into scalable firms. In practice, India generates ideas and enterprises but struggles to move them across the difficult middle stage between validation and large-scale commercial success.

The same conversion gap appears in the relationship between research and intellectual property. India’s scientific output continues to expand, with research publications rising by 7.6% in 2024. Yet patent intensity remains relatively low despite recent improvement, reaching about 49.86 patents per billion PPP dollars in 2023. Compared with leading innovation economies, India produces a high volume of academic research but converts a smaller share into internationally protected intellectual property. Knowledge creation is therefore increasing faster than the mechanisms that translate it into commercially scalable innovation.

Access to risk capital further shapes this transition from ideas to firms. India ranks fourth globally in late-stage venture capital (VC) deal share, yet only 63rd in VC investors and 45th in VC received relative to GDP. This indicates that while some firms can raise growth-stage capital, the domestic risk-capital base remains comparatively thin. Frontier sectors illustrate this volatility clearly. AI-focused venture capital in India rose from about $2.0 billion in 2020 to $5.1 billion in 2022 before falling to around $1.39 billion by 2025, even as global AI investment and adoption continued to expand.

Innovation ultimately scales through clusters rather than nations. India has four clusters in WIPO’s global top 100: Bengaluru (21st), Delhi (26th), Mumbai (46th), and Chennai (84th). Yet their depth remains far below the global frontier. Bengaluru records about 193 VC deals per million inhabitants compared with more than 2,600 in the San Jose-San Francisco cluster, while its patenting intensity also trails leading hubs such as Beijing, Tokyo, and Boston. Although Indian clusters show strengths in digital technologies, pharmaceuticals, and transport engineering, their patent portfolios remain narrower and less diversified. This imbalance is reinforced at the subnational level: the US-India Subnational Innovation Competitiveness Index finds every US state outperforming every Indian state in business R&D, research personnel, and private-sector innovation.

India produces substantial numbers of STEM graduates and doctoral researchers each year, yet researcher density remains around 260 researchers per million people, far below major innovation economies. At the same time, knowledge-intensive employment has declined slightly from about 12% in 2010 to 11% in 2024. Skills are therefore expanding faster than the innovation economy can absorb them, pointing to weak demand for research careers and advanced technical roles. Although entrepreneurial activity, research output, and regional participation have grown, India’s innovation system remains constrained by weak translation from research to patents, limited risk capital, uneven cluster strength, and shallow frontier capability in emerging technologies.

India’s innovation challenge is therefore no longer one of potential, but of conversion and ownership. The next phase will depend less on attracting research activity and more on anchoring innovation domestically through stronger private investment, deeper regional clusters, and institutions capable of translating knowledge into firms and employment. In an increasingly concentrated global innovation economy, the ability not only to host innovation but to own and scale it will increasingly determine long-term competitiveness.

Amit Kapoor is chair, Institute for Competitiveness. The views expressed are personal