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9 August 2024

India’s Climb up the Innovation Ladder: Policy Enablers and Impediments

Sarthak Pradhan and Pranay Kotasthane

In 2015, Indian brands dominated India’s smartphone market, commanding 68% of the market share by volume.[1] Fast forward to 2021, and the share of Indian brands plunged to a mere 1 percent. Despite their earlier dominance, Indian brands could not keep pace with market trends, such as the move toward 4G connectivity. This shift raises significant questions: Why were Indian brands unable to compete or at least maintain their market shares despite their initial dominance? Why didn’t they innovate and upgrade faster even when they had the opportunity to do so?

The decline of Indian brands in smartphone manufacturing is not an aberration. India lags in innovation and advanced manufacturing across the board. For instance, India’s share of high-tech exports in its manufacturing basket is a mere 12%, while countries such as China, Israel, and Vietnam have shares of 23%, 22%, and 39%, respectively.[2]

India’s underperformance in innovation is puzzling because it is not a result of government neglect. The government invested in building science and technology capabilities soon after independence, even when it faced other developmental challenges. Government spending accounts for nearly 60% of total research and development (R&D) spending in India today and does not compare too unfavorably to other countries when normalized by GDP per capita.[3] The critical weakness is in-house industry R&D, substantially pulling down overall R&D spending.[4]

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