CFOs Ignite India’s R&D Revolution: Breaking The 0.6 % Trap

India is lagging in the race for artificial intelligence leadership, with research and development (R&D) expenditure at 0.64 per cent of gross domestic product (GDP), according to the Economic Survey 2025-26. This figure has seen little improvement over decades when compared with China at 2.43 per cent, the United States at 3.48 per cent and South Korea at 4.91 per cent, where business enterprises account for 75–79 per cent of total R&D spending.

While India has improved its ranking to 39th in the 2024 Global Innovation Index from 81st in 2015, the overall momentum remains limited. The India AI Mission, with an outlay of Rs 1.2 lakh crore, continues to face budgetary gaps, alongside technology spending concentrated in pilot projects with limited scalability.

“Although India has climbed to 39th place on the Global Innovation Index, its R&D intensity remains relatively low. The private sector accounts for only about 36 per cent of total gross expenditure on R&D (GERD), indicating significant room for greater industry participation. Investment prioritisation must therefore be strategic. CFOs are more likely to back initiatives that generate tangible intellectual property, strengthen global competitiveness, and create scalable value,” said Table Space, Chief Financial Officer, Bittu Varghese.

R&D Imbalance Exposed

India’s R&D expenditure remains skewed, with public spending accounting for 59 per cent and private sector contribution at 41 per cent, contrary to global trends where corporate investment drives innovation. This imbalance contributes to a gap in technology readiness levels (TRLs), with strengths in TRL 1–3 and limited success in TRL 7–9, where commercial products emerge. Global innovation leaders invest between 2 per cent and 5 per cent of GDP in R&D, enabling advances in semiconductors and sovereign artificial intelligence models. India ranks 32nd in innovation outputs despite leading exports in information and communication technology services. With the policy focus on raising R&D expenditure to 2 per cent of GDP by Budget 2026, capital allocation decisions remain critical.

CFOs As Innovation Catalysts

Chief financial officers (CFOs), as stewards of capital allocation, are positioned to redirect enterprise technology spending towards higher-impact initiatives. A significant share of corporate technology budgets remains tied up in pilot projects with limited outcomes. Reallocating 20–30 per cent of this expenditure towards scalable sovereign artificial intelligence models could alter this trajectory.

“Balancing quarterly performance with long-term artificial intelligence investments requires milestone-based funding, disciplined governance and strong cash flow visibility. To move towards 2 per cent of GDP in R&D, CFOs must champion blended finance structures, embed innovation key performance indicators into board agendas, and align corporate strategy with national missions,” said Decimal Point Analytics, Chief Financial Officer, Neerupa Singhvi.

Corporate technology spending in India is projected to exceed USD 50 billion by 2026, according to the National Association of Software and Services Companies (Nasscom). Much of this remains locked in proof-of-concept stages. Establishing stricter TRL benchmarks, prioritising domestic large language models over imported application programming interfaces, and leveraging tax incentives such as the reinstated 250 per cent weighted deduction on R&D could improve outcomes. International experience, including South Korea’s semiconductor investments in the 1990s, demonstrates the impact of sustained private sector R&D funding.

Actionable CFO Playbook

Auditing technology portfolios often reveals that 40–50 per cent of expenditure is tied to vendor-dependent pilots without clear production pathways, according to surveys by McKinsey. Redirecting a portion of this spending could release USD 10–15 billion for sovereign artificial intelligence initiatives. Co-funding with the Anusandhan National Research Foundation, established under the 2023 Act, can support TRL 4–9 transitions. Integrating innovation metrics such as intellectual property creation and export potential into capital expenditure approvals can further strengthen outcomes.

Data from Springer Nature’s Global Research Pulse indicates rising R&D output in computing and biotechnology in India. However, underinvestment persists across many firms. According to rankings published by the World Intellectual Property Organization, India has shown progress in patent filings, highlighting the scope for linking executive incentives to innovation outcomes.

“In India, CFOs play a strategic role beyond traditional financial oversight. For sovereign artificial intelligence cloud infrastructure to succeed, CFOs must bridge public-private gaps through disciplined capital allocation and outcome-driven investments,” said BharathCloud, Chief Financial Officer, Karunakar Dontineni.

Challenges And Path Forward

Risk aversion and limited incentives continue to constrain private R&D. Global semiconductor competition has intensified these pressures. Instances of reallocation towards sovereign data platforms demonstrate potential pathways, but broader adoption remains uneven. With the United States expanding semiconductor subsidies, Indian corporates face growing pressure to enhance private R&D spending towards 1 per cent by 2027.

India’s 0.6 per cent R&D expenditure reflects structural choices rather than constraints. Capital reallocation decisions will shape whether the country moves beyond its current innovation ranking and advances towards long-term economic growth driven by domestic innovation.