Ajai Chowdry

Impact of Innovation in the Indian IT Industry

Do we need to strengthen our R&D capabilities?

With a large, demographically diverse population, India has definitely set itself on the path to growth addressing the various challenges that exist. In order to accelerate economic growth and meet the employment demands, innovation and entrepreneurial development are mechanisms which will play a crucial role in the India growth story.

The Indian Government declared 2010-2020 as the ‘Decade of Innovation’ with a goal to reach a position of leadership backed by an innovation driven economy. The innovation strategy of the Indian IT industry has to change from reactive to active in order to realize this goal. As a front runner for the next manufacturing and entrepreneurial hub, the strategies can no longer be passive. While global players have the skill and processes to drive technology leadership, the Indian IT industry too has been responding proactively but the scale has to increase drastically. It is essential to instill the culture of innovation and adoption of emerging technologies like big data, analytics and mobility needs to be embraced.

According to various reports, Indian IT firms spend around only around 2% of their total revenues on research and development (R&D). According to the Economic Survey 2014, “India accounts about 3% of $1.6 tn of global gross expenditure on research and development (GERD) in PPP which is approximately five times lower than that of China.”

Though, India scores better than China, Brazil, and Russia on quality of scientific research institutions, India’s innovation capacity is lower than that of the other BRICS nations except Russia the report also stated. The pace of progress (technology, services, etc) is directly proportional to the efforts on R&D. The expenditure levels on R&D by a country could therefore act as reliable indicator of invention capacity. Seeing the importance of R&D for any economy, it is essential that the Indian Government encourages industries and companies to invest in R&D and provide incentives for the same. Globally, many countries such as UK and Australia provide R&D tax incentives to the services sector and maybe India can also take a clue and help strengthen its ongoing efforts.


A majority of India’s weaknesses arise from the absence of an encouraging ecosystem that fuels innovation. Although innovation is going on at IITs and IIMs, it may not be captured. A reason for this could be that the research being undertaken is not leading to commercial use. This is where the industry academia collaboration in terms of R&D needs to improve so that research is in line with industrial demands. The industry requires proven technologies, but institutions can only offer technologies that are at considerably earlier stages, leaving a lot of work to be still done. There is also no easy exchange of manpower between academia and the industries which limits their capacity for mutual understanding and technology transfer. Needles to say, there is immense innovation potential of the young Indian population. If necessary steps are taken to support this through an effective ecosystem, then it holds potential for developing entrepreneurship and providing the growth and job opportunities that India needs.

With the encouragement for electronics and hardware manufacturing in India and the government’s newly announced Make in India initiative, we must also add more value through design. For this, we have to nurture the innovation and entrepreneurial ecosystem in India and also provide the right amount of training and funding to witness real results. Seeing the current entrepreneurial trend today, most venture capitalists understand and want to invest in software and infrastructure services and hence there is lack of risk capital. Innovation needs to be encouraged and embraced for hardware design and R&D too in order to build a more comprehensive ecosystem. In addition, the IT industry needs to focus on product development. There is also a need to create an enabling environment of teaching product development in education institutions.


The Indian Government as well as the industry must make innovation critically important and ensure successful implementation of the aforesaid plans. Investments in R&D need to be made to make value innovation in key growth industries and adopt value innovation methodology to develop breakthrough products and services, business models, processes, support services etc. India offers a very attractive proposition for global players to set up their R&D operations here. The immense intellectual power that India possesses also makes it a perfect destination for R&D from the standpoint of technology and innovation. Therefore, the need of the hour is to drive this R&D innovation in India for India and the world.

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