5 min readJun 13, 2026 07:34 AM IST
First published on: Jun 12, 2026 at 06:20 PM IST
The first part of this article traced four structural roots of India’s chronic underinvestment in research and development. Apart from the four reasons mentioned, two further explanations remain — one chronological, one generational — before the case for a different calculus.
The fifth explanation is chronological. The last 15 years have been among the most volatile in living memory. The financial crisis of 2008, the Eurozone debt crises through 2015, India’s own balance-sheet reckoning as the infrastructure boom unwound, the Covid lockdowns, the Russia-Ukraine war’s supply and energy shocks, and now the Trump administration’s tariff turbulence — each arrived before the last had fully receded. To ask businesses to commit to decade-long R&D programmes in such an environment is to ask them to plant orchards in a forest fire. The rational response to compounding uncertainty is to preserve optionality and defer irreversible commitments. This does not excuse the deficit in Indian R&D, it contextualises it.
A more intimate explanation sits alongside the macroeconomic ones. Indian business, like business elsewhere, is predominantly a family affair, and family firms tend to follow a recognisable trajectory: The founder builds with hunger, the second generation consolidates, and by the third, the urgency has often dissipated.
Morck, Wolfenzon and Yeung, in the Journal of Economic Literature in 2005, documented the tendency of multigenerational control toward economic entrenchment — preserving inherited wealth rather than risking it — while Pérez-González, studying CEO successions in 2006, found performance and investment efficiency declining when a family heir took over rather than a professional. In India, this has acquired a post-pandemic inflection: The exceptional returns of financial markets have given third-generation families an effortless alternative to the capital-intensive work of manufacturing and R&D. The aggregate consequence is a quiet withdrawal of entrepreneurial energy from the domain India where most needs it.
Yet context, however illuminating, cannot be mistaken for exculpation. Indian industry stands at a juncture where the choice between short- and long-horizon thinking is no longer merely a matter of competitive positioning — it has become a question of strategic survival. India’s ambitions for influence in a multipolar world depend on the technological and productive capabilities of its private sector. Strategic leverage in the 21st century is not purchased with diplomatic skill alone. It is underwritten by industrial capacity, by the ability to offer the world goods and services that others cannot readily replicate, and a position in global value chains that confers genuine bargaining power.
A private sector that captures domestic demand but remains technologically dependent — a consumer of intellectual property rather than a generator of it — is one whose future profitability is under slow but accumulating existential threat. As competitors from East Asia continue to climb the value chain, the space available to Indian businesses that decline to invest in frontier capabilities will narrow. The business community has historically looked to the state to create the conditions for its prosperity, and the state’s obligations in this regard are not trivial. But the capacity for strategic influence is not the state’s to create unilaterally. It depends on decisions taken in corporate boardrooms: About R&D budgets, talent, the willingness to absorb short-term costs in pursuit of long-run competitive advantage. National and shareholder interests converge in the long run. The private sector that fails to recognise this convergence will eventually discover it the hard way.
History, however, is not without encouragement, and the pattern of transformation is not unprecedented. Germany’s Mittelstand — the dense ecosystem of mid-sized manufacturers with deep engineering capabilities — did not emerge spontaneously. It was forged through deliberate investment in technical education, patient capital from Hausbank relationships that insulated firms from quarterly market pressures, and a cultural commitment to Qualität. Japan’s post-war industrial miracle rested on long-horizon corporate strategies, state-guided but privately executed investment in technological capability, and a willingness to absorb short-run losses in pursuit of competitive positions in the industries that would matter in the future. South Korea’s chaebol, for all their well-documented governance imperfections, developed world-class semiconductor and shipbuilding capabilities through a willingness to invest at scale and over a duration that would have been impossible under the tyranny of the quarterly earnings cycle.
Each of these transformations was preceded by a recognition, often born of crisis, that the existing trajectory was insufficient and that the path to national prosperity ran through industrial capability rather than around it. India is, arguably, at such a moment. The fracturing of the old globalisation, the imperative and the difficulty of supply-chain diversification away from China, the unprecedented window opened by a demographic dividend that is available but will not remain so indefinitely — these are not guarantees of transformation, but they are the conditions that make it possible. The short horizon has served Indian business reasonably well in the long era of low-hanging domestic demand. The next era will belong to those who learn, perhaps not too late, to look further.
The writer is chief economic advisor, Government of India
A private sector that captures domestic demand but remains technologically dependent — a consumer of intellectual property rather than a generator of it — is one whose future profitability is under slow but accumulating existential threat. (Image for representation: unsplash) 
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