Govt plans to track R&D, software and ICT spending of formal manufacturing firms

New Delhi, July 4, 2025 — In a strategic push to bolster innovation and competitiveness within India’s manufacturing sector, the Central Government is initiating a framework to monitor and assess the expenditure on Research and Development (R&D), Software, and Information and Communication Technology (ICT) by formal manufacturing firms. The initiative, backed by the Ministry of Statistics and Programme Implementation (MoSPI), aims to provide data-driven insights to shape future policy interventions.

A Step Towards Data-Driven Industrial Growth

The move is part of a broader effort to modernize India’s manufacturing landscape, aligning it with global innovation benchmarks. According to officials familiar with the development, the government will deploy new survey modules under the Annual Survey of Industries (ASI) to capture granular data related to:

• In-house R&D spending

• Software development and acquisition

• ICT hardware and services

• Technology adoption patterns

The data will help evaluate how much manufacturing firms invest in technological capabilities, innovation pipelines, and digital transformation.

“Our goal is to establish an evidence-based policy ecosystem. Innovation cannot be fostered without understanding where firms are allocating their capital for future-readiness,” said a senior MoSPI official.

Need for the Initiative

Despite being among the fastest-growing large economies, India has lagged in formal R&D investment, particularly within its industrial base. As per UNESCO data, India's gross domestic expenditure on R&D (GERD) hovers around 0.7% of GDP — significantly lower than countries like China (2.4%) and South Korea (4.8%).

Manufacturing contributes roughly 15-16% to India’s GDP, yet its role in national R&D remains underwhelming. This gap is seen as a structural bottleneck in the nation’s ambition to become a high-tech manufacturing hub under the Make in India and Production Linked Incentive (PLI) schemes.

Industry Response and Analyst Viewpoints

The announcement has received cautious optimism from industry experts. Dr. Ritu Anand, Principal Economist at India Research Forum, said,

“Tracking R&D and ICT expenditures offers a double dividend: it encourages firms to be transparent and gives the government a reliable baseline to measure technological depth. This will also support targeted incentives.”

However, concerns remain about how the data will be collected and used. Many SMEs fear that increased compliance may add reporting burdens.

To address this, the government plans to integrate the tracking into existing digital platforms used for statutory filings to reduce friction. “The design is intended to be minimally invasive while providing actionable insights,” said the official.

Enabling Future Incentives and Sectoral Reforms

A key goal of this initiative is to create a foundation for performance-linked benefits. The government is contemplating linking fiscal incentives to the level of tech and R&D spending. This will mark a shift from traditional volume-based incentives to innovation-led subsidy models.

“Incentivizing innovation rather than output is a global best practice. India must move from quantity to quality if it wants to compete globally in advanced manufacturing,” said Rakesh Mohan, former RBI Deputy Governor and industrial policy expert.

The data will also feed into national innovation dashboards that guide public investment in tech infrastructure, training, and skill development.

Market Context: Tech-Driven Manufacturing in India

India’s manufacturing sector is undergoing a digital overhaul, spurred by the rapid growth of industrial automation, artificial intelligence, and smart supply chains. Large conglomerates like Tata, Reliance, and Mahindra have significantly increased their tech investments over the past three years. For example, Tata Steel’s FY25 budget earmarked ₹1,200 crore for digital transformation, including AI-powered safety systems and predictive maintenance.

Startups and MSMEs too are catching up — though at a slower pace — encouraged by digital loans, technology parks, and industry 4.0 grants.

According to a June 2025 report by CRISIL,

“Tech-led productivity growth in Indian manufacturing could contribute an additional 1.5% to GDP annually by 2028, provided policy and capital flows align.”

Investor Outlook: Long-Term Positive

Equity analysts believe this data-led strategy could have long-term positive ramifications on investor sentiment. “This move will help identify truly innovation-driven firms in India. Over time, we expect valuation premiums to rise for listed companies with above-average R&D and ICT ratios,” said Meera Kulkarni, Head of Research at ICICI Securities.

Foreign institutional investors, who often value transparency in capex and innovation, could also find the sector more attractive.

The initiative aligns well with the ambitions of India's Semicon India and AI Mission, both of which require a deep ecosystem of tech-savvy industrial players.

Looking Ahead

The pilot for tracking R&D and ICT spending is expected to roll out in select states by Q4 FY25, with a nationwide implementation planned for FY26. Over time, the data may also be shared in anonymized formats to help researchers, investors, and policymakers identify trends and gaps.

This signals a paradigm shift in how India views industrial performance — not just as an output generator, but as an innovation engine that must be continuously fueled.