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Artificial intelligence

India's Innovation Gap: A Concerning Pattern Emerging Across Several Sectors

Strategic Insights

— 2 min read

India's engineering talent has long been respected globally, with many top engineers graduating from prestigious institutions like MIT and Carnegie Mellon. However, despite this wealth of talent, the country has struggled to produce a homegrown Nvidia or DeepSeek, a breakthrough AI model that has captured international attention. This gap in innovation has been a persistent issue in India, with several sectors, including defense, solar, electronics manufacturing, and pharmaceuticals, relying heavily on imports from the US and China. India's minister of commerce and industry, Piyush Goyal, has expressed concern over the country's lack of progress in these areas, highlighting the need for innovation and self-reliance.

Key Takeaways:

  • A concerning pattern of lacking innovation is emerging across several sectors in India, including defense, solar, electronics manufacturing, and pharmaceuticals.
  • The business model of many Indian sector companies relies heavily on waiting for US and European drug patents to expire and then making generic equivalents, mostly with active ingredients imported from China.
  • The government's support for start-ups is limited, with many entrepreneurs relying on foreign capital to fund their businesses.
  • India lags behind US universities in producing both basic research and commercial innovation, with a poor record in commercializing and developing research.
  • The brain drain from India continues, with many of the country's top engineers and scientists choosing to stay abroad, including Neelkanth Mishra, chief economist at Axis Bank.
  • Despite these challenges, there are areas where India is making progress, including in VC funding, with investments rising from $9.6bn to $13.7bn last year.
  • India's aerospace sector is also a strength, with the country emerging as a major player in the industry.

Statistics:

  • Investments in VC funding in India rose from $9.6bn to $13.7bn last year.
  • Five "unicorns" emerged in 2024, compared to only two in 2023.
  • The top sector for VC investments in India is consumer tech, followed by software and services, including generative AI.
  • The brain drain from India affects not just engineering, but also other fields, with many of the country's top scientists and researchers choosing to stay abroad.
  • The US government's policy on immigration and reduced funding for universities may ease the brain drain problem, making it easier for international students to come and stay in the US.

Sources:

  • Bernstein Research analysts led by Singapore-based Venugopal Garre.
  • Piyush Goyal, India's minister of commerce and industry.
  • Neelkanth Mishra, chief economist at Axis Bank.
  • Henny Sender, a financial journalist.
  • Bain & Co research.
  • Axis Bank.

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