India Spends Billions On R&D And Yet Innovation Is In Crisis — Here Are Four Fixes

India’s innovation journey has always carried paradoxical elements.

On one hand, the country boasts of globally renowned scientists, world-class institutions, and a thriving technology services sector. On the other hand, India continues to underperform in translating its scientific and technological capabilities into scalable, society-transforming innovations.

In their landmark paper, Rethinking Innovation Policy in India: Amplifying Spillovers Through Contracting-Out, R.A. Mashelkar, Ajay Shah, and Susan Thomas call for a deep, structural overhaul of how India thinks about and implements innovation policy.

A central argument in the paper is the inefficiency of India’s prevailing innovation framework, which is predominantly structured around a “make” model—where government research agencies execute R&D in-house, relying on salaried scientists and civil servants.

While this approach has delivered some high-profile successes—such as ISRO’s acclaimed space missions—it has not translated into a broad, dynamic innovation ecosystem across the country.

The Case for Contracting-Out

In contrast, leading innovation systems around the world have embraced a “buy” model that channels public funds into external research institutions, startups, and private enterprises. Agencies like the National Aeronautics and Space Administration (NASA), the National Institutes of Health (NIH), and France’s Ministry of Armed Forces have institutionalized this approach.

NASA, for example, allocates about 80 percent of its budget to contracts with private firms, academic institutions, and research labs. NIH similarly routes most of its funding through competitive grants and collaborative agreements with universities and external partners.

These models foster greater experimentation, promote competition, and diversify the innovation pipeline—ultimately generating more positive spillovers for society at large.

By outsourcing R&D instead of conducting it all in-house, these institutions stimulate broader participation in innovation, harness market dynamism, and build national scientific capabilities beyond the walls of government

India’s Make-Heavy Approach

In India, however, organizations such as the Department of Space (DoS), Defence Research and Development Organisation (DRDO), and CSIR continue to operate within a make-dominated framework.

ISRO, for instance, designs and manufactures most of its systems internally. If ISRO adopted a contracting-intensive model similar to NASA’s, it could potentially channel over ₹100 billion annually to external partners—boosting the country’s innovation landscape.

DRDO’s Technology Development Fund, designed to promote external partnerships, currently accounts for less than 1 percent of its total budget. By comparison, the French defense ministry allocates 56 percent of its R&D spending to external contracts, further enhanced by generous tax incentives for private-sector research.

The authors argue that India must shift from being a maker of innovation to a market-maker for innovation—facilitating and orchestrating R&D across society rather than executing it solely through government channels.

To pivot toward a future-ready, contracting-oriented model of innovation, India must rethink its legal and procedural frameworks at four critical levels.

1. Rethinking the General Financial Rules (GFR)

The General Financial Rules serve as the backbone of government procurement policy in India. But when it comes to innovation, these rules fall short—they treat research like a routine purchase order, not the high-risk, high-reward activity it is. Here’s what needs to change:

Let Scientists Lead: Under Rule 2(vi), the “competent authority” overseeing research projects should remain domain experts—scientists, not administrative officials. Only scientists have the expertise to evaluate research progress, quality, and scientific potential.

Free Research from Tender Traps: Rules 144 and 201 impose mandatory bidding and tendering for goods and services. While that works for buying chairs or laptops, it’s a poor fit for research contracts, which need flexibility, judgement, and trust. These rules should be amended to exempt research from lowest-cost tendering, allowing for partner selection based on merit and alignment.

Expand Access to Grants: Currently, Rule 230 limits government grants to educational institutions, co-operative societies, and government organisations. This is too narrow. India must open the doors to all forms of organisations—including private sector for-profit firms, startups, and non-traditional actors—many of whom are leading R&D efforts in emerging fields.

Embrace Cost-Plus Contracts: In a cost-plus contract, the client reimburses the contractor for all actual expenses incurred, plus a fixed fee or percentage for profit, making it suitable for projects with uncertain scopes or variable costs, as outlined in the GFRs.

Rule 225 discourages cost-plus contracts, calling for them to be “ordinarily avoided.” That’s a mistake when it comes to early-stage or exploratory research, where outcomes can’t be precisely predicted. These contracts should not only be allowed but encouraged, with "good faith effort"—not strict delivery—used as the benchmark for completion.

Institutionalize Peer Review: The persons best placed to judge “good faith efforts” in research are the researcher’s peers. A new chapter should be added to the GFR outlining how public research organizations should structure robust peer review systems to evaluate and track research outcomes.

2. Updating the Founding DNA of Innovation Institutions

Globally, institutions like NASA and the NIH were designed from the ground up to contract out research and tap into the broader scientific community. An examination of the corresponding founding documents of innovation institutions in India shows that they lack this direction and clarity. To close this gap, the paper proposes the following:

Bake in a “Buy” Orientation: The core mission of institutions like ISRO, DRDO, or CSIR should explicitly include the goal of engaging external innovators (i.e. contracting out). The National Highways Authority of India (NHAI) was founded with a clear mandate to develop and manage external contracting. Science-focused institutions need similar role clarity.

To achieve role clarity in all such organisations that spend public money as part of innovation policy, the paper calls for either amending parent legislation or founding documents.

Define Complementary Roles: Founding documents should clearly distinguish the responsibilities of scientists and procurement officers. Scientists should lead on technical oversight and monitor research progress, while procurement staff monitor the progress of the contract.

Report “Make” vs. “Buy” Numbers: Transparency drives accountability. In the annual reports—which should be laid before the Houses of Parliament—innovation organisations should disclose the total amounts spent on “make” and “buy” respectively, shedding light on whether public funds are being circulated effectively into the wider innovation ecosystem.

3. Rewiring Internal Procurement and Processes

For innovation contracting to work on the ground, institutions must equip themselves with the people, plans, and procedures to deliver. That starts with internal reforms:

Publish a Research Roadmap: Every organisation should present a detailed annual research plan to Parliament—laying out the big ideas and projects they aim to pursue over one, five, and ten years. Procurement should be guided by the research plan, not ad hoc decisions.

Train the Procurement Cadre: Procurement officials—responsible for overseeing contracts and ensuring their successful execution—require specialized knowledge. Beyond a solid grasp of rules and regulations, they must understand R&D cycles, intellectual property, and the dynamics of public-private partnerships. This calls for targeted training and capacity-building.

To professionalize this critical function, the paper suggests that India could implement a certification program akin to the U.S. Federal Acquisition Certification in Contracting (FAC-C), which applies to all executive agencies except the Department of Defense.

Build In-House Legal Teams: Complex research contracts need sharp legal minds. Each institution should house a dedicated legal team to advise on contract design, customisation, and management.

NASA employs over 170 in-house lawyers for exactly this purpose. The Office of the General Counsel (OGC) provides agency-wide legal and strategic advice across a full spectrum of legal disciplines to further NASA’s mission.

Evaluate and Manage Risk: Innovation is inherently risky—but risk can be managed. Institutions should develop a risk evaluation and mitigation strategy, updated every five years, to track, mitigate, and learn from failures and uncertainties.

Resolve Before You Litigate: Currently, most disputes default to arbitration. However, the paper advocates for a shift toward a mediation-first approach. Innovation institutions should prioritize good-faith mediation and negotiation before invoking arbitration clauses.

To support this recommendation, the paper highlights France's National Committee for Amicable Settlement of Disputes in Public Procurement (CCNRA) as a model. This conciliation body offers non-binding resolutions under Article R-2197-1 of the French Public Procurement Code, promoting early, amicable settlement of conflicts.

A similar forum could serve multiple innovation institutions in India. Ideally, it should be staffed by both scientists and legal experts to ensure well-rounded, informed decision-making.

Enforce Accountability, Fairly: Those found guilty of research misconduct, after a fair hearing and right to appeal, should be debarred from receiving government funds for research for up to three years. Repeat offenses should trigger permanent disqualification. This ensures integrity without deterring honest risk-taking.

4. Building Practical, TRL-Aligned Process Manuals

To make innovation contracting second nature, institutions must move beyond policy statements and create clear, actionable playbooks. That means writing and regularly updating process manuals that guide every step of the procurement journey.

Adopt the TRL Framework: Innovation should be tracked using Technology Readiness Levels (TRLs). Projects should be classified into discrete categories from “TRL 1” for basic conceptual research to “TRL 10” for technologies that are fully operational and capable of being commercialised.

This helps tailor contracts, funding, and expectations to the maturity of the idea being developed. Contracting processes should be sensitive to the TRL of the question at hand. Research should be judged on the basis of the TRL it seeks to achieve.

Each organisation should also have detailed descriptions of how they perceive each TRL and use this as an organising principle in the annual research plan.

Write Step-by-Step Guides: All innovation organisations should incorporate the principles of contracting-out in their internal processes. Changes to contracting processes that permit greater flexibility will induce cautious but far-reaching changes in the behaviour of optimising employees.

A new manual containing step-by-step instructions on how to procure should be prepared in each innovation organisation.

India is at a pivotal moment—marked by a strong willingness to invest substantial public funds in innovation policy and a vibrant, capable society beyond the state that is well-equipped to build complex organizations and advanced capabilities.

The gains from changing course to a higher engagement with private parties, compared with the present configuration of innovation policy, would be considerable, says the report.