The real innovation laggard is India Inc, not startups

His remarks drew sharp and swift reactions from many entrepreneurs, a reminder that truth bites.

However, Goyal’s remarks may have been slightly misdirected. There is no contesting the fact that innovation in India lags behind that in our bete noire, China. In the 2024 Global Innovation Index (GII), China is ranked 11, while India comes in at 39. Other reports too consistently point out that China has a commanding lead over India in innovation scale, investment, and output, particularly in frontier technologies and manufacturing. For evidence, there is the emergence of BYD Co. as a global leader in EVs, producing car models that rival Tesla Inc. in range and technology, as well as its new blade battery that is setting new standards in EV batteries.

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However, if India is way behind China in innovation, it isn’t only because Indian startups and first-time entrepreneurs haven’t done enough. It's because those better equipped and better funded than them are happy to sit out the innovation race. Sure, startups such as Zepto (KiranaKart Technologies Pvt. Ltd) are chasing quick commerce, but its rivals Big Basket (Supermarket Grocery Supplies Pvt. Ltd) is owned by the Tata group, and Reliance Retail is owned by the country’s largest company.

Put blame where it belongs

Take three of India’s most successful industries globally. The leading companies in IT services, pharmaceuticals, and auto components have benefited from the cost arbitrage that India offers to accumulate considerable wealth over the last 25-30 years. The combined market cap of India’s top five IT services firms is over $300 billion, while that of the top five pharma firms is nearly $100 billion. Most of these companies were startups once and were justified in offering the same excuses as today's first-generation entrepreneurs: give us time.

But 42 years after it was established, Infosys Ltd’s innovation credentials are still modest, as are those of Wipro Ltd, which started with a better opening balance. Both of them have largely been content with grabbing the easier back-end business. Nor has market leader Tata Consultancy Services Ltd, with the backing of the mighty Tata group and a war chest of nearly $9 billion as cash reserves, produced anything that could even remotely be compared with China’s DeepSeek.

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India’s pharma companies that have given it the right to the moniker “Pharmacy of the World" score in volumes but not in value terms. That’s because generics, the centrepiece of Indian pharma’s success, are basically copycats of the original drug and are priced accordingly low. In the risky and high-stakes business of discovering new molecules, Indian firms aren’t anywhere in the picture. Not surprisingly, India’s pharma patent filings lean heavily on incremental improvements, with only a handful of new chemical entities (NCEs) to show for their efforts. A runaway market leader like Sun Pharmaceutical Industries Ltd spends about 7-8% of its sales on research and development. Global giants like Roche Pharmaceuticals, Novartis AG, and Eli Lilly and Co. spend 27-30%. That’s what allows them to produce blockbuster drugs like Ocrevus and Keytruda, whose annual sales run into billions.

Nor is this showing any signs of changing. Tata Electronics is making iPhones, which Apple Inc. then brands and markets and sells to eager customers in India and abroad. The Adani Group is developing the world's largest renewable energy project in Gujarat. However, in the list of the world’s most innovative products and technologies for renewable energy, not a single Indian company is mentioned.

Investments in speculative new ideas are risky. Nearly 90% of the drugs under development fail clinical trials, and of those that clear the hurdle, only a handful taste commercial success. But if the big boys of Indian industry refuse to take such risks, can you blame the wannabes?

Instead of admonishing the children of billionaires for making fancy ice creams and cookies, maybe we should be asking the billionaires themselves the same question. In Time magazine’s list of 200 of The Best Inventions of 2024, only two—Hero MotoCorp’s Surge S32 that can convert from a motorcycle to a three-wheeled vehicle (and vice versa) in three minutes and a Malaria vaccine jointly developed by the University of Oxford and the Serum Institute of India—came from India’s stable of large corporate houses.

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Piyush Goyal’s concern about India’s innovation deficit is valid. But the spotlight should be on India Inc.'s corner offices, not just the garages of aspiring entrepreneurs.