Innovation Needs the Right Firms

The RDI Scheme should fund firms with adequate absorptive capacity — but which firms and how will be key

- NAUSHAD FORBES

The Research, Development and Innovation (RDI) Scheme has been cleared by the Cabinet. The scheme allocates ₹1 trillion (or $12 billion) to funding R&D in Indian industry. Of this, ₹20,000 crore is in this year's budget. Initial comments on how the funds will flow suggest that much of it will be provided in the form of low- or zero-interest loans to a mix of funds of funds and directly to firms. My eyes glaze over in incomprehension when I hear the phrase "fund of funds" — I just do not know how they will be held accountable for directly enhancing innovation. I would argue for the bulk of the funding going directly to firms. Why to firms? Which firms? How should they be funded?

Why fund firms: Innovation happens in firms. There are nuances to that statement, but the fact remains. Get everything else right — publicly funded research done perfectly in higher education, the right national missions, the speedy and unbureaucratic flow of abundant funding — but get what happens in firms wrong, and the entire effort will come to nought. I cannot emphasize this enough: Innovation, everywhere in the world, largely happens in firms. Consider the now-classic Kline chain-linked model of innovation (see figure).