Economic Survey Flags Low R&D Spend & Risk Aversion in Indian Corporate Investment

India’s corporate investment shows low spending on research and development and a clear preference for safer, protected sectors, raising concerns about long-term competitiveness, the Economic Survey has said.

The Economic Survey noted that Indian companies invest relatively little in R&D and show limited willingness to take long-term risks. Instead of focusing on innovation and global competitiveness, many firms prefer sectors linked to real estate, regulated industries, or areas with quasi-monopolistic advantages. These sectors often offer stable returns with lower exposure to market competition.

According to the Survey, this pattern of investment limits productivity growth and weakens India’s ability to compete with global firms. It said that innovation, scale, and learning through competition remain underdeveloped because companies focus more on protected margins than on improving efficiency or building new capabilities.

The Survey described the Indian corporate environment as a “hybrid zone”, where profits can be earned through regulatory arbitrage and where enforcement of rules is uneven. In such a system, political mediation often replaces strict market discipline. This encourages firms to seek special treatment or protection instead of competing on cost, quality, and innovation.

The Economic Survey said this behaviour is rational in an environment where risks are often shifted to the government. It pointed to examples such as bailouts, banking forbearance, tariff protection, and renegotiation of contracts. These measures reduce the downside of failure for companies and lower the incentive to invest in risky but transformative activities.

The Survey compared India’s corporate behaviour with historical examples from other countries, where businesses played a larger role in national development. In those cases, firms invested in innovation and long-term projects even when risks were high. The Survey said Indian corporates need to recognise their role not only as profit-makers but also as contributors to social trust and institutional strength.

A key concern raised was the impact on governance. The Survey said when companies shift risks to the state, they do not push for stronger institutions or better enforcement. Instead, they create demand for discretion and exceptions. Over time, this weakens rule-based systems and reduces accountability.

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