Author - [V Anantha Nageswaran (CEA, Govt of India)]
Two Additional Explanations
1. Chronological/Macroeconomic factor-
- In Last 15 years period of extreme global volatility ;2008 financial crisis, Eurozone debt crisis (2015), India's infrastructure/balance-sheet stress, Covid, Russia-Ukraine war, Trump-era tariff shocks.
- Due to Constant uncertainty businesses prefer flexibility over decade-long R&D commitments.
- By Rational response to uncertainty preserve optionality, defer irreversible investments and This contextualizes (doesn't excuse) low R&D spending.
2. Generational/Family business factor
- Indian business dominated by family firms; follows a 3-generation pattern: founder builds with hunger > 2nd gen consolidates > 3rd gen loses urgency
- Academic support: Morck, Wolfenzon & Yeung (2005, JEL) - multigenerational control entrenches inherited wealth over risk-taking; Pérez-González (2006) family CEO successions linked to declining performance/efficiency.
- Post-pandemic twist: booming financial markets offer 3rd-gen families easy returns vs. capital-intensive manufacturing/R&D due to this entrepreneurial energy withdraws from where it's needed most.
Strategic Stakes-
- Choice between short- vs long-horizon thinking is no longer just competitive positioning it's a strategic survival issue.
- India's aspiration for multipolar-world influence depends on technological/productive capability of private sector.
- 21st-century strategic leverage bulitby industrial capacity and ability to produce hard-to-replicate goods along with position in global value chains (not diplomacy alone).
- Risk: domestic-demand-driven economy that stays a consumer (not generator) of IP faces "slow but accumulating existential threat" as East Asian competitors climb the value chain.
- Responsibility framing: state can create conditions, but actual transformation depends on corporate decisions (R&D budgets, talent, willingness to absorb short-term costs for long-run gain).
Comparative Models of Industrial Transformation
Country Mechanism Germany Mittelstand -
- Mid-sized engineering firms; technical education, patient capital via Hausbank ; relationships and cultural ethic of Qualität Japan State-guided but privately executed long-horizon investment in technological capability South Korea Chaebols large-scale, long-duration investment in semiconductors/shipbuilding despite governance flaws.
- Common thread: each transformation followed a crisis-driven recognition that existing trajectory was insufficien prosperity required industrial capability, not avoidance of it.
India's Current Moment
- Convergence of conditions: deglobalisation/fracturing of old trade order, supply-chain diversification away from China, demographic dividend window (time-bound, not guaranteed).
- These are enabling conditions, not guarantees window won't last indefinitely.
Conclusion:
- short-horizon approach worked during era of low-hanging domestic demand; future belongs to firms that adopt long-horizon thinking before the window closes.
