Published 17:41 IST, January 31st 2025
Economic Survey Explains Why India Has Lagged Behind US, China in AI Race
India’s R&D has focused on basic research rather than applied research, lacking practical applications needed to attract private, according to the survey.

DeepSeek’s overnight fame to become the most downloaded free app on Apple’s App Store in at least three countries, including the US, has reignited that debate on China’s capabilities versus India’s. As arguments over why India could not build anything similar to China’s DeepSeek in response to America’s growing dominance in the AI industry heat up, the Economic Survey 2025 has cited insufficient expenditure on research & development (R&D) as one of the major reasons.
According to the 480-page survey — which Finance Minister Nirmala Sitharaman tabled ahead of the Union Budget 2025, India lags in R&D with a significant gap across major sectors, including IT, pharma, startup, and policy. While India’s gross expenditure on R&D (GERD) jumped from roughly ₹60,196 crore in the financial year 2011 to approximately ₹1,27,381 crore in FY21, it is only 0.64 per cent of the GDP (Gross Domestic Product). On the other hand, the US spent over 3 per cent, while China allocated about 3 per cent of its GDP in 2020-21, per World Bank data.
The Economic Survey also highlighted that while the government’s R&D policies, tax exemptions, grants, initiatives such as Digital India, and interventions have helped give a fillip to the industry, the private sector needs to contribute more to expand the efforts. Citing examples of “most developed and emerging economies,” such as China, Japan, South Korea, and the USA where business entities contribute over 50 per cent to the GERD, the economic survey said R&D in India is “predominantly” funded by government entities.
“In the USA, the private sector leads, with companies like Google and Amazon accounting for about 70 per cent of R&D spending. China, on the other hand, has a combination of major government funding with rising private sector involvement, leading to R&D spending of about 2.1 per cent of its GDP,” the survey said, underscoring the significance of more private-sector investments.
According to the survey, India’s R&D has focused on basic research rather than applied research, which has stalled the development of practical applications needed to attract private investment. “This gap needs to be bridged to streamline and drive innovations and investment across multiple sectors,” it added with a call to foster industry-academia collaboration, better private-sector participation, and prioritise applied research.
Another factor that has stymied India’s R&D ecosystem from releasing market-driven breakthroughs is the concentration of R&D in select sectors. For instance, the drug and pharmaceutical industry led India’s R&D, followed by information technology, transportation, defence, and biotechnology.
Updated 17:41 IST, January 31st 2025