CATCHING UP WITH CHINA ON RESEARCH

 What Government Has Done Right

To its credit, the Modi government has begun building the institutional architecture for exactly this kind of deep-technology investment. The Research, Development and Innovation Fund, announced in Budget 2025, represents Rs 1 lakh crore of "patient capital"—financing with 10-15 year horizons that traditional venture capital and banking cannot provide.

The fund's design addresses India's core innovation deficit. Roughly 36% of Indian R&D comes from business, far below the global norm of 65-70%. Corporate India devotes just 0.3% of GDP to in-house research—five times less than the world average. The ten largest non-financial firms, despite $43 billion in annual profits, spend under $1 billion on research collectively. The RDI Fund attempts to change this calculus by channelling public capital through professional fund managers who select private-sector projects, with a 50% co-investment requirement ensuring corporate commitment.

The structure is promising. Fifty-year, zero-interest loans to fund managers create genuinely patient capital. Exemptions from the General Financial Rules allow market-rate hiring and agile deployment. The focus on Technology Readiness Level 4 and above targets the "valley of death" where promising technologies perish between prototype and commercialisation. If executed with genuine autonomy—tolerating inevitable failures, insulating decisions from political pressure—the fund could catalyse exactly the deep-tech investment India needs.

This publication has covered the RDI scheme in detail elsewhere. The point here is simpler: the government has done its part. The question is whether India's corporate giants will do theirs.

The Missing Middle: Little Giants

Yet even the RDI Fund, significant as it is, addresses only one dimension of India's challenge. It targets large conglomerates and established institutions capable of absorbing Rs 50-100 crore investments. What about the smaller firms that form the backbone of any manufacturing ecosystem?

Here, China's "Little Giants" strategy offers a template India would do well to study. Beijing has cultivated over 14,000 little giants—small, privately owned enterprises operating in strategic industries from semiconductors to aerospace to battery materials. These are not conventional small businesses. They are highly specialised firms that have earned government recognition through rigorous assessment of technological capability. Ninety percent operate in manufacturing, with over 80% working in "strategic emerging industry chains."

The genius lies in structured competition. At the foundation are "innovative SMEs" identified at provincial level. The most promising ascend to "specialised SMEs," gaining support. Outstanding performers achieve national little-giant status. At the apex stand "manufacturing champions." Firms compete for recognition, incentives, and capital, with periodic reassessment ensuring only the capable retain their status. In 2022, 40% of IPOs on Shanghai, Shenzhen, and Beijing exchanges came from little giants.

India's MSME landscape could hardly be more different. Despite 63 million registered enterprises contributing 30% of GDP, 99% remain microenterprises with fewer than 20 workers. Regulatory frameworks inadvertently incentivise staying small: cross six employees and trade union laws apply; reach ten and the Factories Act kicks in; exceed 100 and retrenching workers requires government approval. MSME credit penetration stands at just 14%, compared with China's 37% and America's 50%.

India needs its own little-giants programme—a tiered recognition system that identifies technologically promising smaller firms, supports their ascent through financing and regulatory simplification, and integrates them into the value chains of larger corporations. The goal is to cultivate what Germans call the Mittelstand: specialised, globally competitive enterprises that dominate niche markets. Without this middle layer, India's battery ecosystem will remain a collection of giant assemblers dependent on foreign technology and tiny informal workshops producing nothing of strategic value.

From Vulnerability to Determination

The Reliance-Hithium episode—whatever actually transpired—has performed a useful service. It has surfaced a structural vulnerability that was always present but rarely discussed: India's clean energy transition depends on technology that China controls and could deny at will.

This is not cause for panic. It is cause for strategic clarity.

China built its technological sovereignty because the West kept saying no. BeiDou exists because America jammed GPS. Tiangong orbits because Congress banned NASA cooperation. Indigenous 7nm chips emerged because Washington blacklisted Huawei. In each case, denial bred determination, and determination bred capability.

India need not wait for its own "unforgettable humiliation." The near-miss—or the mere plausibility of one—should be sufficient to catalyse action. The policy architecture is taking shape: the RDI Fund provides patient capital; a little-giants programme could unlock the MSME ecosystem. What India needs now is for its corporate champions to match government ambition with their own.

Reliance has the resources. Its $27 billion cash reserves and $9.5 billion annual profits dwarf what China spent building BeiDou. Its acquired patents from Faradion and Lithium Werks provide a foundation. Its existing partnerships with IITs demonstrate capacity for deep academic collaboration. Whether indigenous development rather than technology transfer becomes the primary path is a choice the company will make in the coming months.

The question posed by the Hithium affair is not "did China say no?" It is "what will India do when China does?" The answer to that question will determine whether the country remains a technology taker or becomes, at last, a technology maker.

History suggests denial can be a gift—if met with determination rather than despair. India has been handed a warning. What it does with it is up to Reliance, and to India.