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The Collection Wed, 27 Aug 25 |
Multiple stories, multiple perspectives, one theme worth your time—every week. |
Good Morning [%first_name |Dear Reader%],
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First, a very happy Ganesh Chaturthi to everyone celebrating. The Ken isn’t publishing a longform story today on account of the public holiday. But we do have a great collection for you to browse through.
Modern problems require modern solutions.
But in India, whether you’re talking about the public or the private sector, truly cutting-edge solutions have generally been a bit hard to come by.
India spends far less than 1% of its GDP in research and development (R&D)—a number that’s remained ignominiously consistent for the last three decades. And the corporate world accounts for just over 35% of the overall spending. We’ve written about this, and the consequences, in this newsletter earlier.
Some companies, though, finally seem to be coming around. For instance, recently released financials show that legacy two-wheeler manufacturers are significantly ramping up R&D outlays, mostly because of the pressure to pull ahead of the competition in electric vehicles. TVS Motor Company and Hero Motocorp each spent around Rs 1,000 crore on R&D in FY25—an annual increase of 210% and 93%, respectively.
Some others are buying off already strong R&D operations. Just last week, IT services giant Wipro bought Samsung-owned Harman’s Digital Transformation Solutions (DTS) for $375 million—an effort to significantly improve its engineering, research, and development (ER&D) capabilities.
The shift in attitude—or at least the beginnings of it—couldn’t be coming at a more critical juncture, as AI and a host of other advances threaten to leave many Indian businesses behind.
As Seema Singh, The Ken’s editor, wrote in June, India’s largest corporate groups still fare pretty poorly in this respect, especially when compared to global peers.
You should read her incisive piece to understand why R&D funding in India’s corporate sector remains so elusive, and what structural changes are necessary if we are to shake off the ennui.
Don't talk R&D, please, we are Indian industry
For 30 years, the country’s R&D spends have stayed at roughly 0.6% of GDP, one of the world’s lowest. Credit for this poor show goes to corporate India
Not everyone has been sleeping at the wheel, though. Wipro rival HCLTech is one of the few that have been building up its ER&D division for years. The division has contributed around 15% of the firm’s topline over the last five years, making it the company’s second-largest business segment.
As we wrote earlier this year, it could also be what helps HCLTech break out of a trajectory that has seen it post multiple quarters of stagnant revenue.
HCLTech made a bet 26 years ago—now it will gamble on a payoff
Eight quarters of letdowns, but the IT-services giant’s semiconductor-heavy engineering wing keeps the cash flowing
Speaking of slumps, Tata Elxsi, the Tata group’s ER&D services arm, hasn’t inspired much confidence in recent quarters, so much so that we made a case earlier this year that it could perhaps be better if it were to merge with its sister firm, Tata Technologies.
Together, Tata Tech (with its automotive, aerospace, and industrial heavy machinery segments) and Tata Elxsi (with its transportation, media, and healthcare segments) will form a formidable force.
“This wider, hedged business offering by the merged entity will be able to position itself more competitively in the engineering-research-services market and weather sector-specific slowdowns much better,” the first analyst said.
But there’s another Tata firm getting around the lack of R&D chops without reflexively throwing money at it.
Just this week, R C Bhargava, chairman of Maruti Suzuki India, said that the biggest hurdle for the country’s EV sector is a lack of cell manufacturing. That’s no problem for Tata Motors, which has taken a joint-venture-for-each-component approach to the challenge.
Building every capability in-house for an EV delays the time to market, he added, making it difficult to capitalise on evolving demand. “As a result, many auto companies across the globe, including Autocomp, are looking to get external capabilities and turning the EV business into something like an iPhone supply-chain delivery, where the best components are sourced from specific suppliers and the final product is delivered to the customer, bypassing the R&D cost.”
Read our deep dive from June breaking down the auto major’s EV supply chain.
How Tata Motors assembles its EV supply chain, joint by joint
Tata Motors is making the most of India’s PLI scheme. Helping it stay ahead is an associate firm, Tata Autocomp, that has found external partners to build each component
But these are all legacy firms, I hear you thinking, of course they have been slow to move. What about agile, young startups?
Well, funding early-stage deep-tech companies isn’t easy, and few traditional venture-capital firms have an appetite for it. Just ask Speciale Invest’s Vishesh Rajaram, who has—unlike most VCs—only partaken in early-stage investments for deep-tech startups.
“We want to do zero-to-one. Because we like ambiguity, we like the ability to add value at a very early stage. Once companies have grown, they don’t necessarily need a whole lot of support. If you are investing at the early stage, you must be competitively relevant for 7–10 years; so, you can’t be doing what everybody is doing today. You have to do something non-linear to hit it out of the park.”
[…]
“If it takes time to get there, we’ll find a way to understand that risk. And we do find a way to break down the risk in buckets saying, “what does every incremental amount of capital allow them to do in terms of mitigating risk”. That means we’ll define our own milestones that give us comfort—whether this company is progressing or not.”
A VC’s non-guide to funding India’s deep-tech companies
Deep-tech funding has no playbook, says Speciale’s Vishesh Rajaram, who’s taken some of the boldest bets. This is also a reason why big VCs don’t play this game
That’s a wrap for this week. You can write to me at [email protected] with your thoughts, suggestions, and feedback. We’ll be back next Wednesday with another collection!
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Rahul leads the promotion and distribution efforts for the journalism produced by The Ken. He works at the intersection of the publication's editorial and business operations.
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