India’s GDP ranking setback | A wake-up call to ramp up innovation

Bridging the gap between its economic scale and innovation performance holds the key to India regaining the Top 5 spot in a volatile global environment and realising its ‘developed’ nation aspiration.

India dropping out of the list of the world's Top 5 economies is a setback. However, it is by no means a catastrophe as India has both the inherent capacity and the intent to regain its Top 5 spot, considering its 'developed' nation aspiration.

Though India’s output increased by Rs 28 lakh-crore to Rs 346 lakh-crore in 2025, the immediate reasons for the drop are the depreciating rupee and a change in GDP base year.

That said, the temporary setback, while robbing the country of a talking point, should hopefully result in greater efforts to help innovation culture take deeper root in India. The slide in the GDP ranking serves as an essential wake-up call to address the key dichotomy in India’s growth story: between its economic scale and innovation performance.

Given its physical size and population, India will always have an advantage in global GDP rankings. But banking on these factors can only take a country that far in a volatile and uncertain global environment. The IMF’s latest World Economic Outlook forecasts that India will grow by 6.5% in both 2026 and 2027.

Innovation is an essential bedrock for fast-tracking growth and development and significantly improving the quality of life of people in a tangible, discernible fashion. From a ranking perspective, too, a country with a strong innovation ecosystem can make it big on the global GDP scale year after year. India’s success with digital public infrastructure, exemplified best by the Unified Payments Interface (UPI), has shown that the country possesses the capability to come up with globally innovative products when there is an alignment between policy, technology, and execution.

Despite having one of the largest pools of scientific and technological talent and one of the largest startup ecosystems globally in terms of the number of startups, India lags many of its peers in R&D spending, intellectual property (IP) protection, and commercialisation of deep tech.

Even when India was a Top 5 economy, it was the only one in this list that did not figure among the world's 15 most innovative nations. Since 2014, India has made significant improvements in the Global Innovation Index (GII) ranking, climbing to 38th in 2025.

But for a country chasing ‘developed’ nation status, India can no longer be satisfied with incremental improvements in the GII scale and keep using 2014 as the benchmark for progress.

Although India has emerged as a major outsourced R&D destination due to the large number of Global Capability Centres (GCCs) established here, innovation outputs from these GCCs will not improve the country’s GII ranking since these facilities generate intellectual property for the foreign parent firms.

Despite India’s enthusiastic embrace of AI, the country has yet to produce a globally disruptive AI product. It is a gap that is hard to overlook in a nation accounting for nearly 18% of the world’s population.

It is high time that Indian businesses, especially startups and tech majors, stepped up and addressed the innovation gap. Innovation in India must move beyond convenience and come up with local equivalents of global products and services.

Local businesses must walk the walk when it comes to hi-tech research, indigenous product development, IP creation, global competitiveness, and industry-academia collaborations. This includes working closely with the recently established AI Centres of Excellence on healthcare, agriculture, and sustainable cities. They have done enough talking the talk on innovation.

The first 10 years of Startup India have proved that India can build companies. The target for the next decade, therefore, should be to build the future. India’s OpenAI or DeepSeek moment will not emerge from playing it safe with incremental products and faster go-to-market strategies. It can only emerge from a relentless focus on solving foundational problems, patient capital, and entrepreneurs committed to global innovation.

At the end of the day, a robust innovation ecosystem is not just a nice-to-have. It is the only way India can transition from being the ‘fastest growing’ to also the ‘most forward-looking’ major economy in the world. Measuring progress only by GDP numbers needs to stop, especially with the world’s top two economies, the US and China, continuously raising the bar on innovation.

(Sumali Moitra is a current affairs commentator) 

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.