Government investment into research is vital to drive innovation. Developing countries have to balance their spending between meeting the immediate needs of their population and funding innovation-driving research projects. The current system of government sponsorship in India could do with much improvement. Unlike other advanced countries, the private sector in India is neither the main spender on research nor the primary recipient of government research expenditure. Moreover, most of state research spending goes to government laboratories, which are far less efficient than private sector or higher education centres. It is in the best interests of India to transition from a government laboratory focussed research system to one in which private research institutes and higher education centres compete in an apolitical, merit-based system for government funding. However, this is likely to encounter resistance from government laboratories, who benefit from the status quo. Nativist beliefs treating Western – and specifically American – practices with suspicion are also likely obstacles. The former issue can be handled by incentivising private sector and higher education research such that researchers of government laboratories have new employment opportunities. Resistance to foreign ideas in certain sectors can be overcome by presenting those ideas as indigenous efforts, and of course government enthusiasm for the same. India has a lot of potential for high-end innovation driven research, but it can only be realized by adopting a merit-based system of Government Sponsorship.