Exploiting the staggered introduction of weighted tax credits for R&D spending across industries in the manufacturing sector in India, we provide novel causal evidence that R&D tax credits increase firm-level R&D spending and induce a large decline in prices in the industries targeted by the reform. The relative increase in R&D spending in treated industries is driven by the eligible firms while there is no significant effect on the ineligible firms, and these effects are stronger for the financially constrained firms. Further, the policy also leads to a significant decline in prices for both eligible and ineligible firms, and is primarily driven by a decline in markup, conditional on cost, as opposed to the passthrough of cost savings to prices. The policy also results in increased physical efficiency and a lower marginal cost for both the eligible and the ineligible firms. Interestingly, there is no significant effect on the markup of firms as the competitive effect on markup attenuates any increase in markup due to incomplete passthrough of costs to prices. We provide compelling evidence that our results are not biased due to pre-existing linear trends, omitted variables, and staggered treatment of industries.