I think so. At any one point in time, at the frontier of human knowledge, there are many research proposals floating around for what direction we should next expand the frontier. Some of these proposals will lead to valuable gains in knowledge, and profitable technologies. Most will amount to nothing, or at most a footnote in a more important work. It becomes clear after the fact that the funding money should have been invested elsewhere.

So if you are a funding agency, you rank the proposals from best to worst. If you continuously added money to the agencies budget, the quality of the proposals would get lower and lower. I believe that is what one means by diminishing returns.