The Need For Corporates to Enhance R&D Investment In India

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In 2020, Prime Minister Narendra Modi delivered the keynote address at the Assocham Foundation Week 2020. He said that the country needs to enhance investment in the research and development activities in its goals towards becoming Atmanirbhar. This conference hosted by Assocham discussed its central theme – Aatmanirbhar roadmap towards the goal of 5 trillion economy.

India’s expenditure & investment in Research and Development 

For “Make in India” to achieve success globally, both the government and the corporates needs work towards that goal. India stands as “the most preferred hub” in the world for Information Technology (IT), Information Technology enabled Services (ITeS), engineering, and research & development (R&D) services delivery. India’s leading big companies in infrastructure, telecommunication, and automobile industry earn in astronomical digits. The spending on research and development (R&D) is one of the key indicators of GDP growth and in the financial year ended in March 2020, the listed companies have remained low in the same as per the latest report by brokerage ICICI Securities.

To become infrastructure ready and to promote start-ups and boost innovation, it is important to increase investment in research and development. As per the report, since 2018-17, India’s expenditure on its R&D has remained stable at around 0.7 percent of Gross domestic product (GDP) as compared to other BRICS countries who spend Brazil 1.3%, Russian Federation 1.1%, China 2.1%, and South Africa 0.8%.

Expenditure & Investment in R&D

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Gross domestic expenditures on research and development (R&D), expressed as a percent of GDP. They include both current expenditures and capital in the four main sectors: Business enterprise, Government, Higher education, and Private non-profit. R&D covers basic research, applied research, and experimental development.

The gross domestic expenditure on R&D indicator means how much money spend (current and capital) on R&D by all resident companies, research institutes, universities, and government laboratories, etc. R&D covers basic research, applied research, and experimental development. Expenditure on research and development (R&D) is a key indicator of government and private sector efforts to obtain expansion & innovation in science and technology.

Need of corporate companies invest more in R&D

When it comes to corporate R&D, the condition of India is poor. A recent study conducted by the National Science and Technology Management Information System (NSTMIS) a division of the Department of Science and Technology (DST) says the spending of Indian companies, private and public sector taken together, towards R&D is just 44 percent against a global average of 71 percent. The ICICI Securities report said that India needs to increase fund cost for R&D expenditure, especially from the private sector, to improve total factor productivity (TFP). To achieve GDP growth of over 8 percent, India needs to increase TFP to over 3 percent.

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Tata Motors one of the biggest automobile companies in India and the largest spender on R&D in FY20 with a total of Rs 3,100 crore, which amounts to 7.10 percent of its total revenue. Another auto major, Mahindra & Mahindra, spends Rs 3,000 crore in R&D, or 6.5 percent of its revenue. Mukesh Ambani’s Reliance Industries was third in the list with R&D spending of Rs 2,500 crore, or 0.8 percent of revenue, followed by drug maker Lupin at Rs 1,500 crore, or 13.90 percent of revenue. State-owned Hindustan Aeronautics (HAL) spent Rs 1,200 crore on R&D, which amounts to 5.70 percent of its revenue.

A country like India’s size should invest at least 2% of GDP in R&D, but this is done only when the private sector grows. R&D investments are key inputs in economic growth. Need of employment, growth in infrastructure, promotion is required if India wants to be listed in a developed country. The Gross expenditure on R&D (GERD) in the country has been consistently increasing over the years and has nearly tripled from Rs. 39,437.77 crore in 2007- 08 to Rs. 1,13,825.03 crore in 2017-18. India spent 0.7% of its GDP on R&D in 2017-18.

In the year 2018, the US and China were global leaders in R&D investment. India’s R&D expenditure per researcher was 185 (‘000 PPP$) during 2017-18 and was ahead of Russian Federation, Israel, Hungary, Spain, and the UK. India occupies 3rd rank in terms of number of Ph.D.’s awarded in Science and Engineering (S&E) after the USA (39,710 in 2016) and China (34,440 in 2015). During 2018, India was ranked at 3rd, 5th, and 9th in scientific publication output as per the NSF, SCOPUS, and SCI database respectively. During 2011-2016, India’s growth rate of scientific publication as per the SCOPUS and SCI database was 8.4% and 6.4% as against the world average of 1.9% and 3.7%, respectively.

In the fiscal year 2020, around rupees 36000 crores in R&D was spent by 409 companies, which amounts to nearly, 0.9 percent of their revenue. Multinational companies need to come forward to invest more with the government in R&D and promote startups.

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Giant companies like Apple, Amazon, Walmart, Google, IBM have realized that investment in R&D is essential for growth. India’s high tech industries such as the pharmaceutical industry and information technology industry invest more in R&D as compared to other industries. Indian companies have potential, but when it comes to the promotion of products somewhere they lag. In the pharmaceutical industry-low margin in generic and low cost of their highly skilled labor in the information technology industry makes no surprise. We have to look ahead in taxation, consumer investment, promote the startup. For better growth in GDP, corporate firms and government should merge, discuss development projects, and how to promote startups and investment in R&D.


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