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Country Profile - India
Research and development (R&D) is a cornerstone of the economy of modern India. The Organisation for Economic Co-operation and Development (OECD) claims the Indian economy has been transformed in the past 20 years. The growth rate of average incomes increased from 1.25% before 1980 to 7% by 2004. But India's growth is uneven.
Companies in some sectors, such as information and communications technology (ICT) services, have become world-class players - but manufacturing has lagged. The OECD notes that output has grown more quickly, in sectors such as the service industry, where government regulation has been eased.
The Indian government has said it aims to achieve GDP growth of 10% in 2011. The OECD sees an increase in GDP growth as feasible but says that it depends on economic reforms, a move to greater liberalisation in key markets, and an emphasis on innovation.
Foreign direct investment
However, progress towards full liberalisation has been slow. Foreign companies can own up to 100% of a foreign direct investment (FDI) in the country, but the right to do so is not always automatic. The Foreign Investment Promotion Board is responsible for approving applications and issues weekly reports on their status.
Despite the obstacles to investment, the most recent report compiled by the United Nations Conference on Trade and Development (UNCTAD) found that India received the most FDI in South Asia in 2007, but less than competing South East Asian economies such as China and Hong Kong. With investment totalling $23bn, India ranked 20th worldwide, much of it targeted at the service sector. China ranked sixth worldwide with $83.5bn, with a much greater share aimed at manufacturing.
A survey conducted by UNCTAD in 2008 found China to be the most attractive location for FDI in the next three years, with India second. And the number of respondents who chose India fell slightly compared with the 2007 version of the survey, widening the gap with China.
The largest share of FDI goes into India’s IT services and business process outsourcing (BPO) sectors, where a number of India companies have become world players. However, a large proportion of FDI is used to fund R&D and knowledge process outsourcing (KPO) in the country.
R&D spending
In 2007, overseas companies spent $13bn on R&D in India, according to figures published by Booz & Company in the report Beyond Borders: Global Innovation 1000. The spending placed India in second place behind China as the largest destination for offshore R&D, with $24.7bn invested. Domestic R&D spending, according to the World Bank, remains lower. It has remained at 1% of GDP or less since the late 1980s. In 2007, India spent 0.8% of GDP on R&D – approximately $8bn – with 80% of that being publicly funded. China spent $47bn on domestic R&D.
The National Association of Software and Service Companies (NASSCOM), which supports India’s efforts in BPO and KPO, estimated the KPO market in India to be worth just $1.2bn in 2005. As with FDI in general, the bulk of the R&D investment is in sectors most open to competition.
In a 2007 report, the World Bank claimed domestic R&D spending has never exceeded 1% of India’s GDP, although it grew quickly from 0.1% in 1991. The public sector funds most R&D work, providing more than three-quarters of the money. The Indian government plans to increase R&D spending to 2% of GDP by 2012 under the 11th Five-Year Plan.
India's collection of scientists and engineers is among the largest in the world, despite the fact that most Indian-owned companies fund little R&D on their own. According to Innovation: Is Global the Way Forward?, a 2006 report prepared by Booz & Company, China and India are in a position to overtake Western Europe as the most important countries for offshore R&D for US companies. In Beyond Borders: Global Innovation 1000, Booz claimed that between 2004 and 2007, multinationals increased their total R&D sites by 6%, with 83% of the new sites located in China and India.
A report compiled by Evalueserve for the British High Commission claimed 80% of domestic R&D in India, which holds a tiny share of the overall R&D spend, is performed by the public sector. China’s public sector performs only 30% of its domestic R&D.
Incentives
The Indian government hopes to change the situation with greater incentives to commercialise public-sector research. The National Research Development Corporation (NRDC) generates around 88m Rupees (€310 000) from technology transfers. However, the research institutes do not focus on applications, which limits the number of start-ups that can be created from public-sector R&D.
NASSCOM identified a shortage of qualified workers in India to satisfy the demand for outsourced R&D even though the number of engineering students who graduated per year has increased from around 44,000 in 1992 to 230,000 in 2006, according to NASSCOM figures. Only one% typically go on to complete PhDs, compared to 9% in the US and 10% in the UK.
Private R&D spending has increased recently. Just three Indian companies – pharmaceutical suppliers Ranbaxy and Dr Reddy's Lab together with car maker Tata Motors – were found in a list of the top 1250 companies in terms of R&D investment put together by the UK Department for Business, Enterprise and Regulatory Reform in 2006. An expanded list of 1400 companies published in 2008 included 15 Indian companies.
Patents
Since 2005, the number of patents filed in India has increased rapidly. Of the top 50 applicants for patents in India between 1995 and 2004, 44 were from foreign organisations. Only six were Indian and half of those were public institutions, according to the World Bank. Indian universities contribute just 1.8% of the total patents filed.
The country became compliant with the Trade-Related Intellectual Property Rights (TRIPS) treaty in 2005. In 2003-2004, inventors filed 12,613 patents. In 2004-2005, the number jumped to 17,466. In 2007-2008, Intellectual Property India estimated some 35,000 patents were filed.
The increase in patent activity has led to increasing delays in the application process. It takes about two years to examine a patent and, in 2007-2008, out of 30,000 patents received, 10,000 had not been examined. According to the Department of Industrial Policy and Promotion, the average number of examinations handled by a patent examiner is 100 per year, compared to 50 to 80 cases in the US and Europe. But the ministry conceded that examiners in the West have more modern, computerised facilities.
Technology transfer
To encourage the development of applied technology in the public sector, the Federations of the Indian Chambers of Commerce and Industry (FICCI) drafted an Indian version of the US Bayh-Dole Act in 2007. The bill promises at least 30% of royalties to the inventors although the university’s technology transfer office has control over licensing. The bill forbids non-exclusive licensing, which may limit the degree to which Indian universities are able to exploit platform technologies.
Legal decisions have affected India’s position as an outsourced R&D centre. In 2007, Indian courts ruled against Novartis in its attempt to patent a variant derived from an older drug. Novartis argued that the Indian position conflicts with TRIPS rules and said that it would divert R&D investment from India to China on the basis that it would be able to protect incremental improvements to its pharmaceuticals there.
Even with obstacles put in place by legislation and court rulings, R&D will remain a surprisingly large part of the Indian economy because of its reliance on service income rather than manufacturing.