Industrial R&D in India: Broad Indications
India is generally referred to as an emerging knowledge superpower although her current record on this issue is rather mixed. We seek to analyse this record by employing a variety of conventional indicators.
At the outset it may be made very clear that there are two sources of data on industrial R&D in India. The first one is based a biennial survey conducted by the Department of Science and Technology (DST) and published in a document called “R&D Statistics”. The second source of data is by the Centre for Monitoring Indian Economy (CMIE) and is contained in their on line database “Prowess”. The main difference between the two is that the latter is much more disaggregated than the former. Moreover it is the only source from where one can get firm level data. We use both these sources to construct a picture of the industrial R&D scene in India.
Three conventional indicators used are:
- Trends in R&D investment;
- Trends in patenting;
- Trends in technology trade balance;
To the extent possible, the analysis is conducted in a comparative fashion by taking China as the comparator country.
Table 1: Trends in R&D Investment, 1980-81 through 2003-04 (Rs in Millions)
Note: Pre reform refers to the period 1980-81 through 1990-91 and post reform refers to the period 1991-92 through 2003-04; For the pre reform period it is GERD to GNP ratio, but given the fact that in India the ratio of GDP to GNP works out to unity, it does not really matter whether one takes to ratio of GERD to GDP or GNP.
Source: Department of Science and Technology (2006)
The following inferences can be drawn from the data in Table 1: (a) Both in nominal and in real terms, there has been a decline in the overall GERD; and (b) Even the GERD to GDP ratios too have declined during the post reform period. From this, one has to be very cautious in drawing any strong inferences about the innovative potential of the country. This is because much of the overall R&D (GERD) of the country is performed in the public sector in defense, space, atomic energy, health and agriculture. Industrial R&D forms only about 20 per cent of the GERD. However the share of the industrial sector has increased (Table 2) during the period.
Sector of performance of R&D: See Table 2. In India much of the R&D is actually performed by the government or public sector. However the share of the business enterprises sector has shown some sharp increases. It now accounts for about 20 per cent of the R&D. The corresponding figure for China is as much as 64 per cent. The higher education sector represented by universities and research institutes accounts for only 5 per cent of total R&D performed in the country. Notwithstanding the data problems, it is clear that the share of this sector has only shown some slight increases during this period.
Table 2: Sector of performance of GERD in India, 1970-70 through 2004-05 (percentage shares)
Source: Department of Science and Technology (2006)
Growing privatization of Industrial R&D: Mani (2007) had shown that increasingly much of the industrial R&D is actually expended by private sector enterprises. On extending this analysis to the most recent period for which data are available (Table 3) and one finds that this is indeed the case. An important hypothesis that these data (as contained in Table 1 through 3), is that one sees a decline in the growth rate of industrial R&D when increasingly that R&D is performed by private sector enterprises. Does this mean that the private sector is experiencing any Arrowian appropriability problems? This hypothesis makes the study of external financing of industrial R&D in India a relevant one. During this phase when investments in R&D are declining one sees that the government is putting in place a number of financial support measures that seeks to reverse this declining trend. A study of the effectiveness of these financial measures thus assumes much significance.
Table 3: Growing privatization of industrial R&D in India, 1985-86 to 2002-03 (Rs in Millions at current prices)
Source: Department of Science and Technology (2006)
Industry-wide distribution of R&D: Within the industrial sector six industries (pharmaceutical, automotive, electrical and electronics, chemicals and defence) account for about two-thirds of the total industrial R&D (Table 4). Among these various industries one just stand out from the rest, namely the pharmaceutical industry as the industry alone accounts for about 20 per cent of the total R&D expenditures. In fact later on I will show that even in the case of output indicators it is the pharmaceutical industry that is the best. In short it may not be incorrect to say that India’s national system of innovation is dominated by the sectoral system of innovation of the pharmaceutical industry. Another second in the line is the automotive industry. This industry is composed of both the vehicle manufacturers and the auto parts sub sectors. Both the industries are also characterized by competitive structures with a number of foreign and domestic manufacturers co-existing and competing with each other. The auto parts subsector of the industry has a rather high export intensity of nearly 20 per cent and this meant that the subsector has been continuously investing in technology to upgrade itself and meeting the technological challenges posed by its foreign buyers.
Table 4: Industry-wide distribution R&D (cumulative share in per cent 1998-99 through 2002-03)
Source: Department of Science and Technology (2006)
I consider both US and triadic patents secured by Indian inventors. I start with the US patents. Among the BRICS (Brazil, Russia, India, China and South Africa) countries, India has registered the highest growth rate in patenting (Table 5). From an earlier analysis (Mani, 2007), it is seen most of the Indian patents are by domestic companies and that too in the pharmaceutical area. However in the more recent period, the share of patents secured by affiliates of MNCs based in India is on the increase.
Table 5: Trends in US Patenting of Indian Inventors, 1994-2007 (number of utility patents)
Source: USPTO (accessed on April 11 2008)
Triadic patent data (patents secured by an inventor from three different patent offices (namely the USPTO, European Patent Office and Japanese Patent Office) also shows that India has registered one of the highest growth rates in Triadic patent grants during the period 1975 through 1995.
The performance of the country in patenting thus confirms the results obtained in R&D investments, namely that most of the patents are secured by domestic private sector companies that too in the area of pharmaceutical technologies. In other words the patenting data further supports the evidence that I found earlier in terms of India’s innovation system being dominated by the sectoral system of innovation of her pharmaceutical industry.
Trends in technology trade balance
India’s technology trade balance has been has been negative and rising all through the more recent years (Table 6). However during the period since 2005, it has turned positive essentially due to the receipts under R&D outsourcing. India, along with China has now become a major recipient of R&D outsourcing deals. Most of India’s R&D outsourcing deals is in the areas of pharmaceutical and telecommunications industries.
Table 6: Trends in technology trade balance, 2000-2006 (in millions of US $)
Note: Adjusted payments and receipts are arrived at after adding the payments and receipts under R&D, architectural, engineering and technological services to the payments and receipts of royalties and technical know-how fees.
Source: Reserve Bank of India (2008)
Conclusion
Thus, based on the evidence presented it can safely be concluded that India’s innovation performance has actually improved if one takes the output measure of R&D. But the investments in R&D, both in the country as a whole and in the industrial sector have actually declined. Another point that came out of the analysis was that the country’s innovative performance is concentrated in certain specific industries such as the pharmaceutical one and as such is not widespread.
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