Number of

firms

R&D
expenditure (Rs
. crores)

(Rs. crores)

1990

44

74.57

152168.9

0.049

1991

83

135.42

179743.4

0.075

1992

258

324.72

224824.4

0.144

1993

505

582.79

275970.7

0.211

1994

613

714.44

317761.9

0.225

1995

853

1116.12

388437.9

0.287

1996

917

1590.24

484140.3

0.328

1997

1001

2080.03

535698.9

0.388

1998

961

1785.69

568695.5

0.314

1999

969

2851.23

635457.5

0.449

2000

933

2219.33

748025.3

0.297

2001

930

2446.86

877662.4

0.279

2002

1068

3003.47

877667.13

0.342

Year

Sales

R&D*
intensity

2003

1099

3868.09

968885.39

0.399

2004

1070

5098.99

1139574.9

0.447

2005

980

6074.17

1358880

0.447

2006

966

7635.28

1608181

0.475

2007

918

8596.26

1837312.7

0.468

India, Science and Technology: 2008

S&T and Industry

Industrial R&D in India: Contemporary Scenario

Sujit Bhattacharya & Kashmiri Lal

Technology/economic success of a country is deeply intertwined with its

capabilities (competencies) for carrying out innovation of technologies that
compete at the state-of-art level in the world market. Capability development is a
long term process that requires a country to pass through different phases of
learning, creating the required physical infrastructure, human capital, institutions
that support these activities, and creating inter-linkages among them. National
capabilities are not to be understood simply in terms of the sum of firm level
capabilities developed in isolation. Porter (1990) has shown how national advantage
is increasingly concentrated in particular industries and even industry segments,
reflecting specific and differing sources of competitive advantage. Further detailed
introspection shows that competitive advantage emerges from investment in R&D
and its successful translation. A firms R&D satisfies two functions; it not only
generates
new
knowledge
but
also
contributes
to
the
1
firms absorptive capacity (Cohen and Levinthal, 1990).
An underlying commonality of industrialized economies is investment, firms therein
undertake in R&D. A sharp distinction can be observed between developed and
developing economies in terms of the intensity of investment in R&D and also in the
major sources from which the investments are emerging. Almost 70-80% of
investments in R&D in developed economies are accounted for by its industries
whereas in developing countries the government accounts for this proportion of
investment. A firm invests between 5 to 10% of its sales in R&D in industrialized
economies (in some knowledge intensive industries the percentages are much
higher) whereas only a few firms invest in R&D in developing economies. Among
the firms investing in R&D, only in some sectors (such as ICT, pharmaceuticals)
R&D as percentage of sales is observed to be 1 to 2% (only for a few isolated firms,
one can observe higher degree of investment).
Protectionist barriers (fiscal and non-fiscal), was one of the reasons for Indian firms
not having the required push to invest in R&D. However, this was not the only
factor. Indian firms operated on a small capital and were miniscule entities in

comparison to global firms (MNCs). There were many regulatory barriers, rules and
regulations, government controls that also acted as an impediment for Indian firms
to expand. They directly or indirectly affected firms focusing attention in R&D .
However, there has been a significant shift in the last few years. Liberalization of
the economy that began in the 1990s has become more institutionalized, greater
integration with world economy has taken place, and many firms have established
global footprints. Firms particularly in the pharmaceutical sector have been
compelled to invest in R&D due to Indias adherence to TRIPs agreement, etc.

The Present Study

The present study investigates the R&D investment scenario in India with specific
focus on industrial R&D. In the first part we examine international R&D investment
trends i.e. in major industrialized and emerging economies. The international
investment provides a benchmark for Indian R&D investment. In the second part of
the study, we examine R&D investment by public limited firms in India. Examination
was done for 2006-07. Average data was taken to mitigate the effect of any
idiosyncratic fluctuations. Broad trends for earlier years were analyzed to get a
proper perspective of contemporary investment trends.

Novelty and Justification of the Present Study

R&D Statistics periodically brought out by the DST (Department of Science and
Technology) is the prime source for assessing the intensity and extent of
R&D undertaken in the country. DST uses different data sources for this purpose.
Primary survey is used for collecting R&D statistics in industrial sector. Information
is solicited from R&D units recognized by DSIR (Department of Scientific and
Industrial Research). These R&D units include public and private limited companies.
This compilation by DST is important as it provides indication of the R&D activity of
the country. However, there are limitations in using these statistics for gauging the
current scenario. One of the main drawbacks is that the data is dated. The latest
available report by DST is R&D Statistics 2004-05; this captures industrial R&D
expenditure data up to 2002-03. Also restricting the survey to data collection for
R&D units recognized by DSIR leads to missing gaps. A recent study (Bhattacharya,
Sharma and Lal; 2007) sponsored by NSTMIS (DST) and conducted by NISTADS
has shown that there are 1,208 public ltd. firms involved in R&D in India but were
not recognized R&D units. The primary reason behind their non-inclusion in DST

statistics was that these firms had R&D units/in-house activity not recognized by
DSIR. Non-inclusion of such firms has strong bearing in estimating the R&D
expenditure and it underscores the inventive/innovative activity of the country. For
example in 2002-03, inclusion of the R&D expenditure of these 1,208 firms pushes
the national R&D expenditure during this period up by 3.7% and industrial R&D
expenditure up by 16.3%. The 1,208 firms have also undertaken a large number of
technological as well as non-technological innovations that reasserts India building
up technological capacity/capability2.
The present study on assessment of industrial R&D in India is based on capturing
data from various public sources including company reports and red herring listing.
This to an extent overcomes the constraints of using DST R&D Statistics to reflect
the contemporary industrial R&D scenario in the country. However, capturing data
from public sources was confined to public limited companies, because they divulge
their detailed data (i.e. as per legal requirements only public ltd. firms have to
submit details of their various activities including R&D to the Ministry of Company
and Law Affairs.).The limitation of this study is mainly on two aspects. Firstly,
private firms do not have legal binding to submit detailed data of their various
activities and thus sketchy account of their R&D expenditure and related statistics
can be gathered from secondary sources . Thus, these firms were not captured in
this study. Secondly, primary survey provides valuable insights which cannot be
captured by secondary sources. However, a good estimation of contemporary
scenario of industrial R&D activity can be obtained by investigating public limited
companies as studies have shown that they are the major driver of industrial
activity in the country.

Method
The Department of Company Affairs lists
approximately six lakhs and eighty-five thousand companies comprising of public
and private ltd. companies. The disclosures are not available for private limited
companies. Details are available for 75-80 thousand companies that are public
limited companies. Further approximately 10,000 companies are there that have
time series data available for at least three years. It is possible to get from CMIE,
through their Prowess database, the time series data of the above 10,000
companies. Prowess database has been extensively used to assess the industrial
scenario, investigate trends, performance and construct indicators based on this
data source to determine the health of industrial performance. Among the reasons
of using this database for the above assessments is that these 10,000 or so
Target population and sample size:

companies contribute 70% of industrial revenues and are thus indicative of the
industrial activity of the country. This motivates us to use this data source to
examine industrial R&D in India.

R&D Activity: International Scenario

R&D represents the most developed, widely available, and internationally
comparable statistical indicator of industrial innovation activities. It comprises
creative work undertaken on a systematic basis in order to increase the stock of
knowledge in all fields and use this knowledge base to devise new applications
(UNCTAD, 2005). R&D spending of a particular country has been used by many
organizations (UNCTAD, 2007; World Bank, 2007; and World Economic Forum,
2008) to measure the competitiveness of countries. According to World Economic
Forum, the most competitive country in theworld ranked on the scale of 1-7
(1=least competitive, and 7=most competitive) among 130 countries at present is
the US (5.74), followed by Switzerland (5.61), Denmark (5.58), and Singapore
(5.53). India (4.33) stood at 49 th rank out of 130 countries. Chinas (4.70) rank on
this index is 30th (improved from 34th rank in 2007-08), whereas India slipped to
the present position from 48th rank in 2007-08. In calculation of competitive index,
R&D expenditure acts as an important component.
India is the 4th largest economy of the world in PPP (purchase power parity) terms
after US, China and Japan. However, it fares poorly in the world map of R&D
spending. Table 1, Table 2 and Figure 1 highlights this aspect.

Table 1: Global R&D funding, 2006

GDP, PPP (US $

R&D, PPP (US $

billion)

billion)

Americans

15,155

374.9

2.47

35.70

United States

12,416

343

2.76

32.70

Countries

R&D as % of GDP

R&D as % of
world

Asia

19,203

387.2

2.02

36.90

China

8,815

141.7

1.61

13.50

Japan

3,995

136.7

3.4

13.00

India

3,779

38.8

1.03

3.70

14,072

264.3

1.88

25.20

2,073

23

1.11

2.20

50,503

1049.4

2.08

100.00

Europe

Rest of world

Total

Source: Global R&D Report 2007 (www.rdmag.com)

Table 2: Share of Total Global R&D Spending, 2006-2008

Countries

2006

2007

2008
(estimated)

Americans

35.70

34.5

33.1

United States

32.70

31.4

30.1

Asia

36.90

38.8

40.8

China

13.50

15.6

17.9

Japan

13.00

12.8

12.4

3.70

3.7

3.7

25.20

24.6

23.9

2.20

2.2

2.1

India

Europe

Rest of world

Source: Global R&D Report 2007(www.rdmag.com)

Fig 1. Share of Global R&D spending

Source: Global R&D reports 2007

The low investment in R&D is an indication that India is still involved in activities
that are not creating higher value at different levels. This assertion can be made as
expenditure in research is an indication of commitment of a firm/research
organization to search for novel ways of producing/creating new products. It can
also be observed from Figure 1 that Indias spending has remained constant from
2006 to 2008.China shows upward trends. The indicator Gross Domestic
Expenditure on R&D (GERD) is used frequently to measure commitment of a
country in R&D. This indicator is measured in terms of R&D spending as
percentage of GDP for a coutry. Table 3 and Figure 2 exhibits activity of some
developed and developing economies in this indicator (in PPP US $ billion).

Table 3: GERD in Select Countries

GERD PPP

GDP, PPP US

GERD PPP US

R&D % 0f

GERD PPP US

$ trillion

$ billion

GDP

$ billion

12.42

343.00

2.76

353.00

365.00

China

8.82

141.71

1.61

174.96

216.82

Japan

4.00

136.69

3.4

143.50

150.38

Germany

2.43

63.54

2.5

64.61

65.69

France

1.85

42.14

2.2

43.98

45.99

India

3.78

38.85

41.81

45.00

UK

2.00

37.54

1.9

40.08

42.82

South Korea

1.06

34.73

2.6

37.73

41.00

Canada

1.08

23.06

24.53

26.00

Taiwan

0.68

17.91

2.2

19.85

22.00

Sweden

0.29

11.83

3.9

12402.00

13.00

Israel

0.18

9.25

4.5

10.12

11.00

Switzerland

0.27

8.26

2.6

8.62

9.00

Countries

United
States

US $ billion
(projected)

Finland

0.17

6.00

3.5

6.37

6.70

Denmark

0.18

4.71

2.6

4.91

5.11

Source: Global R&D Report 2007 (www.rdmag.com)

Fig 2. GERD for selected countries 2006-2008(PPP US $ Billion )

Source: Global R&D reports 2007

USA is clearly the global leader. But, it is surprising to see the strong positive
transition of China. In 2007 it was the 2 nd ranked country. There is more positive
outlook for 2008. India also is in the top league of countries.
The above assessment of GERD is in PPP terms. The actual expenditure by each
country in R&D as a share of GDP is shown in Figure 3.

Fig 3. R&D % GDP for selected countries (2006-2008)

Source: Global R&D reports 2007

Figure 3 shows that in comparison to other countries Indias R&D expenditure is

below 1%. Developed countries generally cross 2% threshold. India, Brazil,
Argentina, Russian Fedration still have percentages between 0.5 to 1%. Figure 4
exhibits sources of R&D funding in different cuntries; this figure plausibly provides
an answer to this.

Fig 4. Source of funds (%) for select countries

Source: Global R&D reports 2007

Government is the major source of funding in India, Brazil, and Hungary. Business
R&D is the major driver for R&D investment. This is borne out from the fact that
countries like India where the major source of R&D investment is from the
government have GERD between 0.5 to 1%, whereas it touches much higher levels
for coutries that do not rely on governemnt as the primary funding source.
R&D investment is an important component in the innovation chain. This is truer in
an industrial setting where R&D investments are done with innovation as the final
goal. However, translation of R&D investment to the creation of novel
processes/products or improvements in existing products is a highly uncertain,
complex process. Among the indicators that shows successful process of
translation is patenting activity. Patents indicate in general measure the inventive
activity.
Patenting particularly from USPTO has been used as yardstick to measure the
competitive capability of a country, and is widely used for inter-country comparison
on R&D productivity. Patents granted in the US for foreign countries are especially
important because it is the single most important export market. According to
patents granted during 2005, Indias position is weak in comparison with other
emerging economies of Asian origin e.g. Taiwan, Korea, and China. One major
difference noticeable in Figure-5 is that most of the patents granted to inventions

are for respective local firms (e.g. country institutions) in case of Israel, Korea, and
Taiwan. In case of China and India, it is MNC firms who have been granted majority
of the patents. Maybe it is a pointer to the fact that MNCs in these two countries
are able to use the innovative capability of the local scientists better than the local
S&T institutions.

Fig 5. US patents granted to inventions of various countries

Source: R&D India, Newsletter October 2006, DSIR, New Delhi

High technology export is another useful measure to gauge the capability and
competitiveness of a country. The results of R&D spending often reflect in a
countrys high tech exports especially its proportion to the overall total
manufacturing exports. As per the data shown in the Table-4, in 2005 India stood
at 39th rank in the world as far as the value of high tech exports is concerned. The
US is on top of the world followed by China at number two and Germany at number
three. But when high tech exports are calculated as proportion of the total
manufacturing export, India has even lower rank at number 54. Chinas rank (11 th)
was much higher than Indias. During the same period, India managed to register
only 4.88% high tech exports of its total manufacturing exports, whereas the same
figures for China, US, and Germany are 29.81%, 32.29%, and 17.22%
respectively. Indias major source of R&D funding comes from government

(highlighted in Figure 4). The stark contrast with developed and some emerging
economies is the involvement of industry in R&D. Table 4 exhibits business R&D
expenditure for selected countries and shows this stark contrast .

Table 4: Select Global Scientific and Technological Indicators, 2005

India

China

Brazil

USA

2840

161603

5929

216016

(39)

(2)

(33)

(1)

4.88

29.81

11.59

32.29

23.68

17.22

(54)

(11)

(37)

(8)

(15)

(24)

851

15876

2234

219226

(34)

(6)

(25)

(1)

3.6

18.3

30.8

1064.3

1060.3

828.4

(58)

(50)

(44)

(6)

(7)

(12)

1.94

8.22

3.70

18.68

23.97

17.51

(47)

(27)

(40)

(9)

(4)

(11)

High tech exports

High tech. Exports as % of

manufacturing exports

Business R&D expenditure (US $

million)

Japan

12404
5

Germany

131838
(3)

(4)

10145
8

048199
(3)

(2)

R&D expenditure per capita (US $)

Business R&D per capita (US $)

Note: Figures in brackets indicate the comparative global rank.

Sources:

1. World Development Indicators 2. UNESCO and OECD main S&T indicators 2005

Industrial R&D-Indian Scenario

Sakakibara & Cho (2002) identified three types of organizations engaged in R&D
activities: Private, Government, and Cooperative. Under private R&D they include
listed (public funded) as well as non-listed firms. It also includes foreign firms
undertaking R&D/foreign R&D centers and again may be listed or non-listed
entities. Government R&D on the other hand, is a contribution to research
conducted in universities and national research institutions, while cooperative R&D
primarily involves technology associations that promote R&D. We can see a similar
distinction in India. India has a huge R&D infrastructure with 400 national
laboratories, 1300 recognized in-house industrial units, besides several government
departments and private institutions and foundations engaged in scientific research.
R&D is also undertaken in the 358 universities in the country. There are
approximately 500 Foreign R&D centers in India. In spite of this impressive R&D
infrastructure in the country, the amount of funds directed for R&D is below 1% of
GDP. However, positive trends are seen. The National R&D expenditure in 2005-06
was Rs. 28,776.65 crores and has been projected to attain a level of Rs 32,941.64
crores in 2006-07 and Rs 37,777.90 crores in 2007-08 (2008, R&D Statistics at a
Glance). The share of R&D expenditure as a percentage of GNP has also increased
from 0.58% during 1990-91 to 0.80% during 2002-03 to 0.89% in 2005-06.
Industrial R&D expenditure comprising both public and private sector was approx.
8,748.20 crores. The investment in R&D has more then doubled for private sector
industries in 2004-05 from that in 2002-03. For 2005-06 private sector investment
was Rs. 7,444.21 crores and is expected to reach the level of Rs. 11,192.86 crores
in 2007-08 (ibid). The industrial sector spent 0.55% of their sales turnover on R&D
activities in 2005-06. Besides regular R&D budget allocated to various
organizations,
extramural
funding
is
also
provided
by
scientific
departments/agencies to R&D organizations to build general R&D capabilities and
provides special encouragement to scientists to pursue research career. The
extramural
R&D
funding
commitment
by
Central
government
S&T
departments/agencies was Rs 448.69 crores in 2002-03; as per the latest available
statistics (2005, Directory of Extramural Research & Development). There were
2,718 projects approved for funding during 2002-03. The maximum funding was in
Engineering and Technology (38.15%). DST was the major funding agency,
accounting for 39% (Rs. 176.56 crores) of the total extramural funding in 2002-03.
As outlined in the beginning, R&D has never been a major concern for Indian
industry. Aided by government policies that protected them from outside
competition, most companies saw little need to spend money on research. There

was not much demand of the public R&D either. Innovation was not a priority and
there was a general disinterestedness of the industry to develop products. Reengineering was the key concern and with not much commercial safeguards for
innovative products, incentives for innovation were not there in the industry .
Liberalization and subsequent opening up of the Indian economy from 1991
onwards are beginning to make significant impacts. Lowering of customs duties has
played a key role in this process of facilitating and encouraging investment in R&D.
Starting in 1994, for example, the tax on equipment associated with R&D activities
was reduced from 50% to 25%. Another significant development has been the
amendment of the patent act. The new act Patent Amendment Act (2005) allows for
filing of process and product patents in all technological categories/sectors. Foreign
investment and entry of multinational companies with large R&D centers, corporate
research centers and joint efforts with Indian partners are effecting the change.
We determined the public limited firms that had reported disclosures for at-least
three years3 and those among them who had made expenditure under R&D (using
Prowess database). There were 10,064 public limited firms (in the current Prowess
database 2008 version) satisfying the criteria of at-least disclosing their audited
statements for three years to the Registrar of Company Affairs. Table 5 highlights
the firms undertaking R&D investment within this set in different periods of time.
Sales and R&D intensity is also given in this Table. R&D intensity is defined as R&D
divided by sales. Normalization of R&D by firm sales controls for the effect of firm
size, which affects the return per unit of R&D effort.

Table 5: R&D firms, 1990-2007

Number of
firms

R&D
expenditure (Rs
. crores)

(Rs. crores)

1990

44

74.57

152168.9

0.049

1991

83

135.42

179743.4

0.075

1992

258

324.72

224824.4

0.144

Year

Sales

R&D*
intensity

1993

505

582.79

275970.7

0.211

1994

613

714.44

317761.9

0.225

1995

853

1116.12

388437.9

0.287

1996

917

1590.24

484140.3

0.328

1997

1001

2080.03

535698.9

0.388

1998

961

1785.69

568695.5

0.314

1999

969

2851.23

635457.5

0.449

2000

933

2219.33

748025.3

0.297

2001

930

2446.86

877662.4

0.279

2002

1068

3003.47

877667.13

0.342

2003

1099

3868.09

968885.39

0.399

2004

1070

5098.99

1139574.9

0.447

2005

980

6074.17

1358880

0.447

2006

966

7635.28

1608181

0.475

2007

918

8596.26

1837312.7

0.468

*R&D expenditure/sales
Source: Constructed from Prowess database

Table 5 shows significant positive growth in number of R&D firms from 1990 to
1995 (we define a firm as an R&D firm if it has undertaken R&D investment). The
growth trend is slower after that with minor negative fluctuations in some years
also. However, absolute value of R&D investment has significantly increased over
the years. There has been almost a 770% increase in R&D investment in 2007 from
that in 1995; although theincrease in number of firms undertaking R&D investment
has been marginal. The number of R&D firms in 2000 was more than that in 2007,
however R&D investment in 2007 was 387% more then that in 2000. The R&D
intensity has not shown this high growth rate as sales have also significantly
increased over the years. The proposition that R&D investment contributes to sales
is supported by this empirical data4.
Table 6 shows the breakup of R&D investment for the aggregated period 19902006 in terms of ownership group: Indian and Foreign entity. Other indicators are
also given in this table.

Table 6: Firms Exhibiting R&D Investment (1990-2006)

Firms

Indian
Entities

Foreign

No: of

Sales

R&D

1472

43,02,348.1

22,514.6

195

10,82,688.4

4,892.4

Firms

R&D

Import

Export

0.52

7,75,668.6

6,65,085.2

0.45

1,58,776.9

1,13,102.0

Intensity

Entities

Fig 6. R&D Expenditure by Indian and Foreign Entities (1990-2006)

Note: R&D in Rupees Million
Source: Prowess database (CMIE)

The broad expenditure statistics of public limited companies as shown by Table 6

and Figure 6 is much below the expenditures made by industrial sector in developed
economies (refer section on International R&D Trends). Even industrial sectors in
emerging economies are making high levels of investment in R&D. Chinas high
investment by industry is a case in point. New Science and Technology Policy 2003,
envisages enhancing investment on R&D by 2% of GDP with increased participation
from industry.

Thus on one hand we do find top multinationals locating their R&D centers in India.
TIFAC report on FDI in the R&D sector in India has given detailed statistics of 100
FDI companies with R&D centers in India. These FDI companies are in different
sectors pharmaceuticals (drug discovery services, new dosage formulations, etc),
ICT (embedded software, chip design, etc), processed foods etc. The report shows
the successes of these R&D centers in terms of generating proprietary technology.
On the other hand in spite of a few firms reaching international levels in terms of
sales,clientele, delivery, acquisitions and their focus on becoming knowledge driven
entities, the SMEs are still struggling to adjust to the changing scenario. Many of
them do not have the required capital to undertake the transition. But the main
hindrance is the reluctance to make long term investment in R&D, improving quality
standards, and move away from re-engineering. Thus, we still find that R&D in
India is mainly funded by government sector. Without industrial sector investing in
R&D it is not possible for the country to achieve R&D investment of 2% of GDP.

Characteristics of Firms Undertaking R&D in 2006-2007

There were 1,055 firms from a population of ~10,000 firms (refer Method section
for details) that had made investments in R&D for the period 2006-07. This was the
sample for the present analysis. Table 7 shows the distribution of the selected
1,055 firms in terms of incorporation year.

Table 7: 1055 R&D Firms distinguished in terms of Incorporation Year

Incorporation year

Before 1900

Number of firms

20

Major economic activity

Chemical products (4)

Food products and beverages (2)

Textiles (2)

Non-metallic mineral products (2)

Electricity supply (2)

1901-50

1951-60

1961-70

1971-80

1981-90

163

Chemical products (30)

Food products and beverages (19)

Machinery and equipments (17)

Non-metallic mineral products (15)

Diversified (10)

Automobile spare parts and ancillaries (9)

Electrical machinery and equipments

Chemical products (24)

Machinery and equipments (14)

Automobile spare parts and ancillaries (8)

Food products and beverages (7)

Chemical products (32)

Machinery and equipments (19)

Automobile spare parts and ancillaries (14)

Basic metals (11)

Chemical products (50)

Textiles (11)

Basic metals (10)

Automobile spare parts and ancillaries (9)

Chemical products (92)

102

128

152

278

1991-95

1996-2000

2001-05

125

Automobile spare parts and ancillaries (26)

Rubber and plastic products (20)

Electronic equipments (18)

Machinery and equipments (16)

Computer software (13)

Chemical products (38)

Computer software (13)

Food products and beverages (10)

Textiles (10)

Machinery and equipments (16)

Chemical products (15)

Computer software (07)

Automobile spare parts and ancillaries (07)

Food products and beverages (05)

Wholesale trade (05)

Non-metallic mineral products (06)

Chemical products (06)

Automobile spare parts and ancillaries (4)

Non-metallic mineral products (02)

66

18

2006-07

Petroleum products (01)

Chemical products (01)

Computer software (01)

Note: Figures in brackets refer to number of firms.

It is interesting to note that many of the firms were incorporated more then fifty
years ago. It is also an interesting finding that the number of firms incorporated
after 1995 was less then the earlier periods. It is however not possible to ascertain
when individual firms undertook investment in R&D. Chemical sector dominates the
sample i.e. majority of the firms belong to the chemical sector. Automotive, Food &
Beverages, Textiles and Software are the other visible sectors. Software firms are
visible from 1991 onwards reflecting their presence in Indian industrial activity.

Fig 7. Region wise distribution of R&D firms, 2006-07

Table 8: Distribution of R&D Investment in terms of Ownership Group

Ownership
group

No. of
firms

R&D expenditure
(Rs. Crores)

R&D
expenditure
(Rs. Crores)

Average R&D
expenditure
(Rs. Crores)

2006

2007

2006-07

Business Group

529

4362.96

5694.29

5028.63

Private Indian

361

1561.44

1005.94

1283.69

Private foreign

88

502.45

458.25

480.35

Central
governmentcommercial
enterprise

57

1187.48

1349.11

1268.30

State
governmentcommercial
government
enterprise

19

18.23

16.96

17.60

Cooperative sector

01

0.28

0.27

0.28

1,055

7,632.84

8,524.82

8,078.83

Total

Fig 8. Average R&D expenditure (Rs. Crores) of 1,055 R&D firms according to
ownership group,2006-07

92% of the firms have private ownership (comprising of Business group, Private
Indian, Private Foreign) signifying their dominating the industrial activity (Table 8
above). Only 8% of the firms were from government and cooperative sector. Figure
8 further shows that 84% of the R&D investment was by private ownership firms,
rest 16% coming from government and cooperative sector firms.

Table 9: R&D intensity of firms with respect to R&D expenditure (2006-07)

R&D
expenditure(Crores
)

>100

No. of
firms

R&D
Intensity

20

49.35

>50 & < 100

12

4.32

>1 & <50

306

2.32

<1

434

0.64

Table 10: R&D Intensity and Sales (2006-07)

Average
sales(Crores)

No. of
firms

R&D
intensity

>10,000

21

0.41

>5,000 & < 10,000

15

0.35

>1,000 & <5,000

97

1.23

>500 & <1,000

111

1.05

>100 & <500

275

0.90

<100

253

6.00

Table 9 shows that R&D intensity is much higher for small enterprises. There is not
much difference in R&D intensity for medium and big enterprises. However,
dominent firms in the economy (sales > 5,000 crores) have lower R&D intensity. In

other words resource allocation in R&D do not communsurate with the sales of large
enterprises. The broad indication is that small firms are trying to become more
innovative then the larger firms. Table 10 highlights a different set emerges when
we take sales in consideration.
Table 11 shows the number of firms in each sector and R&D intensity therein. The
firm in each sector with FPS (Foreign Promoter Share) is also shown .

Table 11: R&D intensities of different sectors of Indian R&D firms (2006-07)

R&D intensity
Sectors

No. of

Average R&D

Number of

% of FPS

firms

Intensities

FPS firms

firms

2006

2007

Pharmaceuticals

115

7.08

6.74

6.91

26

22.61

Chemicals

303

2.56

2.42

2.49

71

23.43

Food products

68

3.43

0.37

1.9

13.24

Motor vehicle

85

1.71

1.81

1.76

25

29.41

Electronics

37

1.71

1.25

1.48

21.62

Machinery

92

0.93

1.72

1.33

25

27.17

Software

37

1.15

1.15

1.15

24.32

Rubber & plastic

47

0.59

0.59

0.59

12

25.53

Basic chemicals

97

0.61

0.31

0.46

17

17.53

44

0.41

0.33

0.37

10

22.78

46

0.37

0.33

0.35

15.22

Textiles

49

0.19

0.31

0.25

10

20.41

Basic metals

45

0.15

0.18

0.17

17.79

Non-metallic

53

0.16

0.11

0.14

11

20.76

Electrical
machinery

Other food
products

It can be observed that R&D intensity is very high in some sectors, much above the
average R&D intensity of 0.4 of the 1,055 firms in the sample. Sector wise R&D
intensity broadly mirrors global trends; however the baseline and celing levels are
much higher in developed economies.
The table also shows sector wise FPS distribution. Motor vehicles and Machinery are
two sectors that attract maximum FPS share. In other words, foreign participation
is more in these two sectors then the others. However, it should be noted that these
are aggregated statistics and may strongly be influenced by outliers. Figure 9 and
Table 12 qualifies FPS activity further.

Table 12: Distribution of firms w.r.t Foreign Promoter Share, 2006-07

Number of
firms

FPS (%)

R&D
intensities

118

<=25

0.91

30

>25 and <=50

0.75

57

>50 and <=75

0.49

26

>75

1.68

Fig 9. Distribution of firms w.r.t Foreign Promoter Share, 2006-07

In terms of holding, we observe 83 firms have FPS above 50%. These firms
primarily should be placed under foreign firms as effective controls of these firms
are outside the country. R&D intensity highlights an important policy relevant
aspect. It shows that R&D intensity of firms with high FPS share (>75%) have the
maximum R&D intensity in comparison to other categories. The average R&D
intensity of firms with no FPS share is 0.63. Thus two points emerge: (a) Firms with

FPS have higher R&D intensity then those attracting no FPS. This implies FPS is an
inducement for a firm to put more allocation for R&D as a percentage of sales. (b)
Very high FPS share is a strong inducement. The findings of Chang (1985) that
Foreign R&D investment has played a key role in increasing the overall R&D picture
in many advanced as well as developing countries holds true for this snapshot
analysis.
The above analysis has so far shown the average R&D investment pattern and
related statistics derived from them. To observe the major drivers of the above
trends, we investigate the top fifty firms in terms of R&D Investment (Figure 10),
and Sales (Figure 11)

Fig 10. Average R&D expenditure, 2006-07 (Rs. Crores)

It can be observed that pharmaceutical firms are dominating the above group.
Thus the high R&D intensity of this sector (as observed earlier) is a contribution
from not a few isolated firm but it is more pervasive.Refinary firms are dominating
sales in comparison to other firms in the above set. Software firms and automobiles
are also prominetly visible among the top fifty firms.

Fig 11. Average Net sales (Rs. crores), 2006-07

Summary and Discussion

The paper dwells on two perspective of Indias R&D investment. First Indias R&D
investment pattern is compared with global trends. In the second part, the

industrial R&D investment pattern is analysed from a sample taken from the
poulation of public limited firms.
India is presently the 4th largest economy of the world (in
PPP term) and a favoured destination of global R&D firms. Many Indian firms have
created global footprints. In two sectors that have potential of driving the world
economy i.e. ICT and biotechnology, India is among a few emerging economies to
make its presence felt. However, inspite of these impressive statistics, Indian
industrial R&D investment is still at a nascent stage. India compares poorly with
industrial economies in terms of R&D spending. Unlike India, the major driver of
R&D investment in developed economies comes from the industry. This is true even
in case of China, where industry accounts for 57% of R&D investment. Indias R&D
investment from industry was 23% in 2007, which was even less than industrial
investment in Brazil (38.2%).
International Scenario:

Lessons learnt from international assesment of R&D investment are: a) India needs
to increase resource allocation in R&D as % of GDP considerably, to 2% from the
present level of 1%. This is minimum benchmark of developed economies; ( b) to
attain this level the industry should become a major player as is the international
trend. R&D investment from industry should at least match the contribution made
by government.
R&D investment drives the innovation process. An indirect indication of its
effectiveness can be gauged from the firms patenting activity and its creation of
value added products. High technology exports and patenting activities are
considerably lower for India. This may be a reflection of Indias low investment in
R&D.
Industrial R&D-Indian Scenario: This was based on a population of 10,000 public

limited firms. These firms account for 70% of industrial revenue in the country. The
number of firms involved in R&D activity has increased 20 times in 1995 from the
level in 1990 (i.e. from 44 firms to 853 firms). In the later periods, there was not a
major change in the the number of firms involved in R&D activity. There has been
almost 770% increase in R&D investment from that in 1995. Thus firms involved in
R&D have significantally increased their R&D investment. R&D intensity has
increased from 0.05 in 1990 to 0.47 in 2007.
1,055 firms had made investment in R&D in 2006 or 2007 or in both the years.
This was the sample chosen for further indepth study. Statistics was based on the
average for two years: 2006 and 2007.

Key findings:
Chemical sector emerges as the dominent sector in which firms had made R&D
investment. Automobile, Food & Beverages and Instrumentatation are the other
sectors where firms had made R&D investment. In the later period there is
emergence of software firms. Western region is the major centre of industrial
activity. Small firms (sales < 100 crore) are the key drivers of R&D activity. Firms in
this category devote almost 6% of their sales to R&D (this is on an agggregate) as
compared to range of 0.45 to 1% for firms from other categories (sales above 100
crores). R&D intensity is high for pharmaceutical industry (6.7%) and Chemicals
(2.42%). Textile (0.19%), Basic metals (0.15%) and Non-metallic (0.16%) are
hardly contributing to R&D. Software sector has moderate investment intensity
(1.15%). Foreign promoter share (FPS) acts as an inducement for R&D investment.
Firms that have FPS > 7.5% have R&D intensity of 1.68% in comparison to firms
with no FPS (0.63%).
We should be cautious in making any generalized interpretation from the above
findings. Firstly, these statistics emerge from a snapshot analysis of average
activity in two year period 2006-2007. Secondly, the firms are restricted to public
limited entities. But at the same time the findings of this study are important in the
indicative sense.

Notes:
1. Absorptive capacity is the ability of a firm to recognize the value of new, external
information, assimilate it, and apply it to commercial ends. It is a function of a firms level of
prior related knowledge.
2. DST has been trying to enlarge the scope of its coverage. The 2000-01 and 2002-03
survey of industrial R&D reported in the latest R&D statistics does include 529 industries not
recognized by DSIR. NISTADS report to DST will also be examined to include other missing
firms in the future (personal communication).
3. There are approximately 75-80 thousand companies that are public limited companies.
However, it has been observed that many of them do not follow the proper rules and
regulations and thus face litigations and other problems. Those companies who regularly
submit their audited statements testify to the stability.A minimum three year period of
submission was thus taken.

4. In principle there are three classes of industry-level determinants of R&D intensity: demand, appropriability, and technological opportunity conditions (Cohen
and Levin, 1989). Demand is often characterized by the level of sales and the price elasticity of demand.

References:

Bhattacharya, S; Sharma, S.C; Lal, K (2007). Study of R&D and Innovation Activity of Firms in
India. Report by National Institute of Science, Technology Studies for Department of Science
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Chang, ZY (1985). The characteristics of Industrial R&D-A study of major manufacturing

industries in Hong Kong. Omega Int. journal of Management, 13(6), 501-06.

Cohen, W.M. and Levin, R.C. (1989). Empirical studies of innovation and market structure In:
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Amsterdam: Elsevier.

Desai, A V (1980). The origin and direction of industrial R&D in India. Research Policy, 9(1),
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Global R&D Report (2007). (www.rdmag.com)

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Porter, M (1990). The Competitive Advantage of Nations. The Macmillian Press Ltd.: London.

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Sakakibara, M & Cho, D S (2002). Cooperative R&D in Japan and Korea? A comparison of
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United Nation Conference on Trade and Development (2005). World Investment Report.
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United Nation Conference on Trade and Development (2008). World Investment Report.
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Unleashing Indias Innovation: Towards sustainable and inclusive growth (2007). World Bank,
Washington, D.C.

World Economic Forum (2008). Global Competitiveness Report 2008-09. Geneva.

Wesley, M. Cohen and Daniel A. Levinthal (1990). Absorptive capacity: A new perspective on
learning and Innovation. Administrative Science Quarterly, 35:1, 128-52

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