ER&D sector could nearly double to $100 billion in 5 years: Nasscom

Kishor Patil of Nasscom's ER&D Council said India's engineering R&D sector could grow from $56 bn to $100 bn in five years, led by auto, aerospace, semiconductors and GenAI adoption

India’s engineering research & development (ER&D) sector could be worth about $100 billion by the end of this decade, up from $56 billion in the last financial year (FY25), said Kishor Patil, chairman of Nasscom’s ER&D Council. 

The sector has been one of the fastest growing in India’s technology industry, with a 7 per cent year-on-year (Y-o-Y) rise. It includes automotive, semiconductors, industrials, energy and utilities, telecom, health care, life sciences, and consumer electronics. 

The largest industry — information technology (IT) — by comparison, has been growing at about 4 per cent due to a weak macroeconomic environment, which has impacted client spends. 

“If you do the math, it logically does not get there with the same percentage of growth. But overall ER&D spend across sectors is supposed to grow at more than 10 per cent for the next five years. The only difference is, don’t look at numbers and get excited. These are new domains and technologies and the business models and competition are vastly different,” Patil, who is also chief executive officer (CEO) of KPIT Technologies, told Business Standard on the sidelines of a Nasscom event last week.

He added that for growth to take place, a few things need to change. The first is the industrial adoption of artificial intelligence (AI) which still lags investor expectations. 

“Most companies are behind in the production programme when it comes to AI adoption. There is a difference between that and a proof of concept (PoC). We need that technology more in production and embedded engineering. If we focus on productisation, platform-play and solution-oriented approach, then that target is attainable,” he added. 

The other is to build an ecosystem of enterprises, startups and deep-tech companies, something available in California and China where companies work very closely with one another. 

India’s global capability centres (GCCs) can also play a part with many of them engaged in high-value services. 

Europe has become a go-to geography for Indian ER&D players as automakers in the region take cognizance of the competition from Chinese rivals who have flooded the market with cheaper but more advanced-technology cars. 

Indian companies are also planning to grow in Europe. Tata Technologies recently bought German automotive engineering services provider ES-Tec for euro 75 million to expand its presence in one of the world’s premier automobile markets and diversify customer base. 

“European automakers have undertaken big programmes but are not in a position to finish. And yet, they have to get models out even as vehicles become more complex. That is where they are struggling and losing market share and we (KPIT) can get good business,” Patil added. 

Besides automotive, the other areas of opportunities include aerospace and defence. Aircraft maker Airbus is grappling to meet the surge in demand from clients in a post-pandemic world. And, European countries are sucking up engineering capacity as they boost their defence spends. 

In addition, generative AI (Gen AI) is also rapidly transforming the sector, ushering in a new era of intelligent automation, accelerated innovation and cross-functional collaboration. 

A little over 10 per cent of applications are currently GenAI-enabled, but this is expected to increase to 25 per cent by the end of 2025. 

The allocation of IT budgets towards GenAI is also set to increase from 4 per cent in 2024 to over 6 per cent in 2025.