Year on year, Indian companies squeeze spending on research and development

The little money they have invested in a decade went into recurring expenses

Indian companies spent Rs 651.3 trillion in the last decade, but less than one per cent of that money went on research and development (R&D). As a share of net sales, spending on R&D was 0.3 per cent in the Financial Year 2022-23 (FY23). It was 0.4 per cent in FY19.

This analysis covers 445 S&P BSE 500 companies with uniform data across years. (Chart 1)

Of the total R&D expenditure companies make, most goes on recurring expenses like salaries, wages, and maintenance. Recurring comprised little more than 80 per cent of companies' R&D expense in FY23, a trend unchanged in a decade.

Capital expenditure on R&D – investment on buildings, machinery and other fixed assets that fetch results in the future – was 19.3 per cent in FY23. Expenditure has stayed the same since FY14 except for FY17, when it was 26.1 per cent.

Among 66 sectors, the pharmaceutical industry spends the most on R&D but the amount is no boast. Of the Rs 10,900.8 crore the industry spent on R&D in FY23, just 4.7 per cent was on capital. It was 8.1 per cent in 2013-14. The automobile industry spent 41.9 per cent on capital and the information technology (IT)/ software sector spent 9.9 per cent. (Chart 2)

As many as 243 companies in 22 sectors – e-commerce, electronics, and finance among them – did not incur any expense on R&D in FY23.

Analysis showed that five sectors account for three-fourths of total R&D spending. Of those sectors, expenditure by automobile and IT/ software industries has declined since pre-pandemic levels.

The automobile industry reduced R&D expenditure from Rs 8,456.7 crore in FY19 to Rs 5,947.7 crore in FY23. For IT/software, the decrease was from Rs 1,622.4 crore to Rs 1,556.8 crore. (Chart 3)

Companies in the United States spent the most on R&D (investing 8.1 per cent as a proportion of their net sales) in 2022. Chinese companies were the second biggest spenders (3.8 per cent) and the Japanese (3.8 per cent) came third. It was 1.7 per cent for Indian companies, according to data from the Economics of Industrial Research and Innovation.