BS Number Wise: Indian private sector's R&D aversion

Share of companies not reporting any spending on research is increasing; two sectors contribute to most of the spending

Work done at USA’s Bell Labs, the legendary private sector research centre, is the reason we have lasers, cellular phones, programing languages, communication satellites and solar cells that account for more than 50,000 megawatts (or 12.7 per cent) of India’s electricity generation capacity.

India’s government is keen on similar innovation. It extended the Atal Innovation Mission till 2023 to help establish laboratories and incubation centres. It has also celebrated increased domestic patent filing.

Indian private sector spending on research and development had been rising before the pandemic, but the contribution to overall national R&D spending was modest. The good news is that the private sector’s R&D spending figure was resilient even after Covid-19 took hold, according to a Business Standard analysis of 2,893 listed companies. Spending increased in financial year 2020-21 (FY21), when India was battling the pandemic (see chart 1).  

Some trends show cause for concern. The number of companies not recording any R&D spending at all was higher after FY20 than before. Around 82.3 per cent of the sample did not record any spending. This reversed the trend of the last few years when the share of companies not recording any R&D spending was marginally coming down (see chart 2).

Indian automobile and pharmaceutical companies top the list in R&D. Companies in the two sectors prize innovation globally as well, allotting formidable R&D budgets besides using mergers and acquisitions to stay ahead in mobility and health.

These two sectors account for eight out of the top ten Indian companies for R&D. The top ten saw a 6.14 percentage point increase in the share of overall R&D for the companies in the sample. The 10 companies account for the majority of spends: the highest in at least seven years (see chart 3).

Such concentration can affect overall private sector contribution to India’s innovation efforts in the long run. Indian businesses account for just around 37 per cent of national R&D expenditure compared to 68 per cent for other large economies.

There is some research suggesting that weak protection of intellectual property rights leads to low returns on innovation. Companies are less likely to make money from their inventions if others copy them. It reduces the incentive to invest in innovation.

India ranked 43rd out of 55 nations in recent intellectual property rankings. An Indian version of Bell Labs may be some distance away yet.