It’s time to bring the focus back on R&D for Make in India

India continues to be one of the most preferred destinations in the world for Information Technology (IT), Information Technology enabled Services (ITeS), engineering, and Research & Development (R&D) services delivery. 

However, while MNCs are turning to India for setting up their R&D centres, Indian brands themselves have failed to keep pace and step up their R&D activities. Multinationals are investing millions to do R&D in a country where its own R&D expenditure remains abysmally low at less than one per cent of Gross Domestic Product (GDP). The fact that multinationals are establishing globally advanced centres to tap India's low-cost, English-speaking engineers and experts shows there is no shortage of talent in India.

The question then arises, as to why does a country with so much research aptitude, produces such little home-grown innovation? A possible answer is that despite a strong engineering talent pool, low costs and a good knowledge of English, India has failed to invest properly in R&D. The spending is so low by global standards that it even holds back India's economic, technological, and tactical ambitions. 

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Research and development (R&D) are a crucial part of a company's operations that seeks knowledge to develop, design, and enhance its products, services, technologies, or processes. Along with creating new products and adding features to old ones, financing research and development connects various parts of a company's strategy and business plan, such as marketing and cost reduction.

The build-up of R&D and innovation capacities has played a significant role in the growth dynamics of successful developing countries such as China. There are only 26 Indian companies in the list of the top 2,500 global R&D spenders in the world. 

Compared to this, 301 Chinese companies are among the top 2,500 global R&D spenders. Moreover, 19 out of these 26 companies from India hail from just three sectors—pharmaceuticals, automobiles, and software.

According to the Government’s Invest India Report ‘The Case for Foreign Direct Investment in Research & Development in India', there are no Indian companies in five of the top R&D sectors in the world, whereas China has a presence in each one of them. 

India is losing out on this ‘catch up’ game because Indian private companies mainly invest in sales and marketing alone. Indian companies do not invest substantial resources in R&D and that’s why Indian brands are not innovating and this is why, no matter which industry we talk about, Indian manufacturers are not creating globally exemplary products. 

Let’s take for instance, the global smart phone industry. Chinese companies innovated at product level and controlled the technology. They also dominate the supply chain technology, and so they could not only produce cheaper phones due to their global economies of scale, but also provide extreme value to the judicious Indian customer for a budget smartphone. Today, one Chinese smartphone manufacturer, BBK Electronics, selling under the Vivo, Oppo, OnePlus and Realme brand-names, dominates the entire value chain, from technology to channels, in the Indian smartphone market.

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This is because Chinese companies invest millions of dollars every year, to innovate and conduct methodical R&D, in order to create newer smart phones, under varied pricing range. They create prototypes and once products have met the quality standards, they mass produce under various brand names. Chinese companies ensure that the quality of the phones and the price of the phones are kept well in control to ensure global dominance. 

The good news is that more and more Indian companies in sectors ranging from IT and telecom, pharmaceuticals and biotech, electronics and FMCG are now taking up ambitious R&D projects, aiming to serve the Indian market, and eyeing a piece of the global pie by innovating. 

Although this is a good sign, India still has a long way to go. While the percentage of R&D expenditure of Indian companies has increased in general, in most cases, it is still much lower than that of global competitors in the same industry. Research indicates that absorptive capacity of a company is directly proportional to the intensity of internal R&D. This is an important reason for Indian companies to stay invested in internal R&D, and the government to continue its policy support for internal R&D financing. Only when Indian companies will invest a substantial chunk into R&D and collectively work on innovating and creating world class products will it pave the way for ‘Make in India’ to be a success.