India’s tryst with global R&D began way back in 1985 when Texas Instruments (TI) set up an R&D center in Bengaluru, India. Although initially developing and supporting proprietary software systems for their Integrated Chip design, it became a full-fledged design center for application-specific products by 1990. The company has evolved since then. TI India later opened a design center for 3G wireless chipsets and a center for developing wireless Local Area Network (LAN) chipsets. The company has developed over 225 intellectual property rights (IPRs) at its center in Bengaluru. And rest, as they say, is history.
Motorola's two research and development facilities in India helped produce a sub-$40 cellular phone for emerging markets. Microsoft in January 2021 launched its third international research center in India that will serve as a premier hub for driving cutting-edge engineering and innovation. Intel has 800 India-based engineers working on software and hardware designs for its communication and semiconductor product lines. Other U.S. companies are designing everything from auto parts to consumer electronics through outsourcing or setting up their own facilities in India. Current estimates suggest that Global Capability Centers (GCCs—the generic term now used to describe these centers) set up in India employ more than a million technically qualified people. While these centers were started in pursuit of cost arbitrage opportunities, over time many of them improved their capabilities and started doing cutting-edge technology or product work for their parent companies. Today, companies such as Adobe, Oracle, IBM, GE, AMD, Cisco, Siemens, and more than 100 Fortune companies have already set up their dedicated GCCs in India for taking up R&D activities.
As per a 2021 NASSCOM report, the Indian Engineering R&D (ER&D) services sector is expected to reach USD 63 billion by 2025, up from USD 31 billion in 2019 growing at a compound annual growth rate of 12-13%. India's current share of the global ER&D outsourcing market is 30 percent and is expected to reach 50 percent within a decade. India is today home to 1300+ ER&D GCCs across industry verticals operating at a scale that makes them amongst the largest technology hubs for the parent organization. NASSCOM has set a target of $100-billion revenues from this sector by the end of 2030.
So what makes India a lucrative destination for global companies to set up their R&D centers?
The country offers a unique blend of massive market opportunity, favorable business environment, highly skilled and low-cost workforce, and lucrative fiscal benefits.
Huge Domestic Market
The sheer size of the market makes India a strategic location for large foreign firms to expand their operations. With the Indian consumers having varying product preferences when compared to developed nations, it becomes important for these companies to set up their local R&D centers to cater to the local market. It also reduces product development costs and helps the company in achieving a faster time to the market. Consider this, South Korea’s Samsung Electronics manufactures washing machines for sale in India. These washing machines include a memory backup to compensate for frequent power outages and a special rinse cycle for saris to prevent them from getting knotted.
Low-cost, highly skilled, and young workforce
India’s low-cost and highly talented pool of workforce is the key differentiator between India and western countries. India adds 6000 PhDs, 200,000 engineers, 300,000 non‐engineering postgraduates, and 2,100,000 other graduates to its workforce annually. English as a commonly accepted business language creates a comfortable environment for foreign firms to set up their base in the country. Another important factor is the average age of the workforce. By 2030, India's working population is expected to be the youngest in the world. Besides financial benefits from employing the local workforce, companies also gain 30-40% improvements in their time to market, which increases their profitability.
Well-established Intellectual Property Rights (IPR) policy
The WTO requires all its member countries to abide by the minimum IPR standards as stated under the agreement ‘Trade-related Aspects of Intellectual Property Rights’ (TRIPS). India is automatically obligated to abide by these rules by the virtue of being a WTO member since 1995. This creates a friendly environment for foreign firms to enter the region, without having to worry about the safety of the Intellectual Property (IP). The confidence shown by foreign firms is evident from the rise in IP applications registered in the country over the last five years. According to 2018 statistics from the Department of Industrial Policy and Promotion (DIPP), trademarks, copyrights, and patent registrations have seen a growth of 236 percent, 233 percent, and 41 percent respectively since 2016.
India has highly acclaimed educational institutes such as the Indian Institutes of Technology (IITs), the Indian Institutes of Management (IIMs), and the Indian Institute of Science (IISc). Most of these institutes conduct R&D in collaboration with central and state governments as well as industry players on a regular basis.
IIT-Madras has a unique ‘Credit System’. The model works through credits that are earned by the industry through academic interactions with the institute (e.g. entrepreneurial activities, collaborative partnerships, sponsoring Ph.D./research programmes/training, internships, and recruitments, teaching, and advisory, etc). These can be exchanged for services and association with the research park.
IISc-Bangalore has instituted the Society of Innovation and Development (SID) that acts as the Institute’s scientific repository and carries out engagements with industry in three arms:
a) Core Innovation and Research with Enterprise (CORE) arm that engages with large corporates;
b) TIME2 arm that engages with medium-sized companies, and
c) STEM arm that works for start-ups.
These three arms actively work towards matching industrial requirements with the scientific knowledge repository of the institute and handle all the negotiations for pursuing collaborative work.
IIT-Delhi has established an industry interface through Foundation for Innovation and Technology Transfer (FITT) which carries out industrial consultancies, industrial training, industry-sponsored research projects, and start-ups, through which industry and the institute have derived mutual benefits.
ICT-Mumbai follows a unique model of industry linkages where more than 80% of the faculty is involved with industry either in the form of industry-sponsored research projects or industrial consultancy. The institute also offers special Ph.D. and other research programmes for industrial staff.
Government initiatives to boost R&D in India
Under the Make in India campaign, the government has taken several steps to promote science and research, and development in India. These steps have been reflected in the increase in research output and publication of research papers from India. India is fast gaining global recognition for the quality of research it has produced.
Budget 2021 included several initiatives to promote science, technology, and innovation with applications in the country. This included a total allocation of Rs 50,000 crore over 5 years for the National Research Foundation, an autonomous body envisaged to support researchers working across several streams of S&T with a special focus on universities. This will ensure that the overall research ecosystem of the country is strengthened with a focus on identified national-priority thrust areas.
The Startup, Innovation & IPR division of the Ministry of Electronics & Information Technology (MeitY) has undertaken a slew of proactive, pre-emptive, and graded measures to spur the technology-led startup-innovation ecosystem in the country and give an impetus to the new and emerging technologies. MeitY had initiated TIDE 2.0 to promote tech entrepreneurship through financial and technical support to incubators engaged in supporting startups primarily engaged in using emerging technologies such as IoT, AI, Block-chain, Robotics, etc. in seven pre-identified areas of societal relevance. The seven select thematic areas identified to address societal challenges based on national priorities are in the realm of:
- Financial inclusion including digital payments
- Infrastructure and transportation
- Environment and cleantech
- Clean Energy Solutions
Given the risk factor involved in any R&D activity, the Indian government tries to lessen the burden on the companies by offering incentives on equal terms irrespective of their domestic or foreign origin. These incentives are both in the form of financial incentives (direct funding of R&D projects by the government) or fiscal incentives (tax holidays, import tariff exception). The majority of the incentives are fiscal in nature as is the case with most developing nations.
Where India stands on the global scale?
While India’s rank in the Global Innovation Index improved to 48 last year from 81 in 2015, the Economic Survey 2021 showed that India’s expenditure on R&D and innovation was very low compared with other countries. India’s investment in R&D in absolute terms clocks in at a high $48 billion per annum. That makes it the 7th highest spender on R&D. However, the same figure, as a percentage of GDP, amounts to about 0.7% which is significantly lower than the top 10 economies that spend 1.5-3% of GDP on research and innovation.
For Make in India to become a global reality, experts suggest a target of 2% of GDP for R&D spending. The government can reallocate and manage its resources. In addition, the Indian private sector currently contributes about 37% of the total R&D spending. In China, the private sector contribution to R&D is over double at 77%, in Germany it is 68% and in the USA it is 71%. The need of the hour is encouraging and incentivizing research & development in the private sector, along with making it further simpler and more encouraging. It is this combination of private and public spending on research that will give a boost to innovation and make India a hub for global R&D.
With a huge domestic market, a very talented base of scientists and engineers, and the right government initiatives, it is just a matter of time that India will emerge as the next global hub for R&D doing some cutting-edge work across industry verticals.
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