Central Idea

India’s research and development (R&D) expenditure-GDP ratio of 0.7% is very low when compared to major economies and is much below the world average of 1.8%. The main reason is the low investment in R&D by the corporate sector.

Overview: Spending’s on R&D in India

While the corporate sector accounts for about two-thirds of gross domestic expenditure on R&D (GERD) in leading economies, its share in India is just 37%. There is evidence, however, suggesting that India’s GERD data are an underestimate.
A 2022 infobrief of the National Science Foundation (NSF) of the United States on Foreign R&D by U.S.-based multinational corporations (MNCs) shows a spend of $9.5 billion (₹649.7 billion) on R&D in India in 2018, which increased to $9.8 billion (₹690.2 billion) in the following year.
There are MNCs from other leading countries also spending on R&D in India.
But the latest Research and Development Statistics, published by the Department of Science and Technology (DST) in 2020, has provided an estimate of ₹60.9 billion R&D spending in 2017-18 by foreign MNCs, which is only about 10% of what U.S. firms have reported to have spent in India on R&D.

Gross domestic spending on R&D is defined as the total expenditure (current and capital) on R&D carried out by all resident companies, research institutes, university and government laboratories, etc., in a country.
It includes R&D funded from abroad, but excludes domestic funds for R&D performed outside the domestic economy.
This indicator is measured in USD constant prices using 2015 base year and Purchasing Power Parities (PPPs) and as percentage of GDP.
It is often used as an indicator of a country’s level of innovation and technological progress.

NSTMIS compiles GERD data: The National Science and Technology Management Information System (NSTMIS) of the DST is the agency that compiles GERD statistics in India.
Challenge is to collect data from private sector: It is easier to gather the information on R&D by the government sector, the higher education sector and public sector enterprises. The challenge lies in collecting data from the private corporate sector.

The method used for identification of R&D performing firms does not capture all the R&D performing firms.

NSTIMS uses DSIR and Prowess to identify R&D units: A study found only 11% of 298 firms receiving foreign investment (2004-16) for R&D were registered with DSIR. Prowess covers only 3.5% of currently active registered enterprises in India. Leading enterprises in new technology areas may not be listed in both databases, such as SigTuple Technologies.
The DSIR list may not have many of the actual R&D performers for two reasons: Firms which consider government incentives as not attractive enough or that are sensitive about sharing critical information with the DSIR may not be inclined to register themselves with the DSIR. 2. It may be difficult for R&D firms in services such as software and R&D services to meet the requirement of having separate infrastructure for R&D to distinguish it from their usual business. In fact, many of the R&D performing enterprises in new technology areas may come under the services category.

The survey conducted by the NSTMIS is the key source of R&D statistics of India

Data from Secondary sources works only if firms disclose their R&D spending: If firms don’t respond to the survey, data is collected from secondary sources like annual reports and Prowess. Some firms don’t report R&D spending despite their technology activities, patents and innovators. They may not feel obliged to report accurately to Indian regulatory authorities.
For instance: A review of the documents submitted to the Ministry of Corporate Affairs (MCA) by some R&D-oriented firms shows that there are firms which do not report any spending on R&D in spite of their declarations that suggest that they are engaged in activities of technology development, adoption and adaptation.

Short term measure: the NSTMIS should use the patents granted data, both in India and the U.S., in addition to its current method to identify R&D performing enterprises.
Mandatory disclosure: Annual R&D estimates can be prepared from mandatory disclosures that the enterprises are required to make to the MCA.
Technologies can be employed to ensure compliance and proper reporting: In order to ensure compliance and proper reporting, technologies can be used like in the case of revamped income-tax return forms where various sections are interlinked.
Spending data should be made an essential component of ESG: Additionally, proper disclosure of information to regulatory agencies, including R&D spending data, should be made an essential component of the environmental, social and governance (ESG) ranking of enterprises.

Concrete data on R&D spending is crucial as it helps to identify areas needing investment, promotes economic growth, informs policymaking decisions, tracks progress, and evaluates policy effectiveness in promoting innovation and technological development. Transforming India’s R&D statistics to truly reflect the R&D ecosystem calls for short-term and medium-term measures.