Concept Paper


India on the R&D Road
Indian Institute of Management Ahmedabad



November, 2007





Authors
Himanshu Garg
Mahesh Muraleedharan
Mukta Dharma
Prateek Jain
Siddharth Mohan
Tarun JainTranscending Barriers R&D Paper Presentation
Executive Summary
Private companies in India had limited resources to invest significantly in R&D until liberalization. Post
liberalization, most Indian companies chose to form joint ventures with technically advanced foreign
companies. More recently however, India is seeing an increased focus on developing its own R&D skills
with several firms setting up research labs in India. The focus of R&D needs to shift from customized
products and contract research to new product development.
Yet, despite this growing demand for R&D, India is facing a huge shortage of skilled researchers. Many
students relate research in India with academics, poor pay and bad infrastructure. Universities also give
second rate treatment to Master's students. Thus, students interested in higher education, find it more
appealing to join foreign universities.
To tackle this, the government must give incentives to industry to increase R&D spending and remove
irritants like a slow judicial system. Industry, on its part, should start building research labs in good Indian
institutes or even set up their own institutes over the next 2 years. The labs would benefit the researchers by
providing them good facilities and the companies by providing expertise in an area of their choice.
Additionally, over the next 5-7 years, the research labs would create specialists in the company's domain,
thereby creating supply to match its demand for researchers. This would create a win-win situation for all
concerned as the company would get motivated and loyal specialists, and the specialists would get paid
better.
As India approaches the Production Possibility Frontier, innovation alone will be the driver for growth. The
government, for its part needs to make the environment favorable for companies to invest in R&D, while
industry needs to realize that it needs to invest its own resources in developing R&D capabilities in the
country.


 
 
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The growing need for R&D
Until 1991, India was a closed economy and did not provide much leeway to the private sector. Indian
industry suffered from high tax rates and import tariffs, poor access to foreign markets and large inefficient
public sector monopolies. Most research was state funded, and the private sector, with its limited size never
had the deep pockets to invest significantly in R&D. In the late eighties and early nineties, most Indian
companies chose to form joint ventures with technically advanced foreign companies. Here, the foreign
partner supplied the technology, and the Indian firm manufactured the products. Some examples include
Kawasaki-Bajaj, Maruti-Suzuki, ONGC-Command Petroleum, Eureka Forbes-Electrolux etc. In the last ten
years, however, India is seeing an increased focus on developing its own R&D skills and several Indian as
well as international firms have set up research labs in India.
Even in these last ten years India has had a greater emphasis on the Development as compared to Research.
The kind of R&D done by India over the last few years includes customizing international products for
Indian conditions (e.g. HLL's research center), contract research for foreign companies (e.g. drug testing for
International Pharmaceutical majors) and peripheral development work for international projects (e.g.
Microsoft's Development Center, Dell's Development Center). India now needs to focus on new product
development, both for the domestic market (e.g. consumer electronics, automobiles etc.) and international
market (e.g. pharmaceuticals). This has already started in some products like mobile phones (Nokia 1100),
Rural ATM's (ICICI Bank and IIT Chennai), and Automobiles (Bajaj Pulsar and the Tata 1-lakh car).
Problems in the Supply of good research personnel
Despite this growing demand for R&D, India is facing a huge shortage of skilled researchers. Due to the long
time horizons, there is a normal time lag (3-5 years) between the time when demand for researchers in a field
is first felt, and when the research capabilities can be developed. Yet, there are several reasons unique to
India that have contributed to this acute shortage.
As research in India was traditionally in the hands of the government till the nineties, many students still
have the old vision of research. People taking up higher studies feel that their only employability would be in
academics, where they would be poorly paid and have no access to good infrastructure. This is in stark
contrast with developed countries, where researchers are well paid and have access to good facilities.
What's worse is that many of these perceptions are true to a large extent. Even the top educational institutes
pay more emphasis on the B.E. and B.Tech students, as opposes to the M.Tech students. The liberalized visa
norms have allowed these students to gain access to international institutions for pursuing higher studies and
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research. Thus, even those students who wish to do research, have a strong incentive to do so abroad. Today,
the best students do their Bachelors degree in India, and go on to do their Masters and PhD from abroad.
Is there a way out?
¾ Government's Support
The most basic mechanism for the government to give a signal to industry to increase their spending in
R&D is by giving tax breaks or other, more subtle incentives. Considering that SEZ's are given several
incentives when it only has a localized influence, R&D, with its countrywide effect has a definite case.
High investment in R&D goes hand in hand with strong IPR laws, and a speedy judicial system. Though
India has strong IPR laws, sectors like pharmaceuticals (especially Novartis) are worried about the slow
delivery of justice in India. Considering the long developmental cycle of drugs, with relatively shorter
patent life cycles, speedy justice is critical for the pharmaceutical industry.
Promoting quality higher education is also important for developing Research capabilities, and the
quality academia is the primary means of doing so. Increasing the salaries of the Professors would attract
more talented people to the education field. Additionally, the government should also promote integrated
M.Tech programs in technical institutions, so that a larger proportion of students are exposed to research
when writing their M.Tech thesis.
¾ Industry's Role:
The first issue to be resolved by the private sector is to get the huge Indian talent pool interested in
research, and more so, research in India. The only way to achieve this is by addressing the basic issues of
salaries and facilities, in addition to changing the perception of students.
Over the next 2 years, Industry should start building research labs in some of the good Indian technical
institutes. Some of the absolute top institutes like the IITs already have such labs on their campuses, and
it is important to move to other good institutions like the NITs, Indian Petroleum Institute, ISM Dhanbad,
tier 1 medical colleges, etc. Some large companies may choose to go a step further and set up their own
institutions in areas that they are specifically interested in (e.g. Reliance Telecom setting up DA-IICT, JP
Institutes). This would motivate researchers to join the institute by solving the problem of poor
infrastructure and facilities. The research labs would specialize in fields that are of interest to the
company, and thereby the research at the lab would be in a direction targeted by the firm.
Over the next 5-7 years, the research labs would create specialists in fields that are of interest to the
company, and the company can then hire these researchers into its own research wing. Thus, research
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labs also create a signaling effect where students know what lines of research are in demand in industry.
The labs also give a means for income augmentation for the professors, thereby improving the quality of
academia, which is crucial for developing good researchers.
Currently, as the quality of specialists is not very high in India, several firms choose to hire fresh
graduates for research, and then train them. Professional researchers developed at the research labs would
be more suited for the internal development processes in a company as they already have a background in
the field. They would be more dedicated to their work, and would be less likely to switch jobs in the
wake of new opportunities due to their high commitment to their field. This will address the critical
problem of employee turnover, which can be catastrophic for R&D with its high lead times.
Additional Issues
The pressure of cutting costs has also affected the functioning of R&D globally. This has led to splitting up
research projects to modules and off-shoring some of the simpler modules to lower cost research centers
located in developing countries. This approach has its own issues in managing the work across time zones
and cultures. Even if one is able to break down R&D into independent modules (which is difficult enough),
the high cohesion and coupling between the modules makes it even more difficult. The means to overcome
this issue is to encourage greater interaction between the research teams by holding conference calls and
meetings. Researchers from each team should spend some time at the other locations so that they have a clear
idea about the bigger picture.
Conclusion
India has been able to grow at a very high growth rate for the last decade because it has focused on
improving upon its earlier inefficiencies. However, as we approach the Production Possibility Frontier,
innovation alone will be the driver for growth. Thus, R&D will play a critical role as a driver for growth at
the national level. For improved investments in R&D, the government needs to make the environment
favorable for companies to invest in the same. The private sector, for its part needs to realize that research
skills take time to develop and cannot be bought in the job market directly. Government research is limited to
fields that are of strategic interest to the country, and it does not necessarily invest in research to improve
efficiencies in industry. Thus, industry needs to invest its own resources in developing R&D capabilities in
the country by setting up research labs in educational institutes.


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