India: The next global R&D hotspot?

From finding cures for critical diseases and using technology to bolster global trade to unearthing solutions for a smart country and transiting to a net zero carbon economy, research and development (R&D) is going to be the driving force for India in the coming years. This blog examines India’s potential as the next global epicenter for R&D.

  • India is emerging as an R&D hub in various markets like pharmaceuticals, automobiles, IT and biotechnology. Many factors like cheap labour, a highly skilled young workforce and strong domestic markets are driving growth in R&D.
  • The United States, France and Singapore are some of the biggest FDI investors in India who are responsible for driving R&D in these economic sectors.
  • Pune, Gurugram, Noida, Bengaluru and Hyderabad are some of the centres where the majority of R&D is being carried out.
  • Companies like Amazon, Microsoft, Google, Daimler Chrysler, KPMG and E&Y are pumping in millions of dollars for innovation and the creation of better products and services.

R&D

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According to the United Nations Conference on Trade and Development (UNCTAD), India’s R&D services exports grew fastest globally (2022). The country is also the world’s second-largest investor in R&D after the U.S. The country’s quest for innovation and, hence, the zeal for R&D has also pushed it from a rank of 81 in 2015 to 46 in 2021 in the Global Innovation Index (GII).

R&D has become inevitable because of the constant pressure to cut down the time for the flow of operations and the need to find efficient solutions for modern problems. Earlier, R&D was predominant in developed nations only and, also, to the boundaries of a corporate firm. Nowadays, R&D centres are becoming global and gradually expanding to developed countries as well. Some of them have entered into unexpected newer markets like India & China. Explaining this trend, especially in the post-pandemic scenario, Pareekh Jain, Founder, Pareekh Consulting, stated:

As things normalize across the world with regard to the COVID-19 pandemic, many MNCs are making public announcements of expanding their R&D centers in India or setting up new units. Notably, Indian R&D centres of global firms are doing high-end technology innovation work for global centers.

What factors are driving R&D in India?

India has been emerging rapidly as an R&D hotspot for MNCs as the country is strengthening its ‘Make in India’ story to be an integral part of the global value chain. These companies have already set up their dedicated and cutting-edge R&D facilities in India in high-tech areas to capture newer markets. Some of the factors which make India the next big thing in the international R&D landscape include: 

Availability of affordable workforce

In India, the cost of labour is pretty low. Taking the U.S. as a benchmark, per hour wages are over US$ 7. But in India, it is well under US$ 5 an hour. This is well below the global average. Further, in tier II and tier III Indian cities, the labour costs are much lower. That is why, R&D is increasing manifold in India.

Good educational institutes & skilled workforce

The rise of good educational institutes has boosted the quality of the workforce. India has one of the largest higher education systems in the world – around 1000+ universities and 42,000+ colleges imparting exceptional education. Home to premier technological institutions like IITs & IISc, India has one of the best automotive, IT and financial workforces worldwide.

Groundbreaking work

India is one of the global leaders in IT innovation. It is among the top 10 global players in artificial intelligence (AI) and machine learning (ML). Not only this, but India is also among the top 5 in the pharma and electrical vehicle (EV) sectors. In fact, in the EV space, India just falls behind China. The country is also heavily invested in alternative power sources. Thanks to innovation in the energy sector as it aspires to curb carbon emissions and become a hydrogen economy

Huge domestic market

Despite having a considerable value in the overseas market, India’s local markets absorb most of these products and services. This rise has been fuelled by the growing income and size of the Indian middle class and the growing demand for products and services due to the increasing penetration of industries like tech and automobiles in urban and rural areas. Most of these solutions are tuned according to the local preferences as well. 

Policy support

The government has changed many of its policies as per the requirement of the companies that are providing foreign direct investments (FDIs) in India. Some of the measures taken by the government in this regard include encouraging funding for technology startups, incentives for R&D investments in technology, talent development and reskilling, and offering tax incentives to businesses for carrying out R&D activities. Besides, there are well-established intellectual property rights in place.  

Rise in global capacity centres

Due to rising globalisation, there has been a rise in global capability centres (GCCs). This trend has played a huge role in evolving many sectors like software development or the common modernisation in India. Around a million technically qualified employees are a part of these sectors. And, about 40% of the staff members work in engineering, R&D and management roles in business processes. Fully digital companies who are investing in big data are heavily investing in setting up global capacity centres in India and not depending on third-party outsourcing. US GCCs are leading this as of now.

The startup ecosystem

India ranks third in the startup ecosystem as of now. Due to the favourable environment for startup growth in India, foreign collaborators here associate with local players by upping their R&D games. Most of the tie-ups and partnerships are in the tech and IT sectors as of now. 

Sectors with R&D potential

India’s burgeoning demographic dividend presents numerous R&D opportunities across sectors. Some of these with mettle in the international innovation landscape include:

Automotive R&D

India has a lot of demand and potential in automotive R&D. There are companies like Maruti Suzuki, Hyundai, Honda, Hero and Bajaj who are performing all sorts of innovations in the automotive sector. Currently, most of the innovation is being done in the electrical vehicles market, where a lot of technology is being tested to maximize power with minimal output.

Information technology

India has become a global force to be reckoned with in the information technology sector. There are many global giants who have their headquarters in India and are doing terrific work in R&D. Also, Indian IT companies are pumping billions in innovation to improve their products and services.

Information technology-enabled services (ITeS)

There are many players in the services industry that are directly dependent on IT for the execution of their services. For example, food delivery, hotel booking industry and car booking apps heavily rely on IT. India is one of the leaders in the field of ITeS. Zomato, Oyo and Ola are raising the benchmark of ITeS even higher.

Fintech R&D

In the last decade, fintech has also emerged as one of the dominant players in the Indian market. Biggies like Paytm and Google Pay are performing considerable innovation in this sector as well.

Pharmaceuticals

India is one of the global pharmaceutical giants and lags only behind the U.S. in terms of production and market size. Indian pharmaceutical R&D has led it to perform ground-breaking innovations in the treatment of communicable and terminal diseases.

Retail

India’s retail sector has also been picking up. Thanks to the development and research in the field, customers can now get quicker deliveries. Companies in this sector like Big Basket and Blinkit have been doing commendable work. 

Popular R&D hubs in India?

Some of the popular R&D hubs in India are Bengaluru, Pune and Hyderabad for software. Delhi, Gurugram and Mumbai are witnessing R&D in the fintech sector. Pune and Delhi-NCR are seeing a lot of growth in biotech and pharmaceuticals, while Chennai and Hyderabad are experiencing R&D in the automotive industry. 

Source: Times of India/Zinnov Analytics

Which countries are leading investors?

In 2021, India received around US$ 343.64 million in the form of FDI inflows. These inflows are expected to grow in the future years.  FDIs from many countries are boosting the Indian economy as well as R&D activities. 

  • Singapore – Singtel, InMobi, United Overseas Banks and other players from Singapore have invested heavily in India. Nearly 27% of the total FDI is from Singapore.
  • France – Airbus, BNP Paribas, Capgemini, Renault and Saint Gobain are some of the companies that have invested around 9% of the FDI in India.
  • Germany – Companies like Schneider, ABB, Carl Zeiss, Bayer, Bosch and Allianz have invested about 12% of Indian FDI.
  • U.S. – Around 18% of FDI comes from the United Kingdom. Companies like Google, Amazon, GE and Johnson and Johnson bring in these investments.
  • Oman – The country brings in about 10% of FDI in India. There are many companies like The Dunes Oman, Khimji, and KIMS Healthcare that are heavily invested in Indian R&D
  • Mauritius – Cairn UK (offshore), Oracle Global and Vodafone Mauritius have brought in around 16% of FDI.

Wrapping up

India has been progressing steadily towards the top of innovation and R&D curve over the past decade. It has been spearheading the development of tech solutions like mobility and telecommunications, artificial intelligence (AI) and cloud, power green tech and health tech. The country is taking many measurs to emerge as a world leader in R&D and this future is way nearer than one can think. All it needs is a bit of steady growth to emerge as an innovation and corporate powerhouse. 

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