New Delhi, Sept. 8: Foreign corporations have created over 247,000 jobs through research and development (R&D) investments in India over the past decade, but most of the activities in their local R&D centres appear relatively unimportant with little long-term gains for the country, researchers have said.
The study, described as the first comprehensive assessment of foreign direct investment (FDI) in R&D, has challenged suggestions by Indian science policy makers and foreign corporations a decade ago that turning India into a hub for global R&D would help enhance the country’s own research prowess.
The study has shown that while 706 foreign companies invested in R&D centres in India between 2003 and 2009, only 74 had obtained patents — a measure of innovation. And from their collective count of 214,686 patents worldwide, only a tiny fraction, 1,166, were patents from their India-based activities.
The study is scheduled to appear in the journal Current Science, published by the Indian Academy of Sciences.
“It appears that FDI in R&D is not contributing in any significant manner to our indigenous knowledge pool,” said Pradosh Nath, an economist with the National Institute of Science Technology and Development Studies (NISTADS), New Delhi, and a study team member.
“Foreign R&D units in India seem to be mainly using our human resources for low-end activities that get integrated into high-end activities outside India,” Nath said. But India’s education system, the researchers say, should share responsibility for the state of affairs.
Foreign companies have at times claimed that key public health safeguards in India’s patent laws that restrict certain types of patents on medicines, could deny the country R&D investments.
Swiss pharmaceutical giant Novartis, for instance, after losing its battle for a patent in India on its anti-cancer drug earlier this year had suggested that the country’s lack of respect for intellectual property could discourage investment in medical innovation.
The NISTADS study challenges the idea that FDI in R&D brings long-term benefits to India.
Nath and his colleagues who analysed FDI patterns in R&D found that 86 per cent of the investments involved less than $50 million (around Rs 326 crore) which, the researchers say, is an indication the foreign corporations are not pursuing “high-end” activities at their Indian centres.
The government-supported NISTADS study, based on central investment data and claims by foreign corporations, has calculated that 706 companies from 23 countries invested in R&D centres in India during the seven-year period. (See chart) The researchers say the wide scatter of low investments and the small fraction of patents reflect low significance to R&D activities outsourced to India and do not support expectations and promises that such investments would provide long-term benefits.
“Much of such activities is the R&D equivalent of keyboarding,” said V. Siddhartha, a technology analyst with over three decades of experience in India’s space and defence research departments, who was not involved in the study.
Siddhartha and others believe a large proportion of the R&D outsourced to India involves tasks such as design, testing and evaluation, debugging — essentially activities that while requiring a sophisticated set of skills involve a fairly routine application of knowledge.
“Such activities require skill-sets,” Siddhartha said. “In contrast, high-end activities would involve proof-of-concept research or prototype development, things where there exist doubts about doability — it’s really skill-sets versus brain power.”
The idea of turning India into a hub for global R&D emerged in the late-1990s, in parallel with economic growth and the burgeoning technical education sector. Its proponents point to the wealth injected into the economy and the tens of thousands of jobs created.
The NISTADS researchers say their findings may also highlight the need to correct India’s educational system. “Some foreign corporations have indicated they don’t find people with required skills to pursue high-end R&D activities here,” said Mrinalini Natesa, chief scientist with NISTADS and first author of the study. “They believe our educational system probably does not inculcate the skills for innovation.”
While there is “very limited” interaction between foreign research centres in India and domestic R&D institutions, Mrinalini said some had established links with educational institutions to try and impart the skills they seek to students there.
Similar concerns about “a low magnitude of spillovers” from FDI have been earlier expressed independently by other researchers. The main benefits of such investment seem to be in human resources development, Rishikesha Krishnan, professor of corporate strategy and policy at IIM Bangalore said in a paper.
“Of course, the local economy gains from the taxes paid by employees and the demand for local services. While Indian employees enhance their technical skills, they are rarely exposed to the full gamut of skills across different stages of product development,” Krishnan wrote.
The NISTADS team has estimated that the 706 companies brought in $29 billion as FDI in R&D during the seven-year period, but this figure appears inconsistent with Reserve Bank of India estimates for FDI in R&D of $589 million between 2006-07 and 2010-11.