R&D Spending and the Dangers of Inadequate Data

When compared to major economies, India’s R&D expenditure-to-GDP ratio of 0.7% is significantly lower than the global average of 1.8%. The main reason is the corporate sector’s low investment in R&D.

Overview: R&D spending in India

  • While the corporate sector accounts for roughly two-thirds of gross domestic expenditure on R&D (GERD) in leading economies, it accounts for only 37% in India. However, there is evidence that India’s GERD data are overestimated.
  • According to the National Science Foundation (NSF) of the United States’ 2022 infobrief on Foreign R&D by US-based multinational corporations (MNCs), $9.5 billion (649.7 billion) was spent on R&D in India in 2018, which increased to $9.8 billion (690.2 billion) the following year.
  • MNCs from other leading countries are also investing in R&D in India.
  • However, the latest Research and Development Statistics, published by the Department of Science and Technology (DST) in 2020, estimate 60.9 billion R&D spending by foreign MNCs in 2017-18, which is only about 10% of what US firms have reported spending in India on R&D.

What is Gross Domestic R&D Expenditure (GERD)?

  • The total expenditure (current and capital) on R&D carried out by all resident companies, research institutes, university and government laboratories, and so on in a country is defined as gross domestic spending on R&D.
  • It includes R&D funded from outside the country, but excludes R&D performed outside the country.
  • This indicator is calculated as a percentage of GDP in USD constant prices using the 2015 base year and Purchasing Power Parities (PPPs).
  • It is frequently used to gauge a country’s level of innovation and technological progress.

The current system has flaws

  • NSTMIS gathers GERD data: The DST’s National Science and Technology Management Information System (NSTMIS) is the agency in charge of compiling GERD statistics in India.
  • The challenge is gathering data from the private sector: Information on R&D is more easily gathered by the government sector, higher education sector, and public sector enterprises. The difficulty lies in gathering data from the private corporate sector.

There are two major factors that render official R&D estimates woefully inadequate

The method used to identify R&D performing firms does not encompass all R&D performing firms.

  • NSTIMS identifies R&D units using DSIR and Prowess: According to one study, only 11% of 298 firms receiving foreign investment for R&D (2004-16) were registered with DSIR. Only 3.5% of India’s currently active registered businesses are covered by Prowess. Leading enterprises in new technology areas, such as SigTuple Technologies, may not be listed in both databases.
  • The DSIR list may lack many actual R&D performers for two reasons: firms that believe government incentives are insufficient or firms that are concerned about sharing critical information with the DSIR may be hesitant to register 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 in order to differentiate it from their regular business. Indeed, many R&D-performing enterprises in new technology areas may fall into the services category.

The NSTMIS survey is the primary source of R&D statistics in India

  • Secondary source data is only useful if companies disclose their R&D spending: If a company does not respond to the survey, data is gathered from secondary sources such as annual reports and Prowess. Despite their technological activities, patents, and innovators, some companies do not report R&D spending. They may not feel obligated to provide accurate information to Indian regulatory authorities.
  • For example, a review of documents submitted to the Ministry of Corporate Affairs (MCA) by some R&D-oriented firms reveals that some firms do not report any R&D spending despite declaring that they are engaged in activities of technology development, adoption, and adaptation.

What should be done?

  • Short-term measure: In addition to its current method of identifying R&D performing enterprises, the NSTMIS should use patents granted data from both India and the United States.
  • Mandatory disclosure: Annual R&D estimates can be derived from mandatory disclosures made by enterprises to the MCA.
  • To ensure compliance and proper reporting, the following technologies can be used: Technologies, such as revamped income-tax return forms with interlinked sections, can be used to ensure compliance and proper reporting.
  • Spending information should be made a mandatory component of ESG: Furthermore, proper disclosure of information to regulatory agencies, including R&D spending data, should be made a mandatory component of enterprise environmental, social, and governance (ESG) rankings.

@the end

Concrete data on R&D spending is critical for identifying areas that require investment, promoting economic growth, informing policymaking decisions, tracking progress, and evaluating policy effectiveness in promoting innovation and technological development. To truly reflect the R&D ecosystem, India’s R&D statistics must be transformed in the short and medium term.

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