Private Sector R&D Investments Key to Pushing India into High-Income League: CII President Rajiv Memani

Confederation of Indian Industry (CII) president Rajiv Memani said an increase in R&D investment, particularly from the private sector, is crucial for India to move into a higher income category. The newly appointed president of the industry body pointed out that the low investment by the Indian industry in R&D is a concern, especially when compared with China, [South] Korea, and Western world countries. He highlighted that the countries and companies where the technology edge is sharp will have an advantage over others. 

“If India has to move up the low-cost economy trap and move into a higher income category, then the investments in R&D are very important. The Indian industry comes out pretty late, pretty last in the queue as far as R&D investment is concerned,” Memani told Outlook Business. “Companies and countries will benefit where the technology edge is sharp. And I think that’s where Indian companies need to be investing more,” he added.

This comes at a time when the Narendra Modi-led government has launched the ₹1 lakh crore Research, Development, and Innovation (RDI) scheme to encourage the private sector to up their R&D investment game. While commenting on the new scheme, the CII president said it's a great start to push the private sector, provided its implementation starts early. 

“It’s a great nudge to say, how do you move things forward? So, I think that the, if the government can actually ensure this gets deployed quickly and rapidly, that this will be a very good example,” said Memani. 

Despite the government’s persistent push, the attitude of private sector players towards R&D spending has largely remained unchanged. Private sector investment in R&D as a concern has been flagged by the government for a long time now. Earlier in January this year, the government’s Chief Economic Advisor (CEA), V Anantha Nageswaran, highlighted that despite a lot of incentive schemes, the private sector investment in R&D is not only low but also sectorally concentrated. 

Meanwhile, Memani said a key reason for this is the private sector’s focus on the Indian market. According to him, there’s a lot of price sensitivity in the market, so most of the innovation in India is towards delivering value at a lower cost. Secondly, in the industries where R&D is happening, the capital investment required is huge. For Indian companies it becomes difficult to invest due to balance sheet size or low risk-taking ability, he says, while adding that companies with huge budgets are more focused on maintaining stable cash flows. 

“It’s a cycle that every country has to go through. And when you have a very strong, large domestic market, sometimes the bias is to satisfy local demand,” the CII president said. “For instance, India’s technology industry has been much more focused on IT services. The pharmaceutical sector has been centered more on generics rather than innovators. We are now seeing companies getting into the innovator side as well. So, it's not that R&D is not happening. But on the scale at which it has to happen, it is not happening,” Memani highlighted. 

But if Indian companies want to grow and expand globally, the scale of R&D spending has to go up, he noted. General nudges from the government, lower trade barriers driven by favourable FTAs (foreign trade agreements), and the domestic companies' aspiration to expand internationally will fuel the need to increase R&D expenditure, especially to have a competitive advantage in the global market.