Tata Motors lone Indian name among top 100 global R&D spenders

Indian companies are conspicuous by their absence in the global research and development scene, with just Tata Motors breaking into the Top 100 spenders on R&D for the last fiscal year. As per Bloomberg data, Tata Motors (standalone) figures at the 99th position globally, but on including JLR, its rank rises to an impressive 13. Sun Pharma is 104, Mahindra & Mahindra 114, Lupin 120 and Dr Reddy’s 121 on the list dominated by American, Japanese and a few Chinese companies.

India Inc seems to be investing in R&D only when external exigencies compel making such an investment. Among the top 10 spenders in India, five are in pharma and three in automotive — industries that have been compelled to invest in R&D due to global competition, disruption in the sectors or to comply with regulations. At over Rs 19,000 crore, Tata Motors, including JLR, spent more than the next nine companies combined on R&D.

“Indian companies have been increasing R&D spending, though not enough”, said Professor Ashok Jhunjhunwala, IIT-Madras. “We still do not have enough academia-industry interaction — part of the reason is that academia is not used to deliver what industry wants, and industry has not learnt to take what academia can provide and take it forward”, he told ET.

The Government of India's Economic Survey 2017-18 has called for doubling of national expenditures on R&D. According to the survey, India’s spending on R&D in terms of percentage of GDP has been stagnant at 0.6-0.7% in the last two decades – much lower than the US (2.8), China (2.1), South Korea (4.2) and Israel (4.3). There is a 150% deduction of expenditure towards R&D.

Are Indian investors ready for companies that spend heavily on R&D? Especially, since a higher spend on R&D can be a drag on profitability in the short term. According to Nilesh Shah, managing director of Kotak Mahindra AMC, Indian investors don't have the kind of bargaining power to influence the management’s decision on R&D. “But we are enforcing the need to invest in future R&D. To IT companies, for instance, we have requested that while their promoters are investing in start-ups, why don't they invest in start-ups or new technologies, thereby using excess cash balance”, he told ET. Shah, however, admits that institutional investors in India do not have enough domain knowledge to ask companies to invest in innovation.

To be sure, innovative R&D is not easy – requiring sustained investment over long period of time. Glenmark Pharma, one of earliest Indian pharma companies to invest serious money in it, is yet to launch a new chemical entity even after a decade though it has managed to earn milestone payments from its R&D. Most companies are investing in either process innovation or incremental innovation aimed to reduce the cost or improve the efficiency of the product – not necessarily creating a new product.

“Despite the ups and downs, we have not shied away from consistently investing 11-12% of our annual revenue towards R&D for the past three-to-four years”, said spokesperson of Glenmark Pharma. “Half of this is spent on innovative R&D, which is a difficult area to crack. But we are confident that the pay day of our investments will come”.