A Global Perspective on Innovation

Context: India’s technology spend does not reflect the true picture. It has the talent to become a research powerhouse

Trends of Research & Development (R&D) around the world

• Leaders in total R&D Spending: The US has been the global leader in R&D spending for more than a century, but now China is catching up.
  • In 2018, gross domestic spending on R&D in the US totalled $580 billion, across government, business and academia (source: OECD, GS).
  • China, for the same year, spent a total of $550 billion.
  • In percentage of Gross Domestic Product:
    • Israel and South Korea are leading, both of whom spend nearly 5% of GDP on research and development.
    • The US is ranked 8^th with 2.8% of GDP.
    • China’s is ranked 12^th with 2.2 % of GDP. – up from 0.9% in 2000.
  • Rising Duopoly of the Leaders: While the gap has narrowed significantly between the US and China, the gap between the top two countries and the rest has also opened up.
    • For, E.g. Japan, the third-largest spender on R&D, expending less than $200 billion.
    • Rise of China: Over the last decade, US R&D spending has risen by only 43 per cent compared to 200 per cent for China.
  • Growth in Global R&D Spending: Over the last 20 years, global R&D spending has been growing at 4.6% per annum in real terms compared to 2.9% growth in global GDP.
  • Majorly directed towards Developmental Projects: and not basic or applied research; The R&D dollars are spent on shorter cycle commercial projects -
    • For, E.g. 65% and 80%of the R&D spend by the US and China, respectively, is spent on development projects.
    • This is in sharp contrast to the EU countries. For E.g. In France and the UK, more than 60% of the research spend on basic and applied research.
  • Impact of COVID: Many technological trends have been accelerated as companies globally have been forced to adapt to the lockdown.
    • Technology spends experiencing a V-shaped recovery as most companies are having to ramp up their spending on digitalization and next-gen business models.
    • For, E.g. recently, Apple became the first non-sovereign company to cross $2 trillion in market capitalization.
    • Funding dominated by Businesses: Business dominates in every country but to varying degrees.
  • For E.g. In the US, business funds 65% of the total research spend, while in China and Japan, the same ratio is 76%
  • On the contrary, In the UK and France, with greater EU involvement, business only funds 54% of the research spend. The balance everywhere is mostly by the government. 
  • R&D in businesses: top 100 companies spend almost 50% of all spending by businesses on R&D (source: OECD, GS).
    • Amazon leads the pack with an R&D spend exceeding $30 billion. The second largest is Alphabet at $26 billion
    • Top 20 global research spenders, all are from either technology, life sciences or Auto.

Potential of R&D growth in India:

• Low R&D Spending provides avenues for future growth prospects.
  • By the State: India spends about $12-13 billion, which amounts to just 0.6-0.7% of GDP.
  • By Businesses: India had only one company in the list of the top 100 R&D spenders, Tata Motors, which spent about $350 million.
• Presence of Captive R&D centres: Data does not capture the hundreds of captive R&D centres set up by global MNCs in the country.
  • This spend is shown on the profit and loss account of the global MNC, but all the money is being spent in India.
  • In many areas, be it embedded software or chip design, Artificial Intelligence and analytics, the serious capability has been developed in the country.
  • India has far greater importance in the global R&D chain,

 Way Forward:

• Businesses have to raise resources: since the government does not have resources to scale research spending.
  • Investors have to encourage and reward risk-taking.
• Take advantage of Reverse Migration: Given the state of US immigration policies, a reverse brain drain, back to India is inevitable.
  • For E.g. China built its innovation engine as 85% of all students (4.3 million) who received overseas degrees in the last four decades returned home.

Conclusion: India has the talent to be an R&D powerhouse. Work from anywhere plays to our strengths. We have to raise our dismal rankings in the innovation sweepstakes.