FDI in R&D in India: An Analysis of Recent Trends

Abstract

This paper aims to estimate the quantum of inflow of FDI in R&D in India, identify the sectors which receive FDI in R&D, identify the nature and characteristics of investors and investee firms and examine the innovation performance of investee firms in terms of R&D expenditure, patents and publications. It is found that FDI in R&D constitutes only a meagre part of total FDI inflows to India, although India has been characterised as a leading destination for offshore corporate R&D globally. ICT, natural sciences & engineering and pharmaceuticals are the leading sectors receiving FDI in R&D. Only a few investee firms, out of the 298 investee firms identified in this study, have DSIR recognised in‐house R&D units, which is the essential requirement for availing Govt. of India’s schemes for incentivising investments in R&D. Most of the investee firms do not report R&D expenditure. Whatever R&D reported, the activities appear to be part of ‘R&D in networks’ wherein the outcome of R&D is transferred to lead firms/parent firms in foreign countries. The growing trend of India being recognised as inventor country in the patent applications in USPTO and at the same time declining share of it being recognised as assignee country point to this. About a fourth of investee firms have publications to their credit, mostly in areas of natural science & engineering, clinical research and pharmaceuticals.