Interconnection between R&D and Industrial Production Structure: The Experience of India

Abstract

Indian government initiated systematic opening up of its industrial economy in the early 1980s and this trend continued with greater pace and force in the 1990s and beyond. Theoretically, it is postulated that evolution of the innovation system and production structure co-evolve. But globalization may have either distorted this pattern due to lack of availability of access to new technologies from global market or forced the firms to increase in-house R&D investment to remain competitive. However, the caveat here is that public R&D has definitely gone down and to what extent the private sector has been able to enhance R&D investment to emerge as a leader is an issue which remains to be examined. In this context, the aim of this article is to examine the growth and change in the structure of industrial R&D in India and further ascertain the co-evolution and interconnection between industrial innovation system represented through R&D structure and industrial production structure in India. This study covers the period 1981–2010 while classifying the industries into four categories, that is, high-tech (H-T), medium high-tech (M-H-T), medium low-tech (M-L-T) and low-tech (L-T). Trend growth rates and Karl Pearson’s correlation coefficients are used to establish the relationship between structural change in industrial R&D and industrial output structure. The main findings show that the structural transformation in industrial R&D is well evident with rising importance of H-T and M-H-T group of industries in R&D whereas M-L-T and L-T industrial R&D recorded declining trends. Furthermore, this study has established an empirical relationship between structural change in industrial R&D and industrial output structure except M-L-T group of industries. An important policy implication that emerges for the sectoral innovation system is that developing countries like India should devote more efforts to strengthen the innovation system devoting higher proportion of resources for innovations.