Security scanner on research FDI

The government plans to put foreign direct investment (FDI) in research & development (R&D) under the national security scanner.

A panel comprising senior officials in the department of science and technology, experts on intellectual property rights, leading scientists, and select representatives from the pharmaceutical industry would formulate parameters to monitor research being carried out with foreign investment, said sources close to the development.

Such monitoring is critical as foreign investments in research on chemicals, drugs, and information and other technologies come through the green channel.

Many of these projects gather data regarding the genetic pool. Some of this, it is feared, could be used against the interests of the country.

Sources said since most of the R&D projects are dealing with data transfer and exchange of information from the country to the country of origin of the R&D companies, there is no security control on such data, which is often confidential in nature.

This information is related to important geographical characteristics, genetic data, ecology, natural resources, and other matters of importance in terms of security.

The panel, which held its first round of discussions last week, will debate further on tightening FDI rules in these fast-growing sectors, where flow of foreign investment has been increasing.

The panel will come out with its recommendations in a couple of months. Sources in the department of science and technology declined to comment on the developments.

Regulation of FDI has gained importance with the country emerging as a global research hub. Multinationals are outsourcing their businesses to India to remain competitive in the world market.

According to a Technology Information, Forecasting and Assessment Council (TIFAC) report, as many as 400 US companies have outsourced operations to India.

"India has also moved from back-office processing operations (BPO) to knowledge processing operations (KPO). Outsourcing has become a major part of the pharmaceutical, automobile and textile industries," states the report.

Industry data shows that R&D services have emerged as the third largest segment in export of IT services. Companies have invested $1.13 billion in research operations in India between 1998 and 2003. Another $4.65 billion of investments are in the pipeline.

The US is the biggest investor, followed by Germany, with France and Japan having shown interest of late. China is also now showing interest. Nine other countries are planning research ventures in the country.

A scientist in India is paid $10,000 a year, which is cheaper than the $100,000 a year a scientist in the US commands. This is one of the primary reasons why companies are outsourcing their research operations.

At present, about 22,300 R&D workers, consisting of scientists, software engineers, and support staff, are involved in the 100 FDI-receiving firms in India.

Though global companies are tying up with local firms, through which FDI is flowing into the country, about 56 per cent of FDI companies prefer to set up shop with 100 per cent foreign equity.

Almost half of the foreign investment in research is placed in the Bangalore, Delhi and Mumbai regions. The bulk of this investment entered the country between 1999 and 2001. Though IT-based firms dominate the R&D foreign investment flowing into the country, the drug, chemical and agro sectors are not far behind.

According to industry data, the FDI majors in India working on the latest technologies have filed at least 415 patents in the US. Nearly half of these companies have relocated their research operations to India.