Kanika Datta: R&D brains hold the trump card

SWOT

Much is being made of the fact that India is rapidly becoming a global hub for research. At last, the popular view goes, India's formidable intellectual capital is being recognised and leveraged to profitable effect. Whether it is in pharma, IT or even engineering, global companies are increasingly looking India-ward to garner the dividends of low cost and high ability.

No one can deny that India stands to make significant gains from this new-found intellectual arbitrage. The constant irony of four decades of economic protectionism was that India boasted the third-highest scientific manpower base but recorded abysmal growth rates.

The discovery of India as an R&D hub has certainly helped garner jobs for the scientific boys who lacked the wherewithal to find employment in the well-funded overseas institutions. The question, however, is how far this trend will propel India to the kind of position that put the US and Europe on the map as world economic powers.

Pharma research, the current racehorse in the global R&D stakes, is a case in point. An August 2006 report from the Chemical Pharmaceutical Generic Association says India accounts for the major share in the world's pharma contract research business.

Valued at $60-70 million, India's share is nearly double that of Italy, its nearest competitor, and four times as much as the next competitor, Spain. China, with $23-28 million, is way behind in these standings.

The point to note, however, is that this dominance is fuelled by the top ten multinational pharma companies that have made India a hub for cheaper production of active pharmaceutical formulations and finished formulations. Indian companies, champions at reverse engineering, still lag global R&D budgets by huge margins.

In other industries too, whether it is Suzuki's global small car project or Lever's R&D on new products, it's the multinationals rather than domestic companies, that are leveraging India's intellectual capital. In other words, India is increasingly emerging as the producer of cutting-edge research for other leading economies of the world, but not the owner.

Should this matter? It should, if Indian companies are looking for the kind of sustained competitive advantage that will propel them to global leadership. In the new paradigm of global competition, ownership of intellectual capital is as much, if not more, of a competitive advantage as land, labour and capital.

History has shown that global domination lies with countries that have or have had a monopoly on technology. The industrial revolution, for instance, was the edifice on which Britain built a world empire that lasted two centuries. The USA's dominance of the world economy from the latter half of the last century is principally a factor of its monopoly over technology.

Although the US government itself is a major investor in pure research, corporations in the US""whether in telecom, engineering, bio-sciences or space ""have enjoyed a long-standing monopoly on cutting-edge technology.

Why, even the former Soviet Union, which enjoyed robust engineering abilities, thought nothing of purloining technology from its capitalist rival. The Bomb, of course, is the famous example. But declassified intelligence reports in the mid-nineties showed that the former socialist republic also set up a vast IT corporation built entirely on such clandestine technology "transfers"""in real time""from IBM's labs.

Indian corporations' relatively poor R&D record is well-known but hard to explain. Though some companies, notably in the bio-science disciplines, are making a concerted effort to boost R&D spends, they are the exceptions that prove the rule. Most companies appear to be sanguine, influenced, no doubt, by the euphoric predictions of India's economic dominance by the middle of this century.

Of course, the government stands to play a major role in propelling India's R&D performance, but its record has, at best, been mixed. This is partly because of appalling funding as much as an inability to understand the economic significance of R&D.

The Indian Institutes of Technology (IIT) are a case in point. A document titled "Vision 2020: The IIT in the new Millennium" prepared by the alumni association of Delhi in the early 2000s shows that whereas IITs' academic output is comparable to the world's best Ivy League institutions, research output lags by a huge margin.

The figures showed that where MIT Engineering and Stanford Engineering had research grants of Rs 110 lakh and Rs 100 lakh per faculty, the typical IIT figure was just Rs 15 lakh (the numbers are PPP-adjusted).

Again, while MIT and Stanford had 45 and 52 citations per faculty, the typical IIT had 3 to 6.

To be fair, the IITs were never conceived of as R&D repositories; they were meant to produce technocrats for a newly-resurgent India. It is another matter that given the Indian economy's limited absorptive capacities till the nineties, the IITs ended up producing some of the finest technocrats for global corporations!

The focus of the IIT Delhi almuni's paper 60 years later is a demonstration of a collective sclerosis on R&D. To be sure, this is changing""India is slowly climbing up the charts in terms of global patents filed. The question is whether India Inc can fast-track itself in the intellectual capital sweepstakes.