R&D in India: Trends and Opportunities
India has emerged as the choice location for cutting-edge Research and Development (R&D) projects for global companies across industries.
Companies from information technology (IT), automobile, pharmaceutical, telecommunications sector and many other sectors have set up their captive technology centres in the country to step up R&D in areas like Internet of Things (IoT), artificial intelligence, and data analytics.
Last year, in December, Chinese smartphone maker OnePlus announced plans to open its first R&D facility in India at Hyderabad. While Oppo, another Chinese handset maker, launched its R&D in India on December 15, 2018, aiming to make it the company’s largest outside China.
Taiwanese multinational electronics contract manufacturing giant Foxconn, which has already set up its manufacturing facilities in Andhra Pradesh and Tamil Nadu, has decided to set up its R&D centre for advanced industrial artificial intelligence at Hyderabad. While Korea’s retail giant Lotte Group is building an R&D center in India to further its digital campaign and overseas growth.
In the automobile sector, Volkswagen has opened a new R&D facility in Pune, and Nissan motors have signed a Memorandum of understanding (MoU) with the Kerala state government to set up its first global centre for digital operations in Thiruvanthapuram.
Among the IT heavyweights that have set up their R&D centers in India are Microsoft, Intel, Nokia, Motorola, HP, Oracle, IBM, SAP, and Cisco. Aside from these, more than 100 Fortune companies including Delphi, Eli Lilly, General Electric, Hewlett Packard, and DaimlerChrysler have also established their R&D centers in India.
Advantages of setting up R&D in India
India offers a unique blend of massive market opportunity, technical competencies, cost efficiency, proactive government support, and a highly scalable and low-cost workforce for companies setting up their R&D centers in India.
Highly skilled and low-cost workforce
India produces huge numbers of engineering and science graduates every year. While the quality of labor varies significantly, selecting graduates from the top 15 percent of schools still translates into tens of thousands of promising candidates. The availability of this workforce at low cost is the key differentiator between India and other countries.
The cost of hiring a researcher in India, for instance, is one-fifth of that in the US.
Well-established Intellectual Property Rights policy
India’s intellectual property (IP) regime is at par with international standards.
The country is compliant with Trade Related Aspects of Intellectual Property Rights (TRIPs) which is an international agreement administered by the World Trade Organization (WTO) that sets down minimum standards for many forms of IP regulations as applied to the nationals of other WTO Members.
According to the World Intellectual Property Organization (WIPO) report, India has emerged as one among the top three countries that have shown strong growth in the Patent Cooperation Treaty (PCT) filings in 2018. It filed 2,013 international patent applications in 2018 with the WIPO, registering the highest growth of 27 percent, globally.
A massive startup ecosystem
The primary reason for companies moving their R&D core operations to India is no longer just cost. Many MNCs are now increasingly outsourcing their corporate R&D efforts by investing in India’s local startup ecosystem – to create breakthroughs in innovations that will help their parents companies.
Global giants such as Google, Microsoft, SAP, and IBM have come forward with strategies to invest as well as incubate start-ups, or collaborate with small early stage service providers in the form of venture funds, evangelism programs, and partnerships with a focus on solving problems for customers faster. These companies have realized that the startups are the fastest to develop a product and make it ready for the market.
Collaborating with startups can help MNCs mitigate risks and reduce the time to market, as well as reduce costs. Moreover, such collaborations create a large spectrum of possibilities to innovate and create value for stakeholders.
India’s startup ecosystem is third only to the US and the UK. According to industry reports, the number of startups in the country has gone up from 7,000 in 2008 to 50,000 in 2018.
Policy support and government incentives
To encourage investments in R&D, the government of India offers various tax incentives. These include incentives on revenue and capital expenditures incurred by companies for carrying out R&D activities with respect to their business, and the contributions made by them to regulatory institutions for carrying out scientific research. Some of these incentives are given below:
- A super deduction of 150 percent is available to manufacturing companies on in-house R&D expenditure, including capital expenditures on scientific research related to the production of articles and products. This includes expenses on filing patent applications, performing clinical drug trials, and obtaining approvals from regulatory authorities.
- A concessional tax rate of 10 percent (plus applicable surcharge and tax) on income earned by royalty in respect of patents developed and registered in India.
- Custom duty exemption to in-house unit of industries for capital equipment and consumables needed for R&D.
- Duty free import of specified goods for use in pharmaceutical and biotechnology sectors by importers registered with the Department of Scientific and Industrial Research (DSIR).
- GST concession for research institutions.
India Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in Delhi and Mumbai. Readers may write firstname.lastname@example.org for more support on doing business in India.
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