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Research And Development

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Research and Development in India

December, 2014


Research and development (R&D) forms the basis of future competitiveness of any country, as it’s critical for innovation, and India is no exception. The research ecosystem in India presents a significant opportunity for multinational corporations across the globe on the back of its highly talented engineers at competitive costs. The setting up of an R&D base by an increasing number of MNCs is a testimony to this fact. These R&D establishments either serve the local market or help the parent company deliver new generation of products faster to the global market.

Market Size

According to a recently released report by Zinnov Management Consulting, “Global R&D Service Providers (GSPR) Rating 2014”, India’s R&D globalisation and services market is set to double by 2020 to US$ 38 billion.

The study estimates the overall addressable R&D globalisation and services opportunity at US$ 170 billion as of 2014. Currently only US$ 55 billion of this opportunity is addressed globally. India’s share of the addressed market is 33 per cent with in-house R&D centers contributing US$ 11.3 billion worth of services to their parent companies. The global outsourced Engineering services market currently stands at US$ 26 billion with players from US, Europe and India having an almost equal share. Significantly, Indian service providers lead the list amongst the global service providers. As of 2014, the Indian service providers deliver US$ 6.9 billion worth of services which is 27 per cent of the addressed outsourced services market. The study estimates that by 2020 the Indian outsourced ER&D services market will reach US$ 15 billion growing at a CAGR of 13 per cent. This growth will be primarily driven by addressing the increasing demand for embedded systems and software needs across all verticals.

Recent Investments

  • Valvoline Cummins Ltd (VCL), a joint venture (JV) between Ashland Inc and Cummins India Limited, has announced the opening of its new laboratories for R&D and Product Development along with a training facility, at its Ambernath plant, close to Mumbai. The new R&D facility is integrated with the Valvoline Global R&D facility at Lexington, Kentucky, USA. This facility will undertake R&D for futuristic products and technologies
  • Agrochemicals firm Insecticides India Ltd has announced that its Rs 40 crore (US$ 6.28 million) JV research facility at Chopanki in Rajasthan has become operational. The R&D facility is set up by OAT and IIL Laboratories Ltd, a JV company between IIL and Japanese firm OAT Agrio Co Ltd. The facility will consist of three synthetic laboratories, two air-conditioned green houses, three breeding rooms, two bio assay rooms growth chambers, dedicated sewerage treatment plant (STP).
  • US-based business communication solutions firm Avaya has announced that it expects its R&D team in India to play an important role in development of products and services to tap burgeoning sectors like healthcare and education.
  • Buoyed by India’s positive business environment, US-based IT major NetApp has said it will soon introduce the latest storage and data management tools in the country to help domestic enterprises, SME and start-ups grow faster, besides strengthening its R&D centre in Bengaluru. Talking about the company's India plans, Ramarao said that the firm was on its way to strengthen its Bengaluru R&D facility which currently employees 2,000 persons and is the single largest research unit of the company.
  • French tyre manufacturer Michelin ia planning to set up an R&D centre in India. The facility will be set up in Gurgaon and will be its first such unit in a developing country. It is understood that the company has already started hiring Indian engineers to staff the R&D centre. However, the level of investment Michelin will be putting into the unit is not yet known. While the company’s focus is still on track tyres, it is optimistic about growth in India as the new government is expected to give a fillip to infrastructure, in turn generating demand for premium passenger car tyres.
  • With the objective of leveraging India’s position as one of the best cost countries in its operations, Sandvik has announced a commitment to set up a world-class manufacturing facility at Chakan, which is part of the Maharashtra Industrial Development Corporation Industrial Park near Pune. To develop the facility, the Company will make strategic investments in a phased manner over the next 5 years. In the first tranche, it has announced a US$ 45 million commitment to commence development of the site by mid 2015. Development of the facility will commence in mid-2015 and it will become operational by 2016.

Government Initiatives

The Government of India has taken several steps to promote the R&D sector in India. In the recently released Union Budget 2014-15, it established two more Agricultural Research Institutes of excellence in Assam and Jharkhand with an initial sum of Rs 100 crore (US$ 16.33 million). It also plans to set up a national level research and referral institute for higher dental studies and 15 model rural health research centres.

"Innovation and research will play an important part in making 'make In India' campaign launched by Prime Minister Narendra Modi a success," said Mr Kalraj Mishra, Minister of Micro, Small and Medium Enterprises, Government of India, while inaugurating the Global R and D summit , 2014. He said that innovation and research was necessary to produce goods with zero defect and zero effect on environment.

The Minister stated that we have to make full use of our young talent and capability for innovation by our scientific talent through interdisciplinary research and next generation innovations. He said that Government has taken number of steps in this direction.

Also, India’s steel minister Mr Narendra Singh Tomar has announced creating a fund of Rs 100 crore (US$ 15.71 million) setting up R&D units with the participation from industries and the government to overcome the technological gaps. Mr Tomar said “It is under the active consideration of the government to infuse more funds in this initiative to utilize locally available cheap raw material, to remain competitive in the world market.”

Road Ahead

With the government’s support, the R&D sector in India is all set to witness some robust growth in the coming years. According to a study by management consulting firm Zinnov, engineering R&D market in India is estimated to be grow at a CAGR of 14 per cent to reach US$ 42 billion by 2020, while it stood around US$ 14.7 billion in 2012.

India is also set to witness high growth in its agriculture and pharmaceutical sectors with the government investing huge sums for setting up research centres specifically dedicated for R&D in these fields. Also, the Indian IT industry will add to the development of the R&D sector as India makes its way to the top of the world IT market.

Exchange Rate used: INR 1 = US$ 0.0157 as on December 26, 2014

References:Media Reports, Press Information Bureau (PIB), Innovation Council of India, Union Budget 2014-15, Department of Industrial Policy and Promotion (DIPP)