Expert Speak India Matters
Published on Aug 30, 2019
A proper understanding of India’s thriving R&D services industry and its impact on national innovation capability needs to be developed.
Global Innovation Index 2019: Key takeaways for India

The 12th report of the Global Innovation Index (GII) was launched in India on 24 July 2019. India has been lauded for the fast pace at which it has been improving its ranking in this index. It climbed 29 positions during the last five years, and has gone from 81 in 2015 to 52 this year. This makes it amongst the few countries to have consistently improved ranking for nine consecutive years. However, it is important to explore what this rise in GII ranking means for India.

GII is a collaboration between Cornell University, INSEAD and World Intellectual Property Organisation (WIPO); it also has the support of knowledge partners such as the Confederation of Indian Industry (CII). It assigns scores to countries based on various aspects of innovation, with the objective to “capture the multi-dimensional facets of innovation and provide the tools that can assist in tailoring policies to promote long-term output growth, improved productivity and job growth.” The scores are calculated using 80 indicators, which are divided into seven sub-pillars: five are classified as innovation input sub-index and two are classified as innovation output sub-index. The score for each sub-pillar is calculated as the weighted average of the indicators under it. The overall GII score is the simple average of innovation input and output sub-indices.

Relying exclusively on the overall rankings may not always provide the right inputs for policymaking.

At times GII may not guide policy issues in the most direct way. For example, in GII 2019, Singapore and China rank 8 and 14, respectively. This gives the impression that Singapore is leading in innovation, and is better than China. In the innovation input sub-index Singapore ranks first and China ranks eighth, whereas in the innovation output sub-index China ranks fifth, which is way ahead of Singapore’s position at 15. Until last year, GII had used a very simple and effective parameter to compare countries in terms of the efficiency at which they convert inputs into outputs: ‘innovation efficiency ratio’, the ratio of the output sub-index over the input sub-index. For highly efficient countries, the ratio would be close to 1. Working out the innovation efficiency ratio for the two countries in 2019 shows that China has a score of 0.93, close to 1, and Singapore has a score of just 0.62. Which of these two countries is more innovative? Singapore, which uses more innovation inputs, or China which brings out more innovation outputs more efficiently from less inputs? Therefore, relying exclusively on the overall rankings may not always provide the right inputs for policymaking.

GII 2019 points out that for nine years in a row, India is among the four countries to have outperformed on innovation relative to their GDP per capita. Vietnam — which ranks 42nd in GII 2019 — has increased its R&D spending from 0.2% of its total GDP in 2012, to 0.5% in 2019. Kenya, which has GII ranking of 64 this year, had also increased its R&D spending from 0.4% of its GDP in 2012 to 0.8% in GII 2019. In India, however, the share had in fact declined from 0.8% to 0.6% (Figure 1). These statistics raise the following questions: is it possible for a country to consistently improve global ranking in innovation, that too at a fast pace, when the share of R&D expenditure in GDP is falling? It is true that expenditure on R&D is just one input to innovation, but the main indicator that can represent overall innovation potential in a country?

Source: Compiled from R&D Statistics at a Glance: 2017-18, DST; Economic Survey (various years); and RBI

Given this context, there are three key takeaways for India, with respect to GII 2019:

One, India needs to carefully examine whether its statistics on R&D expenditure is accurate. It is the Department of Science and Technology (DST) that compiles the data on R&D expenditure in India. It collects the data from applications that companies make to the Department of Scientific and Industrial Research (DSIR) for the recognition of their in-house R&D units and annual reports, in the case of other companies. A recent study conducted at the Institute for Studies in Industrial Development (ISID) shows that many companies do not report their R&D expenditure. <1> A review of the recent annual reports that of 46 companies, <2> which had received FDI in R&D during the period between 2004 and 2016 (of which 32 are foreign subsidiaries), shows that only three companies (6.5%) reported R&D expenditure. <3> It is not that these companies are not performing R&D: many of them have patents, and publications in SCOPUS journals. However, GII 2019 points out that in the case of India, there is a lack of data on the R&D financed abroad.

A proper understanding of India’s thriving R&D services industry and its impact on national innovation capability needs to be developed in order for appropriate policies can be framed and leveraged.

Secondly, there has been increasing ‘servicification’ of R&D activity with the growth of information and communication technologies (ICT). However, our understanding of the impact of thriving R&D services industry on innovation capability in India is very limited due to a lack of data. The 2018 Science and Engineering Indicators report of the National Science Foundation (NSF), a governmental organisation in the United States shows that more than two-thirds of the R&D performed by American firms in India in 2014 was in the area of services (non-manufacturing). The above mentioned ISID study also reports that two-thirds of the FDI inflows in R&D during the period between 2004 and 2016 was in R&D services (ICT, Natural Sciences & Engineering (NSE) and clinical research). India’s export of R&D services has grown from $793 million in 2011-12 to $3163 million in 2017-18 (Figure 2). GII 2019 points out that India ranks first globally in the export of ICT services. There are various other reports which indicate that India has become the leading global destination for offshore corporate investments in R&D. The FDI Markets data of Financial Times shows that India leads in the R&D of ‘Design, Development and Testing (DDT) in terms of the number of companies investing, the number of projects created, and the jobs made possible between 2003 to 2018 <4> (Table 1). A proper understanding of India’s thriving R&D services industry and its impact on national innovation capability needs to be developed in order for appropriate policies can be framed and leveraged.

Source: Reserve Bank of India

Table 1: Top Five Destinations of Greenfield FDI in R&D and Design, Development and Testing during the Period from January 2003 to December 2018

Destination Country No. of Projects Capital Expenditure ($mn.) No. of Jobs Created No. of Companies Investing
India 1,995 60,442.7 5,61,712 1,296
China 1,606 70,322.2 2,96,752 1,012
United States 1,341 37,827.3 1,27,478 974
United Kingdom 990 18,697.3 63,955 745
Germany 605 9,670.4 30,165 501
Grand Total 13,753 4,02,249.6 18,71,395 6,539

Source: FDI Markets, Financial Times

Finally, reasons for India not being able to raise the R&D expenditure as a percentage of the GDP needs to be explored. The announcements in various Science, Technology, and Innovation policies in India to raise the R&D spending above 2% of GDP with the support of the private sector has not yet materialised. The private sector’s spending on gross R&D expenditure is less than half, which is low when compared to other countries that perform reasonably well in GII. The GII reports show that the India’s ranking in the ‘R&D performed by Business’ category has gone down from 42 in 2013 to 49 in 2019.


<1> FDI in R&D and Development of National Innovation Capabilities: A Case Study of India funded by Indian Council of Social Science Research (ICSSR), Ministry of Human Resource Development, Government of India. Part of this study is published as a working paper of ISID titled FDI in R&D in India: An Analysis of Recent Trends.

<2> 17 firms in ICT sector, 19 firms in Natural Science and Engineering and 10 firms in Pharmaceuticals.

<3> Among the 32 foreign subsidiaries, only one reported R&D expenditure. Firms either mention R&D expenditure as ‘nil’ or does not mention anything about R&D.

<4> This data has been compiled based on the announcements made by investors. It is not necessary that all the announcements have been materialised. However, this data is useful in understanding the trends.

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Reji K. Joseph

Reji K. Joseph

Reji K. Joseph is associate professor at Institute for Studies in Industrial Development New Delhi. His areas of research include innovation pharmaceutical industry and FDI.

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