R&D: India’s new star industry

Biotechnology has made Kiran Shaw Mazumdar the richest woman in India . The public issue of her biotechnology company, Biocon, debuted in the stock market this week at Rs 312 and quickly soared to Rs 580. Her personal stake in the company is now worth Rs 2,200 crore.

This symbolises the arrival of research and development (R&D) as the new star of the Indian economy. Americans who worry about the migration of call centres to India ain’t seen nothing yet. The biggest American companies are now setting up R&D centres in India . They are not coming for cheap labour in sweatshops. They are coming for India ’s brains.

The list of multinationals setting up R&D centres in India includes General Electric, Microsoft, IBM, Cisco, Intel, General Motors, Astra Zeneca, Motorola , Texas Instruments. R&D overlaps with software in some cases, but ranges far and wide. GE, for instance, does research in Bangalore on aircraft engines and turbine components. This is helping reverse the supposed brain drain. Several Indian scientists who had migrated to the US are coming back to the multinational’s R&D centres in India . They figure in GE’s plans to raise R&D staff from 1,600 to 2,400 technicians. Bangalore has GE’s second-largest research centre in the world.

The best-known Indian R&D companies are in pharmaceuticals — Ranbaxy, Dr Reddy’s Labs, Sun Pharma et al. Biotechnology is a new hot spot, with Biocon and Shanta Biotech leading the way. Reliance Life Sciences is recogni-sed by the US National Institutes of Health for stem cell research.

Less high-profile but more significant may be the mushrooming of new companies to do contract R&D for global ones. Divi’s Labs, Vimta Labs and Matrix Labs are some new stars in this firmament. R&D is no longer confined to the government or big co-mpanies, it is sprouting everywhere.

Patent applications in India have shot up from 4,000 in 1995 to almost 15,000 last year. Business Today estimates that Indian filings for US patents rose to 1,700 in 2003, up from 183 in 1997. Public sector labs file for many patents but are weak in commercialising these. Yet, they perform a valuable function by incubating Indian researchers for the private sector. The redoubtable Anji Reddy (who founded Dr Reddy’s Labs) started out in Indian Drugs and Pharmaceuticals. This public sector monolith has sickened and died, but its scientists live on.

Rural India is benefiting too. Ashok Jhunjunwala of IIT, Chennai, and ICICI Bank are trying to develop a rural Automatic Teller Machine costing just Rs 30,000 (the conventional one costs Rs 600,000). Rural telephony and internet services are being revolutionised by Jhunjunwala’s n-Logue and ITC’s e-choupal. Other innovators are experimenting with smart cards that can be swiped to maintain the accounts of micro-credit societies, reducing overheads and interest rates drastically.

The auto industry is another beehive of innovation. I once asked Michael Clark of the Indo-US Chamber of Commerce why so many MNCs were setting up car plants in Tamil Nadu. Because, he said, the state produces an inexhaustible supply of engineers, maybe 200,000 per year! Many come from private engineering colleges of poor quality. But even if half the graduates are sub-standard, that still leaves 100,000 competent, innovative technicians.

Multinational car companies originally came to India for the potentially huge domestic market. To cut costs, they had to use local components, which initially were of low quality. But soon, the interaction between component manufacturers and MNCs led to not just quality improvement but innovations that nobody had dreamed of earlier. Today, Indian auto component companies are doing computer-aided design and computer-aided manufacturing, constantly coming up with new designs that reduce cost and increase efficiency. This design-savviness has made India a global player, ex-porting over $1 billion worth of components last year. And car exports have shot up to over 100,000 in 2003-04.

In the bad old days of the licence-permit raj, companies had no incentive to do R&D. Getting a foreign collaboration approval ensured monopoly profits for years. But the new competition brought in by economic liberalisation in the 1990s made R&D is an essential tool to compete and survive. Tata’s Indica car is a prime example. Bajaj Auto once depended on technical know-how from Kawasaki , and TVS on Suzuki. Today, both two-wheeler companies rely overwhel-mingly on in-house R&D: this alo-ne will enable them to withstand the new challenge from Honda.

Other miracle Asian economies like Korea and Taiwan used labour-intensive manufacturing as their launching pad, taking advantage of their low wages. Later, they moved up the value chain. India missed the bus of labour-intensive exports, but has now caught the jet plane of brain-power exports. This began in computer software. It then spread to design-intensive manufacturing. And it is now sparking an R&D revolution. May a thousand Kiran Shaw Mazumdars bloom.

What do you think?