India boasts huge inflow of foreign R&D investment

February 20, 2006

Brussels, 17 Feb 2006

In recent years, Europe has become increasingly aware of threats to its position as one of the most competitive regions in the world. Emerging economies such as China, South Korea and India have put pressure on Europe, and no more so than in the fields of research and development (R&D).

Now a new report from the Indian government's Technology Information Forecasting and Assessment Council (TIFAC), has illustrated the extent to which India is becoming a more formidable player, with new figures on foreign direct investment (FDI) in R&D. The report states that USD 1.13 billion (0.95 billion euro) flowed into India during the five-year period of 1998 to 2003.

Some of this money comes from Europe, most notably from Germany, which is the joint second largest investor in India with Korea, but also from France, Denmark and the UK. The largest investor is by the far the US, while money has also come from Japan and China.

This suggests that some of the investment that was coming into Europe, for example from the US, is now going to India. The report states that nearly half of the companies created through FDI in India have been established due to relocation of in-house R&D. Most FDI is going towards computer-based R&D, followed by pharmaceuticals, automotive, chemicals and agricultural research.

India's draws include the availability and price of the country's workforce. A scientist in India earns USD 10,000 per year (8,413 euro), while a US scientist will expect USD 100,000 (84,150).

The report writers are confident that India benefits from this research investment, even if partnerships with Indian enterprises tend to be short-lived. 'Partnerships with local companies are good at the start, but partnerships are not forever - 56 per cent of FDI companies prefer to work alone in India,' states the report.

In their recommendations, the authors go on to say that 'Indian self-interest will not be served by insisting on local Indian equity share in the FDI company. R&D is proprietorial in nature, and no FDI company will share the fruits of knowledge with the local company.'

Instead India benefits from new jobs and temporary collaborations. Indeed, the report claims that the inflow of R&D FDI has brought Indian science and technology into 'the mainstream of global R&D'.

The report calls on the Indian government to do yet more to encourage and maintain FDI in R&D. Along with recommendations on monitoring the inflow of FDI, the paper calls for the government to consider setting up science parks providing the facilities that major players require, and urges the establishment of a programme to encourage other leading bodies, such as government-supported R&D organisations and universities, to relocate their research centres to India.

Further information

CORDIS RTD-NEWS/© European Communities, 2005
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