R&D expenditure by listed entities remains low

Expenditure in research and development (R&D) by listed companies remains low, as only 409 listed firms invested a total of Rs 36,000 crore on R&D in the last financial year (2019-20).

As per a report by ICICI Securities, the expenditure accounts for only 0.9 per cent of the total revenue of the all the 409 companies taken together.

It said that the top sectors spending on R&D included auto with an expenditure of Rs 11,100 crore, pharma (Rs 10,600 crore), industrials and energy (Rs 8,200 crore), and IT (Rs 2,300 crore).

"Private sector investment in R&D at 37 per cent is much lower than government and is a departure from global trend of higher contribution by private sector," the ICICI Securities report said.

It said that R&D spend in India has remained stable at 0.7 per cent of GDP since 2014. However, it is relatively low as compared with other emerging economies (1-1.5 per cent) and significantly lower than developed economies and China (over 2 per cent).

It is a consensus view that higher R&D spend and innovations result in improvement in Total Factor Productivity (TFP) in an economy, thereby boosting GDP growth, the report said, adding that India will require higher R&D spend, especially from the private sector to boost TFP to over 3 per cent for achieving over 8 per cent growth.

To grow rapidly, economies need to post high TFP growth. Past cross-country evidence shows that countries that post over 3 per cent TFP growth record sharp (over 8 per cent) growth rate. However, it may be difficult to sustain over 3 per cent TFP growth for long periods, especially after large negative shocks..