Public Policy and Changing Pattern of Industrial R&D System in India: A Comparative Analysis of Pre- and Post-reform Periods

Abstract

This article is an attempt to examine the trends of industrial R&D expenditure by the private sector and public sector during pre-reform (1980–1992) and post-reform period (1993–2010). The agenda of economic reform is to liberalise the industrial sector and make it more competitive in the global scenario. The analysis indicates that in the post-reform period, the percentage share of R&D expenditure drastically shifted from public sector to private sector. The major share of R&D expenditure remained in capital goods manufacturing sector. R&D expenditure is highly concentrated in the capital goods sector by public and private sectors. Second, preferential sector in terms of share of R&D expenditure has been intermediate sector by the public sector and consumer non-durables by the private sector overtime. Consumer durables sector is a completely ignored sector across the board. R&D intensity has been in the range of low and medium across industry groups and time. It may be argued that industries might not be enabling to realise spillovers from the transfer of technology and also would be fragile to enhance its ability to make product and process innovations of its own. The changing pattern of R&D expenditure by the industrial sector confirms the supremacy and autonomy of the market. These are the areas where R&D expenditure is required to gain technological capabilities and absorptive capacity for a low R&D intensity country like India. The article argues that technological and industrial policies should be taken into consideration with respect to the demand and production processes. Especially since the Indian economy is a low-income country with a massive agrarian and rural labour force, it needs to transform technological capabilities and organisation of industrialisation according to the indigenous and categorised necessities by both the public and the private sectors.

Keywords

Research and development R&D public sector private sector public policy pre- and post-reform periods

Introduction

In contemporary economic history, India’s Industrialisation strategy has received considerable attention from academics, policymakers and the state in terms of technological generation and absorption capacity to meet global challenges and hit opportunities. Industrial growth requires technological capabilities as well as the ability to imitate and adapt technology in prevalent world economic order. These capabilities and capacities can be built by introduction and implementation of science, technology and innovation policies by the country. Technological development strategy can be considered as one of the important aspects of overall industrial strategy. It involves the nurturing of indigenous capabilities to operate industrial systems and to continue to adapt and innovate in response to changing needs and resource availability (Baranson, 1969). The rapid growth of modern science and technology since independence suggests that India is on the threshold between colonial science and independent science (Morehouse, 1970). Without the human resource base and the organisational infrastructure, many of the scientific and technological options now available would not have been accessible (Morehouse, 1970). It should suffice to record here that since the early fifties and indeed before that India has been successful in building up a series of centrally coordinated and internally funded research organisations to conduct research and development in the areas of defence, space, atomic energy, medical science and industrial technology (Mitra, 1981). For long-term structural change, manufacturing plays a key role. It drives technological development and innovations to sustain productivity growth in manufacturing and other sectors (Industrial Development Report). Over time, a country’s manufacturing typically evolves from being labour-intensive to being more capital and technology-intensive, creating demand for more skilled labour. Structural changes required the reallocation of production factors from low-productivity sectors to high-productivity areas in which increasing returns prevailed. Industrialisation was thus seen as the way out of the backward condition as perceived by the modern development paradigm. The manufacturing sector would provide increasing returns and allow the development of technological learning. It is a widely recognised fact that industrial development and technological capabilities are highly correlated. The evolution of industrial structure in the developing countries shows that innovation capabilities have played an important role in stimulating change in the industrial structure (Singh & Shergill, 2015).

In retrospect, a century ago, devoting resources to R&D and innovation was very rare. This process of change started in Germany a century ago, continued in the USA from the Second World War onwards (Nelson & Wright, 1992 cited in Fagerberg, 2006) and had spread to most of the globe. As pointed out, knowledge has always been important for economic development, but the way it operates today is new compared to the situation, say, a century ago (Fagerberg, 2006). Governments everywhere in the world in the post-Second World War period have emerged as major financiers of R&D activity (Mitra, 1981). This is clearly a post-Second World War phenomenon (and in most countries much more recent than that). In this context, national planning efforts based on the assumption that modern agricultural development would lead to increasing absorption of redundant rural labour into the industrial labour force, did ensure increasing investment in and incentives for industrial development (Raina, 2009). Also, on independence, the two groups of the big bourgeoisie, viz., those represented in Associated Chambers of Commerce and Industry (ASSOCHAM) and Federation of Indian Chamber of Commerce and Industry (FICCI) had no common consistent and shared anti-foreign capital attitude. From 1954 onwards, there was a steady convergence of views between the two groups, increasingly seeking to influence the government to further liberalise the entry of foreign capital (Eapen, 1987).

Development strategies ought to think not only of R&D and the creation of knowledge but also attend to the details of its acquisition, adaption, dissemination and use in diversified local settings (Dahlman, 2008). First, the key institutions involved in the creation of knowledge are public research and laboratories, universities and private research centres. However, not all creation of knowledge is the result of formal R&D efforts. Second, acquisition of existing knowledge may be expected to yield higher increase in productivity than would flow from a similar scale investment in R&D or other efforts to push back the technological frontier. Direct foreign investment, licensing, technical assistance, importation of technology as embodied in capital goods, components or products, copying and reverse engineering and foreign study are the key means of technology transfer. Third, similar to knowledge creation, adaption also requires research and experimentation. Fourth and fifth, dissemination and use of technology usually requires appropriate mechanism and a well-developed economic and institutional regime. Countries have followed different strategies in how they created, acquired, adapted, disseminated or used knowledge for their development (Dahlman, 2008). In this direction, Indian state announced Technology Policy Statement (TPS) in 1983, its aim was to develop indigenous technology and ensure efficient absorption of imported technology appropriate and adaption of imported technology appropriate to national priorities and availability of resources.

In recent years, many attempts have been made to extend the Schumpeterian paradigm and to study the role of technology expenditures on the growth of productivity and growth of industry (see, Rothwell & Zegveld, 1985; Scherer, 1982, 1983; Siddharthan, 1985; Sveikauskas, 1983). They all found expenditure on technology to be an important determinant of industrial performance. For modernisation, Indian industry does not only depend upon domestic R&D effort but also on imported technology, which was mainly in the form of imported machinery and equipment (Siddharthan, 1992). Overtime, foreign direct investment (FDI) also became a big source of imported technology. In this context, Archibugi and Michie (1998) argue that with the requisite scientific and technical effort, nations will find it easier to imitate the technology that they encounter in international trade or through FDI. As an example, R&D activity might enable domestic firms to realise spillovers from the transfer of technology by multinational corporations. In addition, a country’s R&D activity will enhance its ability to make product and process innovations of its own.

Broadly, this article is an attempt to analyse the national science and technology policy on industrial innovative behaviour. Innovative behaviour or activity is measured in terms of formal activity related to R&D system. It is widely held view that developing countries are the technology laggards as compared to the developed countries. In the case of India as a developing country, technological competence has been generating a range of technological capabilities overtime till 1980s, with the philosophy of self-reliance principle to introducing structural adjustment programmes during 1980s–1990s and initiated new economic policy in 1991. India has a long history of policies regarding technological development from science policy resolution in 1958 to science, technology and innovation policy 2013.

This article looks into two primary questions in the Industrial sector R&D dynamics frame: one, what is the structure of Indian industrialisation during pre- and post-reform periods in the context of index of industrial production, and in which direction it changed. Second, the role of private sector in industrial R&D system increased in what direction and how preferences regarding industrial sectors have been changing in the pre- and post-reform periods. What are the changes in shares of different industrial groups by different sectors in the pre- and post-reform periods in a comparative mode? And, which are the priority groups for spending R&D by the private as well as the public sector. For analysis, Industry groups are divided into use-based classification: intermediate industry groups, capital goods industries, consumer durables and non-durable goods to understand research and development behaviour by public and private sectors during the pre- and post-reform periods.

This article is structured into four sections including introduction. The second section describes the overall assessment of R&D expenditure by various sectors and agency-wise distribution of R&D expenditure overtime. The third section is structured into two broad parts. In the first part, we study the pattern of research and development share of different industrial sectors during pre- and post-reform periods. The second part examines the research and development pattern in Indian manufacturing sector with the help of growth rates and R&D expenditure intensity among industrial sectors, covering a 30-year period, which is broadly classified as pre- (1980–1992) and post-(1993–2010) reform periods. The fourth section examines the FDI inflows in India and traces patents granted as output indicator of research and development. A summary of the main findings concludes the article in the fifth section.

Diversification Within the Industrial Sector in the Context of Weights

In the context of weights of use-based sectors in index of industrial production since 1956, we can analyse the industrial structure and variation between the sectors. Table 1 presents index of industrial production across use-based industrial groups. In 1956, consumer goods accounted for nearly 50 per cent of the weight in the index of industrial production (Ahluwalia, 1991). The share for capital goods increased their share form 4.7 per cent in 1956 to 16.43 per cent in 1980–1981 and again declined to 8.83 per cent in 2004–2005. In the case of intermediate goods, the share has been increasing from 46.9 per cent in 1956, 60 per cent in 1980–1981 to 61.37 in 2004–2005. The share of consumer non-durables remained almost same during pre- and post-reform periods. This statistical evidence shows that there are wide differences between and within use-based sector in index of industrial production. India’s industrialisation process took its shift from consumer goods sectors to intermediate and capital goods sectors over the period of time.

Table 1

. Diversification Within the Industrial Sector Since 1956

Weights of Use-based Sectors in Index of Industrial Production
	Capital Goods	Intermediate Goods	Consumer Non-durables	Consumer Durables	Consumer Goods
1956	4.7	46.9			48.4
1960	11.8	51	31.6	5.7	37.2
1970	15.2	53.2	28.1	3.4	31.5
1980–1981	16.43	59.93	21.1	2.55	23.65
1993–1994	9.26	62.08	23.1	5.37	28.66
2004–2005	8.83	61.37	21.35	8.46	29.81

Source: Values for 1956, 1960 and 1970 are taken from Ahluwalia, 1991, and for other years, values are taken from CSO, Government of India.

Overall Assessment of Research and Development Expenditure

Before analysing research and development in the context of Indian industrialisation during pre- and post-reform periods, noteworthy or significant distribution of R&D expenditure has incurred including public sector, the state governments sector and private sector to develop technological competence in the economy during the planning process being a federal country.

Table 2 shows that in the case of central sector, state sector and aggregate R&D expenditure growth rates were comparatively higher in the pre-reform period as compared to post-reform period. In contrast, the private sector R&D growth rate was lower in the pre-reform period than other sectors’ growth rates which increased during the post-reform period. From 1980 to 2010, the private sector held the highest rank as compared to central and state sectors. It is clearly evident that in the post-reform period, central and state sectors reduced their expenditure on research and development activities under economic reform agenda to liberalise and privatise the economic activities.

Table 2.

Growth Rates of R&D Expenditure Across Sector During Pre- and Post-reform Periods (at 2004–2005 Prices)

	Central Sector	State Sector	Private Sector	Total R&D Expenditure
1980–1992	10.13	10.05	6.97	9.44
1993–2010	4.35	4.26	9.16	5.82
1980–2010	5.81	7.32	10.47	7.11

Source: Research and development statistics, various issues.

In a similar context, Table 3 and Figure 1 also depict the same story of declining R&D expenditure by the central sector from 76.33 per cent share in 1980–1981 to 59.71 per cent share in 2009–2010. Besides, the state governments had very little share with 7.80 per cent in 1980–1981, which decreased to 7.29 per cent in 2009–2010. On the contrary, the share of the private sector was 15.87 in 1980–1981, which increased to 28.86 per cent in 2010 and has nearly doubled over the period of time.

Table 3.

R&D Share of Different Sectors (in %)

	Central Sector	State Sector	Private Sector	Higher Education Sector
1980–1981	76.33	7.80	15.87
1992–1993	73.23	10.06	16.71
2000–2001	68.22	9.72	24.22	4.02
2009–2010	59.71	7.29	28.86	4.15

Source: Research and development statistics, various issues.

Table 4 and Figure 2 depict the picture of R&D expenditure share of public and private sectors in industrial R&D. From 1980 to 1981 onwards, the share of private sector industrial R&D has been increasing overtime, and during the post-reform period, it increased sharply. On the other side, the share of public sector R&D in industry was 41.89 per cent in 1980–1981, 46.78 per cent in 1990–1991, decreased to 26.04 per cent in 2000–2001 and again declined to 17.17 per cent in 2009–2010. It clearly shows that public sector R&D sharply declined due to the implementation of new economic policy where there were cuts on expenditure by the central and state governments on the prior agenda.

R&D Expenditure by Objective and by Major Agencies

R&D expenditure in India has been classified as 12 objectives based on UNESCO classification. Table 5 and Figure 3 illustrate the changing R&D expenditure share from 1958–1959 to 2009–2010. The share of department of atomic energy sharply declined from 41.25 per cent in 1958–1959 to 14.40 per cent in 2009–2010. In contrast, the share of Defence Research and Development Organisation (DRDO) cuttingly increased from 7.98 per cent in 1958–1959, 18.18 per cent in 1980–1981, 36.13 per cent in 2000–2001 and then declined to 31.63 per cent in 2009–2010. Moreover, this sector attained highest percentage share of R&D since 1958–1959. The second big department which occupied a graceful share in the total R&D expenditure has been department of space. The R&D share of Indian Council of Agricultural Research (ICAR) and Council of Scientific and Industrial Research (CSIR) dropped sharply overtime and especially during post-reform period. Among 12 departments, DRDO, Department of Space, and Department of Atomic Energy dispensed 61.57 per cent share of total R&D spending.

Table 4.

Percentage Share of Private and Public Sector in Industrial R&D

Period	Private Sector	Public Sector
1980–1981	58.11	41.89
1990–1991	53.22	46.78
2000–2001	73.96	26.04
2009–2010	82.83	17.17

Source: Research and development statistics, various issues.

Table 5.

R&D Expenditure by Major Scientific Agencies (in %)

Agencies and Departments	1958–1959	1970–1971	1980–1981	1990–1991	2000–2001	2009–2010
Department of Atomic Energy (DAE)	41.25	32.19	16.76	11.91	10.81	14.40
Council of Scientific and Industrial Research (CSIR)	27.11	24.16	15.74	10.77	9.29	9.95
Defense Research and Development Organization (DRDO)	7.98	19.68	18.18	29.44	36.13	31.63
Indian Council of Agricultural Research (ICAR)	19.79	20.59	22.23	11.94	12.49	10.75
Indian Council of Medical Research (ICMR)	2.69	2.44	2.05	1.93	1.60	2.18
Department of Science and Technology (DST)	1.18	0.94	9.27	5.18	3.35	8.30
Department of Space (DOS)	0.00	0.00	12.78	16.70	20.49	15.54
Department of Electronics/IT (DOEI)	0.00	0.00	1.23	1.43	0.55	1.22
Department of Environment (DOE)	0.00	0.00	0.85	7.01	2.93	1.55
Department of Ocean Development (DOD)	0.00	0.00	0.00	1.20	0.91	1.67
Department of Non-conventional Energy Sources (DNCES)	0.00	0.00	0.91	0.69	0.13	0.10
Department of Biotechnology (DOB)	0.00	0.00	0.00	1.79	1.30	2.71

Source: Research and development statistics, various issues.

The noteworthy feature of the analysis is that the share of R&D spending of ICAR, DST, Department of electronics/IT and Department of biotechnology has not been on the priority list of the state overtime, and private sector has achieved improved share and high growth rate comparatively in the post-reform period. Second, the R&D expenditure is highly concentrated in few areas.

Structure Changes and Changing Patterns in the Share of R&D Expenditure Across Sectors and Time

It is significant to understand how much share of R&D has been going to each group. Through these data, we can explore which sector is most crucial than others and what are the preferences of emerging industrial process with regard to private sector as well as public sector.

Table 6 and Figure 4 depict in the case of private sector, nearly half of the total expenditure incurred to the capital goods sector, which increased to 51.18 per cent share in the post-reform period. The R&D share of the intermediate sector declined through the period from 25.60 per cent in 1980–1981 to 12.63 per cent in 2009–2010. The R&D share of consumer non-durables increased from 25.44 in 1980 to 36.01 per cent in 2009–2010. The share of consumer durables in the total R&D spending by the private sector has been actually insignificant, ranging less than 1 per cent in1980 and 2010, but in 1990–1991, it increased to 1.80 per cent and in 2009–2010, it was 3.56 per cent. The capital goods sector is very important from the point of view of technology induction and has a long-term effect on the productivity of the manufacturing sector (Ahluwalia, 1991). As a whole, the first preference was given to capital sector during this period and second preference to consumer non-durables, followed by intermediate sector. The last preference for research and development expenditure was given to consumer durables over the period of time.

Table 6.

Share of Use-based Industrial Groups Research and Development Expenditure by Private Sector (in %)

Year	Capital Goods	Intermediate	Consumer Non-durable	Consumer Durables
1980–1981	48.18	25.60	25.44	0.79
1990–1991	50.78	22.73	24.69	1.80
2000–2001	46.91	20.95	28.59	3.56
2009–2010	51.18	12.63	36.01	0.19

Source: Research and development statistics, various issues.

In the case of public sector, the R&D expenditure on capital goods sector (Table 7 and Figure 5) was 78.37 per cent of the total R&D in 1980–1981, and it remained almost same with a marginal decline to 76.19 per cent in 2009–2010. In the case of intermediate goods, the R&D expenditure was 17.93 per cent, and it increased to 23.11 per cent in 2009–2010. The share of consumer non-durables and consumer durables was very low as 2.96 per cent and 0.74 per cent, respectively, in 1980–1981 and declined to less than 1 per cent in consumer non-durables and 0 per cent in consumer durables in 2009–2010. The capital goods and intermediate sectors have been priority sectors of the public sector during the study period.

Table 7.

Share of Use-based Industrial Groups Research and Development Expenditure by Public Sector (in %)

Years	Capital Goods	Intermediate	ConsumerNon-durables	Consumer Durables
1980–1981	78.37	17.93	2.96	0.74
1990–1991	71.42	23.85	3.26	1.47
2000–2001	68.15	29.72	1.39	0.74
2009–2010	76.19	23.11	0.69	0

Source: Research and development statistics, various issues.

When we look at both private and public expenditures as a whole, Table 8 and Figure 6 present that the share of capital goods sector remained more than half of the total R&D expenditure throughout the period, but share declined. The R&D in intermediate goods ranked second, with the share of 22.40 per cent in 1980–1981 and declined its share to 14.44 per cent in 2009–2010. The share of consumer non-durables was on third rank in 1980–1981 with 16.06 and increased to 29.89 in the post-reform period. The R&D share has been less than 1 per cent over the period of time but declined in post-reform period. Through this exercise, a broad picture emerged of the industrialisation process of Indian state adapted during the planning process, which pooled highest R&D resources into capital goods sector and is high technology intensive sector. And it also unveils the choice of Industrialisation strategy of India, which ultimately impacts the economy as a whole.

Table 8.

Share of Use-based Industrial Groups Research and Development Expenditure by Both Public and Private Sectors (in %)

Years	Capital Goods	Intermediate	Consumer Non-durables	Consumer Durables
1980–1981(pre-reform)	60.78	22.40	16.06	0.77
1990–1991(pre-reform)	60.34	23.25	14.76	1.65
2000–2001(post-reform)	52.29	23.17	21.69	2.84
2009–2010(post-reform)	55.51	14.44	29.89	0.16

Source: Research and development statistics, various issues.

Changing Pattern of Industrial R&D Expenditure Growth Rates During Pre-reform and Post-reform Periods

It is a well-known fact that the R&D in industry is essential for generating know-how necessary for production of quality products, uphold efficiency, promoting exports and technical self-reliance needed in the country as well as absorption, adaption and upgradation of imported know-how (Research and Development Statistics, 2011–2012). The R&D expenditure in the manufacturing sector comprises both private and public sectors. We will look at the growth rate of R&D among the use-based industrial groups during the study period by Public and private sectors as follows:

Private Industrial Sector

Table 9 reveals that in the case of private sector, the growth rate of R&D in capital goods sector has remained high with 8.07 per cent in the post-reform period as compared to 4.21 per cent in the pre-reform period. The focus of private sector remained in the consumer non-durable goods with 16.14 per cent in post-reform period as compared to pre-reform and aggregate level with 10.71 per cent and 12.79 per cent, respectively. Among use-based manufacturing sectors, only consumer sector had a negative growth rate in post-reform period. At the aggregate level, the R&D growth rate remained high in the post-reform period (1993–2010).This analysis clearly shows a positive correlation between R&D expenditure share and growth rates in the respective industries overtime.

Public Industrial Sector

In the case of public sector, the data (Table 10) reveal that except intermediate goods, the R&D expenditure growth rate of capital goods, consumer durables and non-durables remained negative in the post-reform period, while the R&D expenditure growth rate among all four sectors has been high in the pre-reform period. In the case of manufacturing sector as a whole, the R&D expenditure growth rate was 9.32 per cent in the pre-reform period, which had declined to only 1.99 per cent in the post-reform period.

Table 9.

Growth Rates of Use-based Industry Groups by Private Sector

Industry Groups	Pre-reform	Post-reform	Aggregate
Capital goods	4.21	8.07	7.91
Intermediate	0.03	1.08	7.69
Consumer non-durable	10.71	16.14	12.79
Consumer durables	10.11	–11.81	2.17
Total	7.16	10.51	9.77

Source: Research and development statistics, various issues.

Table 10.

Growth Rates of Use-based Industry Groups by Public Sector

Industry Groups	Pre-reform	Post-reform	Aggregate
Capital goods	4.87	–0.67	1.00
Intermediate	13.85	3.70	6.06
Consumer non-durable	15.16	–7.30	–2.37
Consumer durables	13.17	–28.61	–19.22
Total	9.32	1.99	3.02

Source: Research and development statistics, various issues.

Pooled (Public and Private Sectors)

When we combine the data regarding both public and private sectors into single sum, the picture emerged in Table 11 as: capital goods sector with 4.85, consumer non-durables with 15.69 per cent remained high R&D growth rate sectors in the post-reform period as compared to 4.58 per cent and 11.16 per cent in capital goods sector and consumer non-durables respectively in the pre reform period. The share in R&D growth rate accounted high in intermediate goods in the pre-reform period. Consumer durable sector accounted for negative growth in the post-reform period and at aggregate level, while all three sectors accounted for positive growth rate in both the periods. In the case of total manufacturing sector, pre-reform period gained high growth rate with 8.18 per cent compared to 8 per cent and 7.66 per cent in the post-reform and from 1980–1981 to 2009–2010.

Pattern of Research and Development Intensity Across Industry Groups and Period

R&D intensity is used as an indicator of an economy’s relative degree of investment in generating new knowledge. According to World Bank (2014), the categories of R&D intensity are as follows: low (<0.5% of GDP), medium (0.5–1%), high (1–3.5% of GDP) and very high (>3.5% of GDP). We have data regarding R&D intensity as proxy by R&D expenditure as percentages of sales. It is also important to keep in mind that differences in aggregate R&D intensities across developed economies are most due to differences in private, not public investments in R&D. Private investment in R&D, on the other hand, depends on a number of factors, such as the strategic orientation of management, the costs, the perceived risk, the demand for new, innovative products or services and the extent to which R&D is deemed necessary to be able cater for the demand (Fagerberg, 2006). In this context, India has remained in the low and medium categories of R&D intensity, except very few in the categories of high R&D intensity during the study period.

Table 11.

Growth Rates of Use-based Industry Groups by Private and Public Sector

Industry Groups	Pre-reform	Post-reform	Aggregate
Capital goods	4.58	4.85	5.05
Intermediate	8.84	4.44	7.21
Consumer non-durable	11.16	15.69	12.39
Consumer durables	11.51	–12.79	–0.66
Total	8.18	8.00	7.66

Source: Research and development statistics, various issues.

Table 12 and figures 7 –11 shows that in the case of capital goods sector, R&D intensity in the public as well as private sector in the pre-reform period was higher than the post-reform period. And public sector R&D intensity was higher than the private sector throughout the period of study. The same is with the intermediate sector, while in both the sectors, the R&D intensity remained less than 1 per cent. As a whole, the industrial sector attained less than 1 per cent R&D intensity in the pre- and post-reform periods and remained between low and medium R&D intensity categories.

Table 12.

R&D Intensity Across Sector and Time by Public and Private Sectors

	Capital Goods		Intermediate		Consumer Non-durables		Consumer Durables		Total
	PUB SEC	PRI SEC	PUB SEC	PRI SEC	PUB SEC	PRI SEC	PUB SEC	PRI SEC	PUB SEC	PRI SEC
1980–1981	2.11	1.59	0.85	0.55	0.83	0.66	1.69	0.34	0.66	0.77
1985–1986	1.52	1.12	0.41	0.43	1.16	1.61	3.6	0.31	0.56	0.7
1992–1993	2	0.97	0.44	0.5	0.46	0.64	1.18	0.28	0.44	0.67
1999–2000	1.58	0.97	0.78	0.56	1.17	0.36	0.05	0.16	0.34	0.48
2005–2006	2.64	0.99	0.11	0.72	10.76	0.84	0.26	0.32	0.3	0.66
2009–2010	1.07	0.71	0.27	0.46	1.41	0.6	0	0.03	0.18	0.82

Source: Research and development statistics, various issues.

Sector-wise Foreign Direct Investment in India

Table 13 shows that the share of capital goods sector has been increasing overtime and occupied the highest rank among all four sectors, with 43.40 percentage share during 1991–1995 and 73.31 percentage share in 2007. In contrast, the share of intermediate goods declined from 27.67 per cent during 1991–1995 to 7.97 per cent during 2007. In the case of consumer durables and consumer non-durable sector from 1991 to 2007, the share has been declining overtime from 6.69 per cent to 1.44 per cent and from 22.24 per cent to 17.28 per cent, respectively. The notable feature that appeared from the analysis is that capital goods sector occupied the prime position in FDI in India from 1991 onwards.

Table 13.

Percentage Share of Sector-wise FDI in India

Sectors	1991–1995	1996–2000	2001–2005	2007
Capital goods	43.40	58.40	58.68	73.31
Intermediate goods	27.67	25.63	22.43	7.97
Consumer durable goods	6.69	0.69	0.59	1.44
Consumer non-durable goods	22.24	15.27	18.29	17.28

Source: Ministry of Commerce and Industry, Government of India.

Trends of Patent Granted

Patents became one of the legendary forms of intellectual property during the competitive environment and intellectual property regimes introduced under the aegis world trade organisation for speeding up innovations and rent-seeking purposes.

Beyond the purview of the study, we tried to analyse the trends of patents granted in various fields. The data in Table 14 illustrate that the percentage share of the chemical sector has been on the top throughout the period from 1997 to 2010. The share of drugs, food, electrical and mechanical sectors declined overtime. In contrast, the new emerging sectors computer/electronics and biotechnology attained nearly 30 per cent share from 2007–2008 to 2009–2010. The statistics reveals that R&D expenditure and patents are in the same direction: high R&D expenditure on capital goods and high percentage share of patents granted in the respective fields.

Conclusions

It is argued that for technological competence and absorptive capacity, the R&D investments are necessary at the firm, industry and institutional levels. In this article, we have deliberated to scan the R&D expenditure behaviour of the central, state and private sectors and share of public and private industrial sectors during pre- and post-reform periods. This study points out with the help of data that, on the one hand, R&D expenditure is very low and on the other, R&D expenditure, by different agencies except few, has been falling over 30 years from 1980 to 2010.

Table 14.

Pattern of Patents Granted Among Various Fields (in %)

Fields	1997–1998	2000–2001	2003–2004	2007–2008	2009–2010
Chemical	27.28	26.78	24.67	20.73	26.46
Drug	15.78	20.94	16.97	7.05	9.88
Food	3.15	5.46	4.46	1.20	1.34
Electrical	9.60	10.77	16.04	8.31	7.53
Mechanical	20.66	19.27	21.83	27.28	19.08
Computer/Electronics	0.00	0.00	0.00	10.57	22.27
Biotechnology	0.00	0.00	0.00	2.66	8.37
General	23.54	16.77	16.24	0.00	5.09
Total in number

Source: Annual reports, various issues, intellectual property India, GOI,

The exploration of the predilections of private sector as well as public sector with regard to Indian industrialisation process over the 30 years indicates that the R&D share of both the sectors remained high in the capital goods sector. The second preference of the private sector has been consumer non-durable goods sector followed by intermediate sector. The least preferential sector remained consumer durables, which is otherwise important for the well-being of the society.

Second, it is observed from the analysis of industrial R&D expenditure growth rate that the role of private sector in R&D increased in the post-reform period as compared to pre-reform period. Public sector research and development has decreased and recorded negative growth rate in the post-reform period. It is observed that the role of state has been reducing overtime and private sector is occupying the space and built-up for the market. Therefore, there is a need to rebuild and reinvent the role of state for building and strengthening competitive advantage in the manufacturing sector for sustainable development.

With low R&D intensity of both the sectors, it may be argued that, industries might not be able to realise spillovers from the transfer of technology from the market. Moreover, it would be fragile to enhance its ability to make product and process innovations of its own. On the output side, the share of patents in electronics/computer and biotechnology has been increasing, but in other fields, their shares are declined sharply overtime. In the context of FDI, the share of capital goods sector has been quite high and increasing. The share of other sectors share is falling overtime. In this context, it seems reasonable to argue that in the post-reform period (1992–1993 onwards), the Indian economy underwent a transition to open market economy in the new world economic order. Depending upon the conditions which are prevailing in a low-income country, the choice of Industrialisation strategy will have a considerable impact on its industrial growth, competitiveness and development of the other sectors in the economy in the future.

Footnotes

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author received no financial support for the research, authorship and/or publication of this article.

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