Over the past decade, India’s young graduates have drawn global attention to the country. Banks, software companies, generic drug makers and investment bankers have outsourced tasks ranging from answering customer calls to writing research reports and mining data for drug development to this pool of knowledge workers.
The “India” brand thus created has inspired multinational firms to set up research and development (R&D) centres in the country, even as the highly skilled Indian diaspora comprising scientists, engineers and technologists is moving back to set up start-up companies in hot spots such as Bangalore, Hyderabad and the National Capital Region (Delhi and its environs). All this activity is fuelling an explosion of ideas that has catapulted India from being an adaptor to an innovator, according to Atlas of Ideas, a research report by UK-based think tank Demos.
Researchers at Demos were given a brief to identify the new hubs of innovation that policymakers and investors in the UK could plug into. Despite countries such as Japan, the US and those belonging to the European Union ranking higher on conventional metrics—such as the number of scientific papers published and patents—filed researchers at Demos argue that new ideas in drug development, nanotechnology and communication will come from Asian countries including India, China and South Korea. “We are moving to a non-linear model of development—countries such as Brazil and India, for instance, might have similar problems, for which they could look for collaborative solutions,” says James Wilsdon, head of science and innovation at Demos.
In India, as the economy grows at an average of 8% for the fifth consecutive year, there is a growing demand for goods and services in the domestic market. “This demand for new innovative products and the ability of people to make money from such innovation is what will make India a hub for new ideas,” says Naresh Gupta, senior vice-president, print and classic publishing solutions business unit and managing director, India research and development, Adobe Systems, Inc. In about a decade of operations, this centre has contributed more than 15 full products to the Adobe suite, which includes popular software such as Adobe Acrobat and Photoshop.
By setting up research centres in India, global technology majors such as Adobe and Microsoft Corp. are tapping into a talent pool of roughly 14 million graduates with an average work experience of seven years; this number is topped up annually by a further 2.5 million new graduates in science, engineering and information technology. This is more than double the number of Chinese graduates, and almost twice that of the US, according to data compiled by Demos.
Critics argue there is not enough interaction between these multinational centres and local Indian institutions to seed innovation in India.
“Multinational research centres will boost India’s capacity for home-grown innovation only if the knowledge generated spills over into the local economy,” says Kirsten Bound, the Demos researcher who anchored the India study. For instance, the Microsoft Research Centre in Bangalore, a group that focuses on technology for emerging markets, has developed a tool that allows the screen of a computer to be split into two, each of which runs different applications. Users tap into a separate keyboard and mouse, making this seem like two computers for the price of one.
“In considering the potential of Indian innovation, it is wrong to look only at start-ups and early-stage firms; products and solutions built by the local units of overseas companies are also examples of innovation by Indians,” says Sridar Iyengar, venture partner, Bessemer Venture Partners, who earlier led the Indian operations of consulting firm KPMG.
As collaborative research gains momentum in other areas such as the global pharmaceutical industry, Indian pharma is expected to rake in major gains. The Demos report estimates that investment in pharmaceutical research in India has increased 300%, growing from Rs200 crore in 2000 to Rs800 crore by the end of 2004. “Aligning the country’s IPR (intellectual property rights) laws with WTO regulations has moved Indian pharma from a maker of generic drugs to creating new drugs through their own research,” says Bound.
Ranbaxy Laboratories Ltd, the country’s largest pharmaceutical company has a collaborative research programme with British pharmaceutical company GlaxoSmithKline Plc. In February, the two companies signed a new multi-year R&D agreement. Two of the development programmes under way currently are in the area of anti-infective and respiratory care products. If these products prove to be commercially successful, they can yield up to $100 million (about Rs400 crore) in earnings from royalties according to a spokesperson for Ranbaxy. In 2006, the pharma company filed a total of 125 fresh patents.
At its research centre in Bangalore, biotechnology drug maker Biocon Ltd is using the bio-partnering strategy (where research for a single drug is conducted at multiple locations), to build a robust pipeline of novel drugs. For instance, Biocon started work on the oral insulin product (IN105) in collaboration with a US-based platform technology company, Nobex Inc., that it then went on to acquire. The cancer care products in its portfolio are being co-developed with Cuban research institute CIM. “We also have collaborations with Karolinska Institute in Sweden and Johns Hopkins in the US,” says Kiran Mazumdar-Shaw, chairman and managing director, Biocon, who adds that the use of information technology for data management, drug modelling and protein engineering in the development of biotechnology products can be the next big opportunity for the Indian pharma sector.
Such global innovation networks can develop drugs at a much cheaper rate than traditional pipeline models of established firms in Europe and the US, focusing on many years of research culminating in one blockbuster drug.
Indian pharma companies can develop new drugs with a low-cost innovation model at one-fifth the cost of drug development in Europe and the US, a Ranbaxy spokesperson said in an email interview.
Analysts say the true examples of innovation in India will come when there are products and services designed for the booming domestic market. “In the next few years, private equity and venture capital inflows into India will total up to $48 billion, of which at least 10% will go towards funding young start-ups,” says Vijay Angadi, managing director, Novastar International Fund, who has invested in start-ups such as Real Image Media Technologies, which transmits digitized movies to more than 300 theatres in the US, Europe and India.
Angadi reckons that innovations for Indian consumers in food retail, out-of-home dining and the financial sector are the growth areas to watch out for as venture capitalists look for new ideas.
Even as the report celebrates Indian innovation, Bound and Wilsdon have inserted a note of caution. They say the human resources pool—now regarded as an advantage—could ironically be the biggest constraint for Indian innovation. Sure, there are more graduates in India than in China. However, the percentage of these graduates opting for a career in research that fuels new innovation is far below that in competing countries. The report estimates that while the number of scientists per unit of population has grown 10-fold in China in the last decade, in India, it has stagnated at 21 researchers for every 1,000 persons employed. In contrast, China has 85 researchers for every 1,000 persons employed, while in the US, 285 out of 1,000 graduates choose careers in research.
“We have a pool of 500 million youngsters with the potential to become future innovators, but do not yet have the resources to educate and unleash that potential,” says Rajeev Gowda, professor of economics and social science at the Indian Institute of Management, Bangalore.
The report, focused as it is on unearthing competitive advantages for Britain, recommends the creation of a £100 million (about Rs80 crore) global research and development fund targeted at international collaboration, including a Darwin Scholarships programme to bring 200 Asian scientists a year to the UK.
“The old world view, as seen from OECD (Organisation for Economic Co-operation and Development or developed) countries, is changing; in future, it is open collaborative networks that will drive innovation,” says Wilsdon.
Investments in R&D in India
GDP spent on R&D: 0.8%
Source: NSTMIS, department of science and technology, government of India, 2002-03
Annual science budget:$4.5 billion
Source: Department of science and technology, government of India, 2006
Enrolments at the level of graduate and above: 9.84 million in 2004
The percentage of engineers have almost doubled: from 6% in 1995-96 to 11.2% in 2003-04
Source: National Council of Applied Economic Research, India Science Report, 2005
Science PhDs per year: 5,000 approximately
Source: Mashelkar, ITPS, NSTMIS
R&D staff at work in science or industry: 21 researchers per 1,000 employed
Source: OECD, 2001/02
US patents: 341 granted
1,164 patent applications were filed in 2003, compared with just 54, 10 years earlier
Source: US Patent and Trademark Office
Indian patents: 23,000 applications in 2005-06 compared with 17,266 in 2004
Source: Indian Patent Facilitation Centre