India.. The myth of Super Power

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“A slower-growing India will be more financially vulnerable, poorer, full of frustrated young people and taken less seriously by the rest of the world”

This quote from the Economist (source mentioned below) should send warning signals to people who play a major role in shaping the destiny of our country.  I began to dig deep on this subject and found quite a good number of sources which gave me an insight into the problem. The three major book/articles which motivated me to write this post are:

1) I started reading Breakout Nations by RuchirSharma – In search of Next Economic Miracles a few days back. He talks about nations which could flourish or disappoint in the era of diverging economic prospects. He gives a perspective on many countries and identifies certain indicators which will determine where a nation is headed towards.

2) An article which appeared in the Economist titled India’s economy – Losing itsmagic

3) An article by Harshwardhan Gupta titled 40Years of "Innovation" in India

Over the last few years, India has often been touted as the next big super power, emerging nation, will go past China and so many other good adjectives. We all get elated with these tags.

All of a sudden, some have started raising serious doubts about India. Reasons attributed for this are many: number of scams surfacing day in day out across the nation, coalition politics, lack of decision making ability at the top and many more.

But I am going to focus on something more fundamental – the lack of investment on core Research and Development (R&D) by Indian firms.  

Wikipedia defines 2 models for R&D. In one model, the primary function of an R&D group is to develop new products; in the other model, the primary function of an R&D group is to discover and create new knowledge about scientific and technological topics for the purpose of uncovering and enabling development of valuable new products, processes, and services.

Are we spending enough on R&D? Answer is straight “No”. Let us look at the numbers. 

We are just spending 0.9% of GDP on R&D and are in 8^th position among all countries. The global R&D total for 2011 was $1.2 trillion. United States leads all countries by funding one-third of global R&D in 2011. US spends about 405  billion $, China 153 billion $, Japan 144 billion $, South Korea 45 billion $ and India 36 billion $. ( http://en.wikipedia.org/wiki/List_of_countries_by_research_and_development_spending )

Harshwardhan Gupta in his article 40Years of "Innovation" in India says that Pre-Liberalization (prior to 1991) was better than post-liberalization in terms of R&D scenario in our country. Earlier we could not import industrial machinery. This forced us to engage in large amount of real engineering design and innovation, especially in smaller companies; and usually they grew much faster. But when Liberalization arrived, all these small companies and entrepreneurs started importing machines at the cost of indigenous design and innovation.

The other Asian giants like China, Taiwan, Japan, South Korea initially also imported these technologies from the west but they quickly learned the underlying engineering and design philosophies behind these sophisticated machines. They then started improving upon the originals and started mass manufacturing them at a low cost. Within a couple of decades, many of the Eastern companies overtook their Western counterparts.

But most of the Indian companies did not follow this. We imported and started using it. Majority of them where not ready to invest in R&D to understand what goes behind the design. We are becoming increasingly dependent on imported technology and machinery, losing entire vital indigenous industries in the process.

Take the case of Indian IT companies. We pride ourselves in IT field but there is hardly a notable global product from our IT companies. The revenues from IT are from services sector and if any other country can emulate our achievements, we will struggle to maintain the growth in this sector.

Let us consider the case of South Korea. They have so many global brands in the world market. Samsung & LG in consumer electronics sector, Hyundai & Kia in automobile sector, POSCO and many more. They are global players in everything ranging from cars, steel, industrial machinery, robotics, aerospace, biotech, rechargeable batteries and so on.  They are the world's largest and best shipbuilder.

Let us focus on Indian global brands. If you look at the Indian brands in top 500 global brands in 2012 (http://money.cnn.com/magazines/fortune/global500/2012/countries/India.html ), there are 8 Indian companies. Among them 5 companies (ONGC, HP, BP, RIL and Indian Oil) are in the oil and energy sector which is making huge losses presently. The other three are Tata Motors, Tata Steel and SBI.

Fact is we hardly have any global brands in the world. We are a nation of billion plus population who are just consumers of the global brands of other companies. Everything from TV, washing machine, computers, industrial machinery is of brands of other nations.

I do not see this trend changing in the near future unless companies start investing in core R&D. We need to invest in research to build future technologies. If Indian companies do not take this risk we can never ever hope to be a Super Power.