ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Booming Foreign Direct Investment in R&D

Sectoral and Regional Composition

India witnessed a massive sixfold jump in foreign direct investment in research and development in 2021. However, its distribution across different industrial sectors and regions was very skewed. Therefore, this article analyses the trends in sectoral composition and spatial distribution of FDI in R&D across Indian cities.

Internationalisation of research and development (R&D) is now taking place at a good pace, specifically through the flow of foreign direct investment (FDI) in the R&D sector. The dissemination of FDI in R&D from developed countries to emerging and developing economies also facilitates faster transfer of technology. In recent decades, along with FDI in manufacturing and services, FDI in R&D also reported a hike worldwide. India is not an exception from this scenario. According to the data released by the Department of Industrial Policy and Promotion (DIPP), India witnessed a massive sixfold jump in FDI in R&D in 2021 compared to the previous calendar year. It recorded a $344 million flow of FDI in R&D to India in 2021. The policymakers expect that the more significant flow of R&D-intensive FDI can supplement domestic technology and skills, accelerating economic growth and development.

R&D plays a significant role in the overall development of a knowledge-based economy, which can also accelerate economic growth. Similarly, FDI in R&D is considered the plausible driver of innovation in emerging and developing economies, explicitly facilitating access to foreign technology, skill development, and higher productivity (Damijan et al 2003). Given this scenario, the Government of India also initiated specific measures (FDI into R&D for Atmanirbhar Bharat) to scale up FDI in R&D and aimed to $500 million by 2022. These measures proposed (i) possible amendment of consolidated FDI policy by emphasising FDI in R&D for all sectors, (ii) making sectoral policies, namely electronic policies, communication policies, and software policies, include specific reference to innovation and R&D, (iii) encouraging state governments, in their sectoral policies, to consider the provisions related to FDI in R&D, (iv) having special clauses related to FDI in R&D included in various foreign trade agreements, etc. A reflection of these proposals is visible in the statistics of FDI in R&D in the recent years. During 201419, India ranked as the second propitious destination for greenfield FDI projects in R&D.

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Published On : 20th Jan, 2024

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