ICICI: R&D spending by listed cos remains low in FY20, says ICICI Securities

Mumbai: Listed companies’ spending on research and development (R&D) remained low in the financial year ended March 2020, said brokerage ICICI Securities.

In the listed space, 409 companies spent Rs 36,000 crore or 0.9% of their revenues on research and development in FY20, the brokerage said.

The brokerage said that spending on research and development in India has remained stable at around 0.7% of the gross domestic product (GDP) since 2014 but it is lower compared to other emerging economies where it is 1-1.5% of GDP. It is significantly lower than other development economies such as China where it is over 2%, said ICICI Securities.

The brokerage said India needs to up its spending on research and development, particularly from the private sector to improve its total factor productivity to over 3% and to achieve over 8% growth.

Total Factor Productivity or TFP is a measure of economic efficiency. Higher spending on research and development and innovations lead to improvement in Total Factor Productivity in an economy, the brokerage said.

In contrast to the global trend of higher contribution by the private sector in research and development investment, the private sector investment in R&D in India at 37% is much lower than the government’s contribution.

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

The largest spenders of research and development among sectors included automobile, pharmaceuticals, industrials and energy, and the information technology.

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