Firms'' R&D Activities in Indian Organised Manufacturing Sector: Are Tech-SMEs Different?

Given the crucial role of enhancing investment in Research and Development (R&D) to drive innovation, improve competitive performance, and foster industrial growth through technological advancements, this study investigates the current status, quantum, and trends in R&D investment behaviour at the firm level within India’s organized manufacturing sector. By using unit-level data of Annual Survey of Industries (ASI), study provides nationally representative estimates of R&D propensity and intensity, distinguishing it from prior research constrained by data availability. The study assesses the contributions of small and medium size (SMS) versus large firms in R&D investments across various technology levels in the registered manufacturing sector. Our unique dataset makes this the first research to explore the impact of industry concentration and government incentives such as product-subsidy on R&D activities and intensity for SMS and large units using Cragg double-hurdle model and Heckman selection model, while accounting for other firm-level characteristics. Findings indicate that while overall R&D spending and activity levels are on the rise, though R&D intensity see a declining trend. Notably, SMS firms demonstrate higher R&D intensity in both low- and high-tech sectors compared to larger firms, though their intensity have been dwindling in the wake of pandemic, especially in high-tech industries segment. R&D spending in pharmaceutical industry now accounts for more than half of the overall organized manufacturing sector’s R&D, while the recent decline in R&D spending within the motor vehicle industry is concerning. The double hurdle regression analysis shows that larger firms, those with foreign capital, and those in high-tech industries are more likely to engage in R&D and invest more in it. Factors such as firm age and location in high industrial activity concentration areas also significantly influence R&D investment. Although the product subsidy coefficients were positive, they were less significant in impacting the R&D engagement likelihood, suggesting that while subsidies can support R&D, their direct impacts are often limited. However, firms receiving subsidies on a larger number of products experienced a significant positive influence on their R&D activities. For SMS firms, the results indicate that they may benefit more from subsidies and technology imports, pointing towards potential policy interventions to enhance their R&D efforts.