Why are Indian R&D Centers Closing Down?

Are the top tier private R&D organisations in India closing down their operations? Just look at the following data compiled by Biospectrum in its August 2015 issue 

• In January 2014, AstraZeneca announced the shutting down of its drug R&D unit, dedicated for neglected diseases, one of its kind, located in Bangalore.  
• In August 2014, Indian healthcare giant Piramal announced its decision to shut its Mumbai R&D unit.
• In 2015 Pfizer's Thane plant is shutting down its operations.
• Sandoz is shutting down its Turbhe R&D site in Maharashtra
• Merck has announced shutting down of its Bangalore Genei facility, recently.

Those who are familiar with the South Indian way of speaking English would have heard this expression – "what is happening, I say?!" (in typical south Indian fashion, ‘say’ pronounced with an elongation). That’s the question that comes to one’s mind as R&D centers shut down one by one. 

To set the record straight, Pfizer’s Thane plant was a manufacturing facility. Same is the case with Sandoz Thurbe plant which was manufacturing APIs. Others are all R&D units. This does not digress from the fact of R&D closures - Biospectrum has brought out an important issue. 

It is tempting to see these closing downs as random business operation and go on with business as usual. The numbers are far too many to lose sight of its significance. The R&D units that are being shut down are in pharmaceutical sector, a key driver of innovation. In pharmaceutical sector, it is R&D which determines the standing in the pecking order. As I discuss below, it might have repercussions in other areas. 

Way back in 2004, noted columnist Swaminathan S. Anklesaria Aiyar (Swaminomics), in his column in The Times of India, titled ‘R&D: India’s New Star Industry’, had pointed out the emergence of R&D industry in India. During the license permit raj there was no incentive to do R&D, he argued. The competition brought in by economic liberalisation in the 1990s made R&D is an essential tool to compete and survive. He warned the Americans who complain about call centers that they had not seen anything yet, as biggest American companies were setting up R&D centers in India; citing examples of setting up of R&D centers by General Electric, Microsoft, IBM, Cisco, Intel, General Motors, Astra Zeneca, Motorola , Texas Instruments. He predicted an R&D revolution in India and hoped with many other Indians for blooming of Indian R&D.

A decade later, it looks like Swaminomics has had to eat his words. Instead of bloom, we are witnessing a withering; we are witnessing a slow retreat by those who set up their R&D centers. And at the same time, some of Indian R&D companies are going abroad to set up their research facilities. Glenmark has set up an R&D center in Switzerland. This is a reason for worry about anyone who is interested in R&D and innovation in India.

In India, prior to the wave of MNC R&D centers cited above by Swaminathan S. Anklesaria Aiyar, R&D was done mainly in the public sector laboratories. The traditional Indian public policy approach on R&D was to create a golden handshake of public sector laboratories and private enterprises. Public sector labs were established to support R&D in the industry. In 1944, the then Government released ₹10 million (US$150,966) to set up National Physical Laboratory, National Chemical Laboratory and National Metallurgical Laboratory (NML). The stated objective was to develop industry in pre-independent India, and also to incentivize private firms to support industrial research. It worked; the objective was met. The Tata Trust promised to donate ₹1.17 million (US$18,000) to NML.  The government in its turn located NML at Jamshedpur, where Tata Steel is located. For many decades, and even now, NML provide world class R&D support to Tata Steel located at Jamshedpur. Two other laboratories Central Mining Research Institute(CMRI)  and Central Fuel Research Institute (CFRI), were set up to provide basic research, R & D back up, advisory services and help in technology upgradation and adaptation to coal and mineral based industries to reach the targeted production with high standards of safety, economy and cleaner environment. These two labs were later merged to create Central Institute of Mining and Fuel Research (CSIR-CIMFR). CSIR’s chemical laboratories have been the backbone of India’s generic industry and it has been acknowledged widely. 

The setting up of private sector R&D by MNC majors as pointed out by Swaminathan Ankaleseria Ayer was a qualitative shift, which acknowledged the research capability available in the country which could give competitive advantage to MNCs, globally. He wrote: “The biggest American companies are now setting up R&D centres in India. They are not coming for cheap labour in sweatshops. They are coming for India’s brains.” Indian education system had produced quality human resources who could produce world class R&D for MNCs. From a public sector dominated R&D, India was moving to private sector R&D, which, it was hoped would drive innovation and growth. This shift is getting reversed with dangerous portents. 

Those who are familiar with R&D and innovation knows very well that both innovation and R&D thrives within the surrounding ecosystem. The early movers into R&D centers have therefore taken extra pains to set up the ecosystem around them. For example, the Astra Zeneca research center at Bangalore created a drug discovery ecosystem around it. It was benefited by the scientific innovation ecosystem created by the Indian Institute of Science. This ecosystem enabled creation of Contract Research Organisations who do contract R&D for global majors. Shutting down of the research centers decimates the ecosystem that got developed. Repeated shutting down as Biospectrum has pointed out might irreversibly damage the ecosystem built up assiduously, with great effort.

How challenging is it to set up a new R&D center in India? If experience of some passionate ex scientists of Astra Zeneca is anything to go by, it is an uphill task, choked by bureaucratic stranglehold. Dr R K Shandil, Dr Sridhar Narayanan were with Astra Zeneca facility which was shut down. Passionate about discovering new drugs for neglected diseases, they founded a Foundation for Neglected Diseases Research, along with P Gopal Krishnan, a Chartered Accountant. After almost a year of its setting up, they are still running from pillar to post to get the approvals required to set up an R&D unit, a drug research facility for tropical infectious diseases which predominantly affect India. Will we ever learn to make it easy for people to do business, even if our Prime Minister himself wants it? Luckily scientists are optimists and they are still at it. But when decisions are taken on business considerations by MNCs, luck plays very limited role.

The Prime Minister of India gives considerable importance to developing manufacturing facilities in India which will create jobs, through his 'Make in India' campaign. Make in India requires extensive R&D. The shutting down of R&D centers does not augur well for the make in India campaign. Policy makers need to realise this.

The much acclaimed human resources (‘brain power’ and research capability) still exists in the country. Indian minds are driving innovation in many parts of the world. Then, why are these R&D centers are shutting down? The reasons have to be systemic, and goes far beyond the availability of skilled human resources. These reasons are definitely large enough to obfuscate the human resource and cost advantage that India enjoys. Our policy makers need to find the real reasons and take quick corrective measures.