Global product development consultancy Zinnov report growth in India's R&D industry of 23% per year. Currently worth US$ 9.35 billion, they predict 2012 value of US$ 21.4 billion.

Rising costs but still competitive

With tech multinationals responsible for circa 60% of R&D work, even with increased local salaries - 16% average annual rise over last three years - there are undeniable outsourcing cost advantages. Total cost of employing a full-time Indian engineer ranges between US$ 35,000 - US$ 55,000; the US average is almost three times that amount.

Higher value, more specialist work

Yet growth isn't fuelled by cheaper labor, quality is improving, the type of work is shifting from low complexity, low value product testing to complete ownership R&D product development. Drivers of change include:

• 'Democratising' technologies - including SaaS, SOA, Open Source and Cloud - leveling the international R&D playing field.
• Returning expatriates, estimates suggest 30,000 developers have returned to India from the US over recent years.
• Improved local graduate 'talent pool' due to a decline in graduates relocating to the US.
• Maturing domestic market, one-third of Bangalore's 80,500 engineers working in foreign owned R&D centres have 7-15 years experience.

Intel and Nokia increase R&D investment

Intel recently provided evidence of this paradigm shift, launching the Xeon Processor 7400, first mass-market microprocessor developed exclusively in India, Praveen Vishakantaiah, president of Intel India commented, "It's not just services and software that India is known for... you can also do this kind of complex research and development and product design here in India".

Having expanded India R&D activity in 1999 in a bid to cherry-pick top university talent, Nokia is set to double - to US$ 300 million - its direct venture investment fund in an effort to back and benefit from Indian and Chinese technology start-ups. In addition to financial return they seek new complimentary technologies.

Home of 100 global companies

At India R&D Conference 2007, Prime minister Dr Manmohan Singh stated, "We take satisfaction from the fact that over 100 global companies have come to India to set up R&D Centres". As finance minister in the early 90's, Dr Singh helped establish Software Technology Parks to promote innovation. Bangalore was the first to benefit by providing incentives to IT companies, including Microsoft to locate there, they continue to benefit - foreign entry has led to an 83% literacy rate compared to 65% national average.

Pharma focus on original products

Innovation is in evidence elsewhere, Indian pharma is getting in on the act. Tighter patent legislation and increased US litigation means increased R&D investment - Glenmark recently received US$ 150 million from Forest Laboratories and Tejin for an original product - more is expected. In addition, today saw India and the EU agree to cooperate in civil nuclear research and development at the end of the ninth India-European Union Summit in Marseilles.

With increased skills, experience and US patents awarded to Indian inventors (up fivefold since 2000, to 550 a year) India looks set to move up the innovation ladder.