It is well established that Research and Development (R&D) activities play an important role in productivity and growth of industries. The decision to allocate funds for R&D activity is a crucial one for any firm and is influenced by many factors that include market structure, nature of the product, performance of the industry etc. As the outcome of the R&D activity is uncertain and involves risk, industries that are averse to risk tend to invest in adaptive R&D activities. This is generally carried out through the import of known technologies and adapting them to suit local needs. Innovative R&D, on the other hand, is reflected by the number of patents filed and/or granted and is usually import displacing.

This paper investigates the nature and determinants of selected Indian industries in a period when the liberalization of the Indian economy was well under way. The results show that while there was steep rise in R&D activities after the liberalization package introduced during 1885-86 period and more extensively during 1990-91 period, much of in-house R&D activity turns out to be adaptive in rather than innovative in nature. The determinants of R&D in different industry groups differ a lot indicating that the decision to undertake R&D is industry specific. Nevertheless there are some variables, which show similar impact on R&D decisions.