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Monday, October 28, 2013

GFR (General Finance Rules) and Innovation Promotion

In 2007 World Bank released a report `Unleashing INDIA’S Innovation’ and question thus arose;  where is the `leash’?  Is it low budget or structural holes or mind set?

It is common refrain to say that only 1 in 8 of innovations make money in the market. For government departments, the accounting treatment of failed innovations is governed by the rule book GFR. Unfortunately despite a series of announcements including INDIA INNOVATION DECADE, the GFR has not been updated to stimulate risk investment by Government. The GFR condition amended in 2005 says:

Ministries or Departments of Government sponsor projects or schemes to be undertaken by Universities, Indian Institutes of Technology and other similar autonomous organizations such as ICAR, CSIR, ICMR,etc., the results from which are expected to be in national interest. Normally the entire expenditure on such projects or schemes including capital expenditure, is funded by the Ministry or Department. The funds released for such projects or schemes in one or more installments are not treated as grants-in aid in the books of the implementing agency. Apart from the requirement of submission of technical and financial reports on completion of the project or scheme, a stipulation should be made in such cases that the ownership in the physical and intellectual assets created or acquired out of such funds shall vest in the sponsor.

R&D Grants to Industry
There is no provision or bar on funding R&D projects or innovations by commercial organisations. History of R&D funding will thro light on this.

DSIR was the first to provide R&D grants to Industry under TAAS (Technology Absorption and Adaptation Scheme). This is influenced by the Japanese Model, where initial technology was imported, absorbed and improved. MITI moulded the program in Japan, the Indian version TAAI taken up by DGTD was resisted by industry due to conditions on PMP (Phased Manufacturing Programme) to improve local content during the initial 5 years of license. To motivate industry to take up technology absorption , DSIR came up with TAAS and R&D grants were given to over 30 Public Sector Firms. GFR does not differentiate between Public Sector or Private sector and this decision to restrict funding to Public sector was primarily to play safe.

With liberalization and globalization, the focus shifted to new product development. The literature is supportive of government initiatives to support commercial firms at pre-commercial stage of R&D and WTO also approved this subsidy. DSIR started PATSER as conditional and matching grants scheme, attracting private capital to R&D and at the same time not penalizing them for R&D failures. More than 150 R&D projects were supported under this program and majority of the executing agencies were private firms developing proprietary technology. Similar programs taken up by TIFAC, DOE ran into rough weather as they were loan schemes with no provision to write off failed Research.

New century shifted focus again , this time to creativity, innovation and incubation. New ground was covered under TePP as network program with slots to support idea at different stages. Read: PPT on Freedom to perform in Government-case of TePP . 

Is GFR the leash that confined India to a narrow circle of achievements?
  • ·     Under the same GFR, DSIR started TePP and PATSER programs giving grants to commercial firms for R&D at pre-commercial stage.
  • ·         Under the same GFR, TDB started giving time much larger amounts to commercial firms as soft loans at Commercial stage.
  • ·        Under the same GFR, TePP started giving small but significant grants direct to innovators for proving their novel ideas at concept stage.
  • ·         The amount spent by Government of India on private R&D and Innovation is less than the R&D cess collected from Industry for technology transfer.
  • ·         The grant amount is a tiny fraction of revenue foregone (Rs 6330 crores) by Government by way of fiscal incentives ( Deduction/weighted deduction for expenditure on scientific research (section 35 (1), (2AA) &(2AB))

·      It is good if GFR is amended to keep with the times, even otherwise the precedents created should form the base to charge ahead with conviction..

1 comment:

Satish Thakur said...

Respected Sir,

Congratulations & Thanks a lot for disseminating such valuable information.

Regards & Best Wishes,