A COMPREHENSIVE STUDY ON ROLE OF TAX INCENTIVES IN PROMOTING R&D IN THE COUNTRY (INDIA)

This report is the outcome of the project commissioned under the National Science and Technology Management Information System (NSTMIS) scheme on International Advanced Research Centre for Powder Metallurgy and New Materials, a DST institution located in Hyderabad. Shri K.V.S.P. Rao, ex-Scientist-G & Head-RDI Division in the Department of Scientific and Industrial Research is the Principal Investigator for the project and Dr Sanjay Bhardwaj, Head, Centre for Technology Acquisition and Transfer, ARCI, Hyderabad is the Co-Principal Investigator for the project.

10. Conclusions and Recommendations 

10.1. Conclusions • The industrial R&D has shown significant growth over the years, Indian Industry has gained technological competence and has played a pivotal role in accruing significant economic benefits through R&D efforts. • The Industry has responded with remarkable growth rate in R&D expenditure, increased turnovers and making a niche in the Global R&D scenario. It has also provided significant benefits in terms of employment generation, better healthcare, reducing environmental pollutions, energy utilization. • Based on the data studied, it is observed that duty exemptions and weighted tax deductions over the years has helped the growth of in-house R&D units. • Many foreign companies are still interested to take the benefits of the incentives but removal of weighted tax deduction has discouraged them while taking investment decision on R&D in India. • The Joint Committee of Industry and Government of India in its report made in May 2013, recorded that the current R&D incentives, 200% Weighted Tax deductions offered by the Government of India is one of the best in the world already. The report also suggests- while retaining the current direct and indirect fiscal incentives, some rationalization for covering the entire value chain of industrial R&D and technology commercialization may be examined and simplification and rationalization processes enacted.

Schemes and programmes to enable R&D as a source of revenue generation may be announced for the benefit of the industry. Such companies create good R&D infrastructure to carry out R&D work for its translation into industrial production with innovative business models. This also helps in monetisation of the R&D efforts. • India is gradually progressing in its R&D efforts. The current incentives have helped the industry in boosting the R&D investments in the country. The R&D expenditure by companies have grown over the years, however, for the R&D to have a substantial growth, more private funding in R&D is still needed. • The R&D units have developed products and technologies for manufacture of world class products. Due to the Automobile boom since 1990s many Japanese, German, US, and British manufacturers have established their manufacturing units in India taking advantage of the highly competitive automobile component industry. Even luxury automobile manufacturing companies from Europe and USA started their units in India. To compete with them, Indian companies have also expanded their manufacturing bases and R&D units all over the country. • A similar trend was seen in pharmaceuticals including bulk drugs, intermediates and APIs. Huge investments were seen in the R&D units with an eye on export markets. USFDA approval was also given to many companies indicating their superiority and competitiveness at par with global companies. Emerging areas like biotechnology products for healthcare, industrial products and services have also sprung up in medium scale to small scale levels. MNCs have also established their manufacturing units independently and as joint ventures with Indian companies.

It is therefore time to review the policy on fiscal incentives for industrial research and development and reintroduce incentives in a selective manner especially for those sectors which are still in the growth phase. • Companies with large spends on R&D have, no doubt availed fiscal incentives and benefited the most across all the sectors. Even though small and medium companies have also availed the benefits of fiscal incentives, there are many more firms whose expenditures have not been much as their R&D budgets are quite low. The 100 larger companies have spent amount of Rs. 3685600 lakhs of which 74 companies, spending above Rs.100 Cr, have spent an aggregate of Rs.3459700 lakhs. If we take the average spending of companies incurring more than Rs.100 crores on research and development, it works out to the order of Rs.474 crores per company.

Details : KVSP RAO, kvsp13@gmail.com

Vaccine policy USA and India

 

The US is considered to be the home of the most virulent form of capitalism. This could be seen in the pride of place accorded to private sector enterprises in that country, and it is also Extract from Sunil Mani article:

The home of some of the largest and most innovative companies in a range of industries. In the area of medical R&D in general and in the development of vaccines, the federal government in the US has worked very closely with the market. What they did is easily visible from a range of instruments that the federal government has invoked to jump-start the R&D and production of vaccines for a new and unknown disease. A survey of these support instruments reveals that they have tried out every tool of state support available in the book. But the most important of which is the importance that the US has given to fundamental research on vaccines, which eventually helped it develop highly effective vaccines within a brief period. The US has now gone a step further in assigning a greater role for the government, even applied developmental research. This has manifested in the senate passing a new bill called the United States Innovation and Competition Act of 2021 in June 2021. This is an essential lesson for countries such as India that it must support basic research on vaccine development in one of its numerous public laboratories. The second lesson that the US case has for us is the prime importance of involving the public sector. In the US, this is confined to the performance and finance of R&D itself. In the case of India, the public sector must be involved not only in the performance and financing of R&D but also in the manufacturing of vaccines as considerable installed capacity exists in the industry.

Further, the public sector laboratories and institutes have a long history of manufacturing and supplying high-quality vaccines. They must be involved in vaccine production for COVID-19, even if it is only in the long run. In other words, the public and private sectors must complement each other. The government can play an essential role in crafting the sectoral system of innovation of the COVID-19 vaccine industry, just like what the US has done it already. The third lesson for India is that the state must play an active and timely role in improving the availability of critical inputs for manufacturing and distributing vaccines in an industry whose value chain is globally distributed. The three issues indicate a more significant role for industrial policy than what is practised on an ad hoc basis now. Recent events and discussions have shown that a historically free-market-oriented economy such as that of the US is finding much relevance for a more significant role for industrial policy. In comparison, a historically state-directed economy such as India seems to be moving towards a more substantial role for the market with potential adverse consequences.

Further reading: https://www.epw.in/journal/2022/48/special-articles/role-industrial-policy-market-friendly-economies.html