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

Indian Researchers in Commercial Space- nominations open.

Competitive India is built by commercial firms with thousand of R&D persons developing products competing with resource rich global firms. Indian Innovators Association plans to bring out a compilation of those researchers behind the scene.

Nominate them and give them recognition due to them.

Improving Technology Commercialisation- strategy papers from India and USA

Towards close of 2018, we see two important strategy papers. NITI Aayog released paper titled- Strategy for New India. NIST released paper titled- Return on Investment Initiative forUnleashing American Innovation. Commercialisation of technology developed in universities with public funding is one of the issues.
What India says
“Lab to Land” time is too long. Renowned public funded institutions like the Council of Scientific & Industrial Research (CSIR), Defence Research and Development Organization (DRDO), Bhabha Atomic Research Centre (BARC), Indian Council of Medical Research (ICMR), Indian Council of Agricultural Research (ICAR) Indian Space Research Organisation (ISRO), Indira Gandhi Centre for Atomic Research (IGCAR) etc., along with prominent universities across the country, have developed many frontline technologies. However, the rate of transfer of these technologies to industry and for societal benefits is low. The major weaknesses of public funded R&D and technology institutions like CSIR, DRDO, BARC, ICMR and ISRO are their poor marketing skills and information dissemination. Some measures for enhancing technology commercialization by public funded institutions are provided below: 
1. Value addition centres may be set up in each of these institutions for (i) up-scaling technologies, (ii) improving technologies from Technology Readiness Level (TRL) 4 to TRL 6/7, (iii) demonstrating industrial scale pilot production, (iv) coordinating with investors to incubate entrepreneurs, (v) bridging the gap between industry and technology development teams, (vi) enabling formal technology transfer, (vii) enabling commercialization and marketing and (viii) providing technology support during production. 
2. DST should create a National Technology Data Bank in coordination with all publicly funded R&D institutions. This will provide a central database for technologies that are ready for deployment or under development. 
3.Public funded research institutions should consider shifting their focus to the development and deployment of socially relevant technologies in areas such as clean drinking water, sanitation, energy, affordable healthcare, organic farming, etc. These technologies have large potential for commercialization.
What Americans say:
Measures of technology transfer in the U.S. from 1996 to 2015 demonstrate over $1 trillion in economic growth and millions of new jobs. Critical technologies such as life-saving drugs, vaccines, and medical devices, the internet, global positioning system or GPS, and countless other innovations underpinning every aspect of the American way of life are traceable to groundbreaking work at Federal Laboratories, federally funded universities, and private sector R&D organizations. Removing impediments to effective technology transfer and collaboration will accelerate economic value creation. The PMA includes the Lab-to-Market (L2M) cross agency priority (CAP) goal, which aims to improve the transfer of technology from federally funded R&D to the private sector to promote U.S. economic growth and national security. The L2M CAP Goal is organized around the five strategies, which also serve as the organization for the chapters in this green paper: 
1. Identify regulatory impediments and administrative improvements in Federal technology transfer policies and practices; 
2. Increase engagement with private sector technology development experts and investors; 3. Build a more entrepreneurial R&D workforce; 
4. Support innovative tools and services for technology transfer; and 
5. Improve understanding of global science and technology trends and benchmarks.

Discussion
Indian strategy document is silent on engaging private sector. Can government funded institutes scale up technology from TRL 4 to TRL 6 without involvement of private sector?

India attracts USD 24 billion as R&D investment in 2015 from North America and Europe based MNCs

Asia becomes the top region for corporate R&D spend, according to the 2015 Global Innovation 1000 Study, from Strategy&, PwC’s Strategy Consulting Business. 
Report highlights:

•  In 2015, R&D spending by the Global Innovation 1000 increased 5.1% to $680 billion.
• Globalization increasingly becomes the norm , 94% of firms conduct R&D beyond just their home country,
•  Asia has become the top destination for corporate R&D spend in 2015, accounting for 35% of total in-region R&D, including both domestic and imported R&D. This places Asia ahead of North America and Europe, who dropped to third, in a complete reversal from 2007 when Europe was the previous leader.
• The U.S. remains the largest spender of in-country corporate R&D, with in-country (domestic & imported) R&D spend at $145 billion in 2015, up 34% since 2007. Imported R&D spend to the U.S., mostly coming from Europe, in 2015 is $53 billion, up 23% from 2007. Exported R&D spend in 2015 is $121 billion, up 51% from 2007, predominantly going to Asia where previously in 2007 it was going to Europe.
• The three largest industries for R&D Spend in 2015 are computing and electronics (C&E), healthcare and auto. In particular, healthcare is on track to pass C&E as the largest industry by R&D spend by 2019.
• The largest spenders by region have remained the same, but where they spend their R&D has changed . In 2015, almost half of all R&D spend came from North American companies, but only about a third of all R&D was actually done in North America. 
• R&D ( domestic and MNCs) in China increased by 120% (2007 to 2015) to $billion surpassing Japan's R&D spending of $50 billion. India's R&D spend at $28 Billion is higher than Southkorea $ 13 Billion, and Taiwan's $ 6 Billion.
• China’s imports of R&D from multinationals headquartered in other countries were $44 billion in 2015. The U.S. led in exports of R&D to China in 2015, accounting for 39 percent of inflow, followed by Japan (20 percent) and Germany (10 percent). Survey respondents cited proximity to a high-growth market as the top reason for moving R&D to China (71 percent), followed by proximity to key manufacturing sites (59 percent), proximity to key suppliers (54 percent), and lower development costs (53 percent). 
• Total corporate R&D conducted in India increased 115 percent between 2007 and 2015, to $28 billion. The growth was powered by R&D spending from other countries, which grew 116 percent. India, not surprisingly, is the largest global destination for software R&D. Multinationals that have moved R&D to India cite a variety of reasons for the move, and cost is often not the most important. “Our tech center in India gives us an around-the-clock capability to accelerate development work due to the time difference with the U.S'.  “The highest priority was access to technical talent that was in close proximity to regional customers. The fact that some of the labor is lower-cost was nice to have, but not a primary driver".
• USA based MNCs spent 43% of their R&D budget at home, another 15% in India, 15% in China, 9% in UK.

Technology Commercialization- I Corps Teams

Government funding agencies and research organisations have thousands of technologies, declared as ready for transfer to industry but the off-take is minuscule. Similar problem exists in other countries too and they addressed the problem in different ways. The experience of USA in promoting I-Corp Teams is interesting.
The objective is to identify NSF-funded researchers who will receive additional support - in the form of mentoring and funding - to accelerate innovation that can attract subsequent third-party funding. The purpose of the NSF I-Corps Teams grant is to give the project team access to resources to help determine the readiness to transition technology developed by previously-funded or currently-funded NSF projects. The outcomes of I-Corps Teams projects will be threefold: 
1) a clear go or no go decision regarding viability of products and services,
 2) should the decision be to move the effort forward, a transition plan for those projects to move forward, and 
3) a technology demonstration for potential partners.
What is importance of supplementary grant?
The tendency of researchers is to close the project, declare it as success and apply for grant to next project. There is little economic or academic interest in continuing work on so called completed project till clear go/ no-go decision is taken. CSIR tried this model but results were not satisfactory mainly due to limitation of taking all CSIR scientists into the team. PI not interested,  Entrepreneurial Lead and Mentors are in short supply. 
It is time to take up similar program in right earnest. Even if this does not lead to dramatic raise in license, the junk (from commercialization perspective) can be cleared.

DIPP discussion paper: Towards strong and meaningful university-industry collaboration and creation of sustainable competitive advantage in manufacturing - Missing links and way forward

The paper can downloaded from here.
Suggestions and recommendations made in this discussion paper are:
4.1.1 Targeted investments by Government in R&D projects of national importance over a reasonable horizon, say 5 years: 
4.1.2. Enactment of the Indian version of a law such as the one passed in Japan in 1998 for promoting the establishment of  technology licensing/ transfer organisations (TLOs) with authority to license some university inventions and to channel royalties back to the inventors, their laboratories and their universities.
4.1.3.Enabling stronger University-Industry collaboration through joint research and contract research in select universities.
4.1.4.Enactment of the Indian version of the Bayh Dole Act (passed in US in December, 1980) with a distinct Indian footprint which addresses the country’s concerns.
4.1.5.Introduction of utility model for promotion of incremental innovation, particularly in the SME sector.
4.1.6.Human resource development for strengthening the innovation eco-system.
4.1.7.Facilitating access of industry to environment friendly patents and other technology patents, particularly in manufacturing.

One wonders what is new in this. There is no shortage of reports in the country , the problem is not in diagnosis but in treatment. Some impulsive thoughts on these recommendations.

4.1.1. Targeted investment - who will do the targeting- Government departments , government funded labs? And industry role is limited to participation in high powered committees. One does not need committees to identify thrust areas, read Gartner reports or MIT reports or any other think tank. The question is what can government do thereafter. Government committees identifying thrust areas and government funded research institutes developing technologies in those thrust areas for transfer to commercial firms in old hat. The five year time frame is important but department approving a 5 year project would freeze all mile stones and output  prior to approval. The GFR and CAG would not be kind to mid term rethinking.
4.1.2. Incentives to Innovators. Technology Transfer Offices and incentives to innovators do exist in CSIR, IITs etc. NRDC  was started decades back, Intellectual Ventures is active in India and Government approved scientists/ researchers promoting technology ventures with their knowledge as sweat capital. The royalty earning of research institutes is so meager, forget about sharing windfall profits with inventors they cannot attend a meeting of AUTM without government support. 
4.1.3. industry-institute collaborative research: There are fiscal incentives and research grants made available to both institutes and industry. There is a ocean of literature on this- why incentives do not forge research links.
4.1.4. Indian version of Bayh Dole Act.- no recommendation on changes to be made to the proposed legislation other than a wish that it should be passed.
4.1.5, 4.1.6 and 4.1.6- Like 4.1.4 these are part of wish list.

conclusion: this paper has no substance of value, totally devoid of actionable recommendations.
Do you agree?

Global spending on R&D: 2014 forecast

The big news is that China spending on R&D could surpass USA by as early as 2020.
Leaving aside comparison with China, poor India's spending on R&D is not insignificant. In 2014 India is expected to spend $44 billion , that is same as that of U.K and much more than wealthy nations like Canada, Sweden, Netherlands, Australia and several times that of nations known for their innovation prowess like Israel, Finland, Taiwan,Singapore.
This raises issue on productivity/ return on R&D investment.

1. How is that despite spending 4 times higher than Israel, we have nothing to show in global market place?
2 .Even in research publications, Australia, Singapore and Taiwan are far ahead.

'Innovation without Research': Concept for comments

Framework of concept paper given below for comments. This deals with technological innovations.

a)    Corporate R&D started weaning away researchers from universities by offering better facilities and freedom. In-house research centers blossomed with hundreds of highly qualified and competent scientists and researchers working in frontier areas of Science &Technology. During the boom period returns on investment in R&D  was not an issue, firms spent a percentage of their turnover benchmarking the spend with industry average.

b)    Despite large budget and acclaimed outcome, many a time firm noticed they could not compete with fast moving players. Categorization into small r, capital D followed, proving space for catch up work. It is expected that capital D projects, smal duration projects aimed at bettering competition would derive strength from capital R work. The pool of competences developed with capital R projects could be harvested for both capital R and capital D projects, where the firm is the industry leader but also for capital D projects benchmarking competitors product in the market place, with faster response. Portfolio of R & D projects, all marshaled with internal resources was in order for many years.

c)    Sponsored research was always an integral part , researchers generally continued working with alumni institute. Strategic alliances was an acknowledgement of limitation of doing everything in-house and complex strategies evolved for managing strategic alliance with shadow teams, IP sharing , market segmentation etc. acquisition of start-ups for their IP was more smoother operation.

d)    Open innovation and crowd sourcing  was a disruptive practice, firms looked at the vast pool of global talent and shifted focus from ownership to access. The complexity of innovation challenges and multiple teams accepting those challenges call for redefining the contours of global stock of knowledge.

e)    Globalization had seen relative decline in competitiveness of OECD nations and most analysts agree the only way these nations can continue to save jobs is to invest in R&D. With the result, we had seen larger number of talented people working on commercial research than ever before in human history.

f)     The pipeline taking research to market bellowed at the research end leading to a jump in global stock of knowledge. Considering the large ownership base, it can be said this stock of knowledge is publicly owned. This worked wonders for crowd sourcing of ideas, innovation challenges.

g)    And this also provides an unique opportunity for catching up economies like India to improve their innovation score without proportionate increase in national R&D budget. India , a poor nation more on R&D than Australia, Finland etc. Historically , most of spending was by government for scientific and research projects. Whereas, the industry garnered market and developed technological competences based on imported technology. Thus there was a significant disconnect between government funded research institutes and commercial firms. Globalization and IT widened  the rift to disconnect of minds. Collapse of joint ventures ended the inexhaustible source of competitive technology with most technology suppliers setting up their own Indian operations. New generation entrepreneurs smelled better success in IT enable services and largest number of engineers today work in IT firms rather than assembly lines. The  so called Indian human resource strength ends  with students graduation , still Indian government continues to increase their budgets for research by government funded institutes, calling industry to take the fruits of that public spend.

h)    India is a large country needing jobs in all categories and there is revival of interest in manufacturing mainly due to market demand and IT players are looking for value addition beyond labour arbitrage.

Hypothesis 1

Indian government can get better returns by funding proposals in capital D category based on globally sourced capital R.

Hypothesis 2

India firms need to practice and learn to use Open innovation Platforms. 

White paper on stimulating private sector investment in R&D

Indian government allocates a significant amount of tax payers money in R&D, the XIIth plan provides an investment of Rs 1,20, 430 crores. Apart from criticism of poor returns on public investment in R&D there is always a plea that private sector should chip in to raise national investment in R&D. In this background, the joint Committee of Government and industry released report on measures to be taken to stimulate investment by private sector in R&D. The main recommendations are:

1. Redefine private sector R&D investment as per global norms and practices.
How much private sector spends on R&D? No one shows. The first recommendation is to get the facts correct.

2.Mandatory disclosure of R&D investment by Private Sector
How to get correct data? The 2nd recommendation seeks to make it mandatory for private sector to disclose investment in R&D. S&T departments is low in power hierarchy , do not have means to enforce this recommendation but CII hopefully would persuade their members to part with information.

3.Constitution of an Expert Committee for rationalization of Heads of R&D investment for direct
and indirect facilitation
Directly, private sector gets small R&D funding from government  but indirect benefits in the form of fiscal incentives are significant, estimated at Rs 6335 crores in 2012-13. The procedural complexity of these tax benefits led to new Indian ABC classification of research, Applied research, Basic research, Chartered accounts research. The third recommendation calls for rationalization and simplification. The effectiveness of fiscal incentives in attracting private capital to research has been debated for long. In the present atmosphere of scams, one cannot expect direct funding  but atleast the fiscal incentives can be announced for longer period.

4.Valuing IPR assets and Provide for demand pool for R&D outputs through provisions for public procurement:.
This is a non starter. Again S&T ministry cannot influence government decision on procurement by government agencies.

5.Build Technology Depth of Industry in Priority Sectors and usher an era of PPP R&D and Technology Deployments for providing technology solutions to National Priority Areas.
Prioritization in our democratic set up has proved be illusive. One can only hope that sooner than later plans will replace wishlists.

6.Incentives for commercialization on R&D:
Innovation is global where as research is local. Technology commercialization is possible when the structure for research proposals is dramatically recast, which seems unlikely in an environment where decision makers , experts and beneficiaries wear multiple hats.

R&D in India conference 2012, Mumbai

Yoogma Business services in association with TRIZ Association of Asia, Indian Innovators Association is organising this conference on R&D in India , 23-24th August 2012. The speakers include, 
KVSP Rao, Adviser & Head (RDI), DSIR, 
Dr T Ashokan, Chief Scientist, GE, 
Shree Padnis, TRIZ expert, SKF India, 
Araving Chinchure, Asst VP, Innovations, Reliance Industries ltd, 
Sujata Paranjape, Head (R&D) Siemens, 
Dr Rajiv Kumar, Chief Scientist, Innovation Center,Tata Chemicals ltd, 
A.S.Rao, 
Dr Sudhakar Mhaskar, Marico and 
Hongsug,Director, POSCO. 
Contact person: Norton Vaz

Indian technology licensee for Mosquito control left in the cold by regulatory authority

Rajagopalan in the current science narrates sorrowful state of technology transfer from Indian research institutes. The Vector Control Research Institute under Ministry of Health and Family Welfare developed bio-friendly Mosquito Control agent and with approval from WHO license the same. Now comes the shock- another agency under the same ministry , National Vector Borne Disease Control Programme (NVBDCP) rejects this product. Read: http://www.ias.ac.in/currsci/25mar2011/801a.pdf

National Health Research Policy- your comments invited on the draft

Draft of National Health Research Policy is placed in the public domain: http://www.dhr.gov.in/draft_nhr_policy.pdf 
E mail yr comments to lalitkant@icmr.org.in  or 
attend open house discussion on  25th Feb , 14.00 hrs in Room 301 (Conference Hall) at the Indian Council of Medical Research headquarters, V.Ramalingaswamy Bhawan, Ansari Nagar, New Delhi - 110029.

2011 Global R&D Funding Forecast

Forecast released by R&D Magazine. The global R&D total for 2011 will be $1.2 trillion as stability returns and globalization narrows the R&D gap between countries. China has overtaken Japan as the world’s second-highest R&D funder, but despite a lower-than-average predicted 2011 R&D funding growth rate at just 2.4%, the United States still leads all countries by funding one-third of global R&D. US is expected to spend about 405 $ billion, Japan 144$ billion, China 153$billion and India 36$ billion. India spends more than Canada, Taiwan, Australia, Sweden, Finland, Israel  etc . In Pharma development, US lead with 71% budget, followed by Germany (10%), China (4%) and UK (1%).

While setting goals for the past several years to increase its R&D to GDP ratio to more than 1%, its actual performance has seen a stable ratio over the past several years at 0.9%. Of this spending, 0.61% is attributable to government R&D investments, which have been increasing over the past several years. Industrial investments in Indian R&D have risen 10% over the same period. The current total target for R&D as a share of GDP is 1.2% by 2012. Also, India graduates almost twice as many college graduates each year as China. But only 2% to 5% of those graduates have basic vocational skills, compared with 96% in Korea, 75% in Germany and 68% in the U.S., according to Indian government reports. Similarly, only about 25% of the engineers graduated in India have the language skills, practical knowledge and cultural attitudes to work for multinational companies.

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