On the 75th Independence Day, the Prime Minister had expressed his desire to see India as a developed country by 2047. To achieve this goal, the Indian economy must grow rapidly across sectors and particularly in the manufacturing and service sectors. One of the enablers towards this goal could be a special focus on innovation.
As part of its several measures to promote the innovation ecosystem, the government set up the National Research Foundation (‘NRF’), with a fund allocation of ₹50,000 crore, to be spent over a period of 5 years. As per the Anusandhan National Research Foundation Act, 2023, NRF will be an umbrella body that will fund research across a range of disciplines, from science and technology to humanities.
India’s spend on research and development (R&D) is around 0.7% of its GDP which in comparison to developed economies such as the USA (3.45%), Japan (3.26%), China (2.4%) and Germany (3.14%) is on the lower side. However, this also must be seen from the perspective of contribution — the government has contributed two-thirds of the spend, as compared to other economies where governments contribute only a quarter of the spend while the balance is made up by the private sector.
With general elections round the corner, the forthcoming Budget will not be a full one, but it may not be a muted one either. While it is expected that the government may not introduce major policy changes in this Budget, to continue with the pace of the economic growth and to increase competitiveness in the high-technology manufacturing sectors such as semiconductors, medical devices, defence, etc, the government should consider allocating additional funds towards R&D.
Under the ‘Make in India’ initiative, while the government focused on promoting manufacturing in India, investing in R&D is also crucial to facilitating development of advanced manufacturing processes and technologies and reducing dependency on other countries.
While tax incentives such as the patent box regime and tax deductions are extended to encourage innovation, there are not many takers. One of the reasons could be the need for obtaining approval from the Department of Scientific and Industrial Research (DSIR), without which companies may find difficulty in accessing funding schemes from government or other bilateral funding programmes.
The current patent box regime has a limited scope and does not cover other IPs like know-how, copyrights, designs, trademarks, etc., (like Ireland, China, etc.) and extending concessions to subsequent owner (transferee) of the patent (like Ireland, Netherlands, etc.) and not restricted to the first inventor of the invention, as in the extant law.
In addition, the extant patent law does not permit patenting of innovations in software per se, unless they are combined with hardware. Hence, the Information and Communications Technology (ICT) sector, though is the largest in terms of R&D and in terms of FDI inflows, has a very low share in the patents granted in India as R&D in software alone is not patentable.
The government should take a closer look across various laws on areas impeding the innovation ecosystem and consider bringing in suitable amendments to facilitate the needed impetus to the R&D sector in specific and for the manufacturing sector in general.
As per the Economic Survey, India has emerged as a global powerhouse for Engineering R&D (‘ER&D’) and innovation and is committed to ushering growth and innovation for global enterprises. Many global capability centres (GCCs) in India are increasingly performing complex R&D functions, are leveraging futuristic technologies, and developing digitally innovative products.
To encourage diversification of GCCs into tier 2 and tier 3 cities and create job opportunities, certain specified areas can be identified as Innovation hubs (such as GIFT city for financial services). These hubs can enjoy the status of a free trade jurisdiction with preferential tax rates, duty benefits and ease of doing business and foreign investments (like in China, Luxembourg etc.). The above measures may be undertaken by the government to promote innovation as a service catering to the global market.
Existing educational/research institutions have set up research parks with government aid to foster growth of innovation in the country, which has its own limitations in terms of experimentation and innovation. This gap can be bridged by creating an environment for collaboration between industry and academia which can facilitate private funding of these institutions to experiment with ideas and implementation relevant to the current requirements. Such collaboration will help in retaining technocrats within India, thereby reducing reliance on foreign technology and innovations.
As the Prime Minister said “Innovation is life. When there is no innovation, there is stagnation”. While the government has shown its intent to promote R&D in India, introduction of the above measures would provide a strong push to the sector and enable the country to strive towards greater heights.
—The author, Ananthapadmanabhan S, is Partner, Deloitte India. The views expressed are personal.
