To become self-reliant, invest more in research and development
India has had a reputation about its ability to thrive on “jugaad technology”, which can be loosely translated as innovative solutions that get around the rules. This needs to become a story of the past now. For India to evolve into a self-reliant economy, the importance of investment in research and development (R&D) is critical in this new decade. Despite efforts, the gross domestic expenditure on R&D as a fraction of Gross Domestic Product (GDP) has declined from 0.8% in 2010 to 0.6% in 2018. It has been hovering around this level for more than two decades. This pales in comparison to the
R& D investments in developed countries such as Japan (3.2%), Germany ( 3.0%), the United States (2.8%) and developing ones such as South Korea (4.8%) and China (2.2%) in 2018. Most R&D expenditure in India comes from the government. This is unfortunate.
High expenditure on R&D correlates with high technology exports. India’s share in high technology exports stands at 9.1%, while for China and South Korea, it is 31.4% and 36.3%, respectively. To move up the manufacturing value chain and enhance competitiveness, there is a need to increase R&D expenditure in sectors that are import-dependent.
Though many international firms have set up R&D shops, utilising the talent pool at a lower cost, Indian companies have failed to keep pace with this development. The increased need for R&D creates opportunities for financing its expansion. This will lead to augmenting exports and also reduce the country’s dependence on R&d-related product imports — something that can make the trade deficit more manageable. In fact, according to the government’s Invest India report, each $1 million invested in R&D in India per year by multinational corporations (MNCS) is likely to generate a demand for around eight to 10 researchers.
In this context, the Reserve Bank of India (RBI) and the government may consider setting up a credit facility solely for investments in R&D in industries in which India requires import substitution. The initiative would provide lending at rates lower than the prevailing repo rate for 10 to 12 years to finance investments that create technological and production capacity in R&d-intensive sectors.
To further ensure greater access for the R&D sector, the government can consider a sub-category under the priority sector lending (PSL), which will boost access to finance. However, there should be clarity on the list of industries to be covered to ensure that benefits are not skewed to select ones only.
India has always been found lacking in terms of academia-industry linkages, a bedrock in developed economies. Private-public partnerships aligned with national innovation and industrial strategies such as China’s Industry-research Strategic Alliances, Canada’s Strategic Network Grants, the Netherlands’ Top Sectors, Germany’s Innovation Alliances, Israel’s Magnet Consortium, and France’s Strategic Industrial Innovation Programme are all worth looking into.
The government should also set up a mechanism wherein the grants received by central universities and technology and management institutes are linked to their collaboration with the public and private sectors and designed to produce concrete outcomes, not just cooperation agreements on paper.
Economies worldwide have graduated in the production chain from low- and middle-technology exports and have been focusing on R&d-related high technology exports, which bring in greater foreign exchange earnings. In fact, Samsung’s global R&D spending in the first nine months of 2020 hit a record high of $14.3 billion and was equivalent to 9.1% of its sales amid the Covid-19 pandemic. This demonstrates the importance such firms give to R&D.
India needs to show flexibility and offer differential treatment to Indian companies in the form of tax incentives, uninterrupted support, and stringent supervision. The forthcoming 2021 budget could possibly be just the right moment to support R&D in the backdrop of the central government’s Aatmanirbhar Bharat initiative.