A recent paper by NITI Aayog’s Frontier Tech Hub called for a 10-year vision on research and development (R&D) in India. While correctly assessing known issues like paucity of vision, investment, ecosystem etc., it only superficially addresses a critical gap in India’s R&D scenario – the limited participation of private sector. Compared to other economies, the shortfall in India’s private R&D is glaring. Private sector accounts for a majority of the R&D expenditure (RDE) in the US (70%), EU (57%,), and China (79%), where it also executes a bulk of government-financed R&D. In contrast, private RDE in India remains at a subdued 36% of the national RDE. As a percentage of GDP, private RDE in the US, EU, and China is four to eight times higher than India. Arguably, the much-cited deficit in India’s RDE-to-GDP intensity is almost fully attributable to the private sector as India’s government spending on intra-mural research (0.32% of GDP) is comparable with US (0.29%) and China (0.37%). R&D activity is markedly muted among private Indian entities. Only half of the top 1000 listed companies in India reported any RDE in FY22-23 and only around 15 Indian companies feature in the top 2000 global R&D spenders as against 681 American and 524 Chinese entities. RDE by Indian firms as a proportion of their net sales is less than a fourth and half of the US and global averages respectively. The spending is also skewed by size, sector, and ownership.
The highest 20 spenders amongst the top 1000 listed companies account for 71% of the total RDE. Three sectors (pharmaceuticals, IT, and transportation) contribute nearly three-fifths of the aggregate private RDE. American companies featuring among top 2000 global R&D spenders cover 32 sectors, those from China encompass 33 sectors, while Indian companies span just five sectors. Nearly a fifth of India’s private RDE in India is by foreign companies with R&D units in India and not by domestic firms. Proxy metrics indicate that private RDE in India may also be sub-optimal qualitatively, although such performance is harder to assess as it depends on many factors like expenditure composition, research areas etc. For every million $PPP (public-private partnership) spent, Indian private firms produce approximately 0.102 resident patent grants, almost half of US (0.23). RDE per worker in Indian private sector R&D units is around 0.14 million $PPP which is lower than US (0.32 million) and EU (0.21 million), indicating lower resources allocation or, more concerningly, lower R&D value addition. India’s research spending also translates into far lower net R&D exports as a percentage of national RDE (0.08%) as compared to US (2.1%). Given these circumstances, any policy effort that does not centerstage private R&D activity will have limited success. India’s R&D policies should consciously promote a broad-based and vibrant private participation. Addressing the private sector’s reluctance towards higher RDE through engagement and incentivisation rather than obligatory mandates is critical. The market-shaping, competitive, and spillover benefits of RDE, and its impact on corporate bottom-lines, must be highlighted through messaging. Forums enabling broad representation of the private sector in R&D policymaking must be developed, starting with the co-creation of a national vision on private R&D through a new Board of Advisors on Science and Innovation. This should be supplemented by the establishment of a separate Satellite Accounts System for R&D and a National RDE Database to collate and disseminate quantitative and qualitative information on RDE. The central government should consider reinstating (or even expanding) the higher income tax deduction for scientific research expenditure that was decreased in 2020. Differentiated and outcome-linked incentives can also be offered for RDE in priority areas, academia-executed R&D etc. to shape research activities. Recognition of high-risk “step innovation” startups as a distinct category can be explored with incremental incentives for these firms and their investors, along with research service companies providing critical services like prototyping, testing etc. while not engaging in core research themselves. Such fiscal measures must be assured for a 20-year horizon to ensure certainty for long-gestation R&D activities. The government should review the extant system of public-funded extra-mural RDE to identify and expand opportunities for greater private industry participation, including preferential procurement from entities demonstrating a threshold R&D content. A comprehensive outcomes framework that balances public policy interest and private incentives must be formulated for such RDE, along with innovative leveraging models for the consequent intellectual property. Engaging smaller firms in R&D through industry groupings and consortiums and enabling greater technology absorption, in/out-licensing etc. is also imperative to ensure broad involvement and benefits. While formal structures matter, the diffusion of R&D comes from an ongoing exchange of people and ideas. Currently, the mobility of people between the government, academia, and industry is highly constrained. Systems, including project-based exchanges and research apprenticeships, which enable this movement can help build a vibrant R&D personnel ecosystem. Information systems to cross-disseminate needs and information across the ecosystem should also be created through a National R&D Information Clearing House. If employed to the fullest extent, private R&D can make a transformational contribution to growth and innovation and become the primary force multiplier for India’s prosperity. -The author, Mohitkumar Daga, is an independent public policy consultant. The views are personal.
