Private Sector in Scientific Research in India
The private sector investment in scientific research and development in India has been abysmally low at only 25% of the overall expenditure with the remaining 75% coming from the government. In terms of proportion of GDP, the overall scientific R&D expenditure is only about 0.9% of GDP which is quite low compared to the 1.5% in China and 2.7% in USA. The reasons for low involvement of private sector in scientific research lies in the nature of private sector in India, which is mainly in the small and medium scale bracket, as well as the lack of government incentives for private companies to invest in R&D.
India has the 2nd largest number of small and medium enterprises (SMEs) in the world. They employ 40% of India’s workforce and contribute to 45% of manufacturing sector. Most of these firms prefer to continue as SMEs because of the incentives such as subsidies or tax benefits for SME-industries. An undesirable outcome of such behaviour is that these firms are unable to make high profits because of lack of economies of scale and thus have negligible funds to invest in R&D activity to improve their products.
An international comparison of private sector funding of R&D activities also shows India in poor light. For instance, the European Union’s R&D programme in 2008 relied 55% on private sector’s funds. In 2007, of the entire amount spent in Japan, 77.7% was bankrolled by the private sector, and in the US, 67.3% was funded by the business houses. In India’s context, it is very important that the private sector increase its contribution to research funding as the government looks to reduce its fiscal deficit substantially to 3% of GDP from the current 4.6% in next 2 years, which will limit government’s capacity to spend funds on R&D, in the wake of its commitment to finance large number of social sector schemes.
In the light of such realities, the 12th Five Year Plan aims to increase investment in R&D to 2% of GDP by the end of Plan period, out of which 1% should be financed by the corporate sector, including the PSUs, and balance 1% from public funds.
Currently, our large PSUs contribute very little from their annual revenues towards R&D activity. They should be incentivized through tax exemptions, etc. to increase R&D spending to 2% of their annual sales. This should not just be for in-house R&D, but they should also fund R&D in research institutions and universities, both public and private.
Even the large private corporate houses should be encouraged to set up in-house R&D centres similar to ones established by global firms such as IBM, Texas Instruments, GE, Motorola, etc. These centres can attract the best of scientists and technologists from India and abroad, thus facilitating greater interaction between Indian them and closing the gap between India and developed countries in terms of technological and scientific capability. The Government can play a facilitating role by enable these centres to come-up at suitable places in the country.
Facilitating greater interaction between industry and national R&D centres can help the flow of funds from industry to R&D activity in these centres which might lead to better and newer products and services. For this, developing a workable protocol for facilitating interaction amongst these players is important. This would cover a range of issues, from the nature of the regulatory framework and the facilitation of foreign direct investment (FDI) in related R&D activity.
Furthermore, the policy constraints or other reasons for low level private sector participation in scientific research can also be analyzed industry wise. The Indian pharmaceutical industry invests very little in R&D as its main focus is to manufacture generic drugs which require mainly copying the chemical molecule from the branded drug. In the biotechnology sector, majority of the research is done in public R&D centres. Research on genetically modified crops that was going on in a few private companies has also dried up due to the uncertainty regarding permission for field trials in India. The food processing industry is primarily filled with small scale firms which don’t have the resources to invest in R&D although there is a dire need of R&D in product development, food-texture, mouth-feel, smell, colour, packaging etc. for making export-quality processed food.
The 12th FYP has set ambitious targets for private sector funding in R&D. To make sure that the targets are achieved, the main role is that of the government to incentivize the industry to invest more in this sector and convince them of the long-term benefits that it will bring to their business and the nation.
Question:
The private sector in India has a very limited and insufficient role in scientific research. Discuss throwing light on various policy constraints and bottlenecks.
