R&D spend — golden intervention or smoke and mirrors

The government needs to spell out, among other things, how it plans to select the beneficiaries of its ₹1 lakh crore corpus for private sector research and innovation

Updated - February 09, 2024 02:06 pm IST

Published - February 09, 2024 12:08 am IST

‘The question of whom the funds are for is very important’

‘The question of whom the funds are for is very important’ | Photo Credit: Getty Images

The announcement by Union Finance Minister Nirmala Sitharaman, in the interim Budget, that “A corpus of rupees one lakh crore will be established with fifty-year interest free [loans]” to provide “long-term financing or refinancing with long tenors and low or nil interest rates [to] encourage the private sector to scale up research and innovation significantly in sunrise domains”, is worth examining.

The private sector’s contribution to India’s overall research and development expenditure as a fraction of GDP has been low. In 2020-21, the private sector industry contributed 36.4% of the national gross expenditure on R&D (GERD), with the Centre (43.7%), State governments (6.7%), higher education (8.8%), and public sector industry (4.4%) accounting for the rest. In the same year, the overall amount was ₹1.27 lakh crore, so 36.4% comes to about ₹46,366.66 crore.

Some experts have invoked these figures alongside comparisons to the case in the world’s extant science ‘superpowers’, such as the Germany, South Korea, and the United States, where the private sector contribution as a percentage of the national GERDs is 67%, 79% and 75%, respectively.

There are questions worth asking here about why private sector contribution needs to lead its public sector counterpart and whether the split of the GERD contributions from government, private entities, and higher education in economically developed countries is some sort of benchmark. It is also notable that India’s expenditure on R&D has been increasing in absolute terms, from more than ₹1.1 lakh crore in 2009-10 to ₹1.27 lakh crore in 2020-21, but as a fraction of GDP, it has been declining steadily in the same period, from an already sub-par 0.82% to around 0.64%. In the more technologically advanced countries, GERD accounts for at least 1% of GDP. Even Brazil (1.16%) and South Africa (0.83%) have a higher GERD-to-GDP ratio.

The question of the virtue of hiking the public sector’s R&D contribution is important because it is rooted in India’s development model and the purpose of technological innovation in it. For example, the post-war U.S. famously adopted Vannevar Bush’s “free play of free intellects” model in which fundamental research was expected to spur technological growth.

On the other hand, Japan, South Korea, and some other economies tread a “techno-nationalist” path from the late 20th century, focused “on building interconnectedness among universities, research institutes, companies and governments,” as Moumita Koley and Ismael Rafols wrote in “National Research Foundation’s chance to bridge India’s science-society gap” (The Hindu, September 24, 2023).

Innovation’s purpose has expanded

Today, the purpose of innovation has expanded from economic growth to include environmental justice and sustainability. Given widening income gaps, declining protections for environmental rights and resources, and increasing privatisation of education, health care, and other public goods, there need be no implicit virtue in private-sector contributions to R&D leading the way, especially in the absence of policy and regulatory guard rails that keep growth equitable. Innovation happens over decades and is risk-laden, both of which the state is designed to steward better.

In the same spirit, public sector R&D expenses need to increase especially at the State level, if only to improve the quality of research facilities at State universities that are in turn tied to the freedom researchers have to work on more locally relevant problems. Expenditure also needs to increase to the extent that, with suitable policies, it relieves the persistent bottleneck of research graduating from the lab bench to the factory floor. Innovation is of little value without this flow, and will be restricted to low-quality advancements.

A catch

All this said, private sector contribution does need to increase considering the focus and incentives India has conferred on technological prowess in the last decade. And the availability of a corpus of ₹1 lakh crore and long-term low-interest loans is a lip-smacking prospect.

But there is a catch: the question of whom the funds are for is very important. Both private sector investment in R&D and its sluggish increase span multiple domains, including telecommunications, health care, finance, transport, and space flight. They will all be making plans for this money. Ms. Sitharaman maintained a focus on “sunrise sectors”, and even they number a dozen. By virtue of being ‘sunrise’, almost all of them are resource-intensive, and we must also ask how much it will cost to keep them climate-friendly.

As such, ₹1 lakh crore — or a little over $12 billion — is likely to be a pittance if innovation in any sunrise domain is to be meaningful beyond surpassing some fraction of the national GERD. For example, according to the Indian BioEconomy Report 2023, prepared by the Biotechnology Industry Research Assistance Council, helping startups transition from bioeconomy research to biomanufacturing would require an infusion of $2 billion.

With so many demands on the corpus, the government needs to define what it is expected to achieve, whether it will have domain-wise allocations and targets, and time frame; and how the government intends to select beneficiaries and whether the corpus will be replenished. It would be unfair to dismiss it at the outset, but the answers will mark the line between golden intervention and smoke and mirrors.


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