Impact Of R&D Policy On Indian Economy


The Science, Technology and Innovation Policy 2013 sets a target to increase R&D expenditure to 2% of gross domestic product, this through public-private partnerships. But, compared to China, where is the commitment to R&D? India’s innovation potential is grossly underutilised. The small and medium enterprises in the industrial clusters are yet to be effectively served by the formal R&D institutes. The universities as centres of advanced learning and research suffer from official neglect. There has been little effort to set up technology parks linked to them in their vicinity. Civilian R&D has, at most, tenuous links with strategic R&D (defence, atomic energy and space). With all these handicaps, will STIP 2013 help create a robust national innovation system?


There has been a growing sense of India falling behind in the race to use its scientific capabilities and of China powering ahead. “We produce more science than before, but several more ambitious countries like China and South Korea have outpaced us,” lamented the Science Advisory Council to the Prime Minister in a 2010 report titled “India as a global leader in science.” China’s investment in research and development has been shooting up at 20 per cent annually over the past 10 years. As a result, that country is currently spending about 1.7 per cent of its GDP on R&D and, in absolute terms, is being outspent only by the U.S.

The much awaited science, technology and innovation policy (STIP) 2013 was announced by the government at the centenary sessions of the Indian Science Congress held at Kolkata during 3-9 January 2013. Though the realisation had come a decade and a half late, we have now entered the “club” of advanced and a select group of emerging economies that have national innovation policies. The discourse on innovation after the declaration of 2010-20 as the “Decade of Innovation”, deliberations at the National Innovation Council (NIC) constituted in 2010, and public consultations called by the Ministry of Science and Technology, all seem to have had some bearing on the new STIP. Compared to the Science and Technology Policy of 2003, STIP 2013 is a step forward in attempting to forge the links between science, technology and innovation policy. In doing so, the policy has put forward some ideas and proposals.

The policy aims to enhance the private sector’s role in the national science, technology and innovation system through the public-private partnership (PPP) mode and thereby attain the target as regards total expenditure on research and development (R&D) of 2% of gross domestic product. Henceforth, the private sector will be treated at par with public institutions in accessing public funds for R&D via all research and innovation policy measures and instruments. The new policy will promote mechanisms such as a “Risky Idea Fund” and a “Small Idea, Small Money” scheme to capitalise on the existing proposals such as the “Inclusive Innovation Fund” of the NIC and the experiences of the National Innovation Foundation and Honey Bee Network in grass-roots innovations. Non-governmental organisations will be given a major task to deliver and diffuse rural technologies. The government intends to establish a new National Science, Technology and Innovation Foundation in the PPP mode to fund some ambitious projects.

There appears to be some focus on the demand side of innovation as well as in the linking up of agricultural R&D policy with national R&D policy. The policy seeks to increase the number of full-time research and development personnel by two-thirds within five years. It also seeks to increase publications from the current 3.5% of the global share to around 7% by 2020. Not only this, but the policy aims at increasing the publication record in the world’s top 1% of journals fourfold. Having laid some focus on innovation, and this being an innovation policy, it is rather strange that the document has nothing to say about improving our dismal record of patents. Implicit in the document is the underlying idea of a “linear model of innovation”. Whilst the new policy seeks to lay its fingers on a range of issues and sectors, there are some glaring missing links towards the making of a dynamic science, technology and innovation system.

Salient Features of STI Policy 2013

The key features of the STI Policy 2013 are

  1. Budget: Increasing the R&D spending to 2% in next five years’ time through PPP; creating conductive environment for encouraging private sector investment in R&D.
  2. Manpower: Promotion of spread of scientific temper amongst all sections of society; attracting talented and bright minds towards careers in science, research and innovation; increasing the number of R&D personnel by 66% in next five years; creating environment for women to enter in R&D field; and setting up inter university centres, bringing together different disciplines of humanities and science together.
  3. Business: Identifying 10 sectors of high potential and putting more resources into them for STI; increasing by two folds the global share of high tech products; increasing R&D intensity in service sector, small and medium scale enterprises; sharing the risk on R&D investments with private sector; providing new financing mechanisms for entrepreneurs; creating a public procurement policy that favours indigenous innovations; achieving synergy between R&D policy for agriculture vs. STI policy.
  4. Climate Change: Active role in implementation of National Action plan for Climate Change (NAPCC); and providing incentives for green manufacturing.
  5. PPP: Setting up of a) a National science, Technology and innovation foundation to facilitate investments in S&T projects under PPP mode and large scale R&D facilities under PPP mode; establishing technology business incubators and science-led entrepreneurships; and treating private sector R&D institutions at par with public sector institutions for giving public funds.
  6. IPR: Modification of Intellectual Property Rights (IPR) for social goods and IPR generated under PPP; setting up of a regulatory and legal framework for sharing IPRs between Investors and inventors.
  7. Participation: Encouraging participation of all STI stakeholders including a) women and differently-abled and disadvantaged sections of society; b) NGOs who would play pivotal role for delivery science-tech-innovation outputs especially related with rural / grass-root level; c) State Governments by setting up state specific plans and strengthening the State Sci-Tech Councils / Boards and fine-tuning five-year plan schemes in response to rapid changes in S&T; d) International partners by forging strategic alliances both bilateral and multilateral.
  8. Public awareness: Releasing white papers on new science projects to generate public awareness about the ethical / social / economic implications of science-tech-R&D initiatives.

Commitment to R&Dinnovate-300x198

From the time the United Progressive Alliance-I regime came to power, Prime Minister Manmohan Singh has publicly announced the intention to increase the gross expenditure on research and development (GERD) to 2% of GDP. He reiterated this commitment every year since 2004 at the annual ceremonial Indian Science Congress plenary sessions just as he did this year in 2013. In the last eight years, Indian GERD to GDP either stagnated at a little less than 1% of GDP or even declined when adjusted for inflation. During the same period the Chinese figure witnessed a jump from 1% to 1.5% of GDP. The fact is that China is investing at least five times more money in R&D compared to India. A closer examination of the STIP 2013 statement clearly states that achieving the target of 2% of GDP for R&D “in the next five years is realisable if the private sector raises its R&D investment to at least match the public sector R&D investment from the current ratio of around 1:3″. One struggles over the policy statement to find the government’s actual commitment to increase GERD. In fact there is no such public commitment outside the PPP mode to reach the “magic figure” of 2% of GDP. The optimistic view in the policy that the ratio will improve and reach the target in the coming decade or so is just wishful thinking. If we go by the track record of the last 15 years, the private R&D component of GERD has increased quite robustly but the question is why the ratio did not improve at all. Actually problems underlying private investment in R&D lie elsewhere in the governance of S&T policy measures, instruments and factors closely related to the research and innovation eco-system.

Enhancing private R&D investment is seen as a very important S&T policy goal the world over, but more important is the government support for an emerging economy. Without a clear-cut commitment and a road map from the government to increase the public share of GERD to 2% of GDP in the next five years and proportionally advance thereafter, the laudable goals of “positioning India among the top five global scientific powers by 2020″ and attaining a global share of 7% of total research publications seem just a distant dream. If we were to reach anywhere near these goalposts in the coming decade, irrespective of the private contribution, the government must commit to at least 2% of GERD to GDP and sustain it up to 2020 and beyond. At the same time the government should formulate and introduce a series of S&T laws to govern and regulate incentive and research innovation schemes involving the private sector and the mechanisms underlying PPP. This assumes significance as the new policy intends to open up all research and innovation schemes to the private sector in the future. Without such a legal backup and governance mechanisms in place, proposals to promote diffusion and spur the demand side of innovation are unlikely to yield any worthwhile results. The issue of higher government commitment to GERD also assumes significance as more than 55% of GERD in the last few decades is consumed by the strategic sectors of defence, atomic energy and space. Hence what is left under civilian R&D is allocated less than 45% of GERD. With a series of Mars and Moon missions planned, along with “big science” international projects and in the emerging geopolitical scenario, the dominance of the strategic sectors in GERD is likely to continue in the coming decade.

Innovation Potential Underutilised

Over 150% of the expenditure on R&D can be written off for tax purposes in India. But unlike in the case of South Korea, this instrument has no legal underpinning as regards monitoring and evaluating whether the firms are showing expenditure on quality control or other technical operations as having been incurred on R&D. There are over 1,200 firms registered with the concerned department of science and technology. Can we multiply them with a series of incentives and monitor them to enhance R&D intensity? Whereas the government allocated huge sums of money in the form of various subsidies, the amount of money for research and innovation schemes, involving private firms, is too small and its use is riddled with unnecessary bureaucratic rules and red tape. Only a fraction of the sum collected as cess on import of technology is passed on to the Technology Development Board. With thespecial40 exception of software technology parks, India has failed to create an appropriate innovation eco-system for the industrial clusters at the district level and small and medium enterprises (SMEs) spread across the country. Given the lack of appropriate intermediary support or technical capacity building mechanisms, potential firms are reluctant to invest in R&D and technological up-gradation of skills. Public support for venture capital is underdeveloped and operates at a sub-optimal level for a growing economy such as India’s. We have really failed to learn from the South Korean science and technology policy experience, which has the reputation of reversing government R&D burden from 75% to 25% in just over a decade in the 1990s.

There are other related issues concerning the research and innovation ecosystem with regard to universities and knowledge-generating and disseminating institutions. With the possible exception of IIT Madras, none of our leading universities have science and technology or innovation parks comparable to the ones that have come up at Oxford or Cambridge. Even our Asian neighbours have created huge science and technology parks as part of their leading universities. For example, the park at the Tsinghua University, Beijing, houses nearly 5,000 firms; Hsinchu Science Park at Taiwan’s National TsingHua University and National Chiao Tung University has 450 firms; and Biopolis and Fusionopolis has 200 firms at the National University of Singapore. These have come up in the last 15 years and have become major destinations for private R&D investment in these countries. The NIC-initiated university innovation clusters recently but there is no reference or policy support to this move in the STIP 2013. There are more than 250 transnational corporations that have set up R&D centres and labs in our major cities such as Bangalore, Gurgaon and Hyderabad. We have failed to further capitalise on this inflow of corporate R&D in our major cities. Day-to-day civic amenities and the system of governance are breaking down in most of these cities. From a garden city, Bangalore is now called a “garbage city”. As Florida (2005-07) in an interesting study cautions, “technology and talent are highly mobile factors, flowing into and out of places”. All of this must be factored in when India is trying to improve the efficacy of the research and innovation eco-system. Unfortunately there is very little serious thinking on these lines.

Universities as Academic ‘Outhouses’

Our academic sector continues to suffer due to low policy priorities when it comes to R&D. STIP 2013 has given no space to various policy interventions to improve upon research intensity in the higher education sector, which currently spans over 500 universities and some 19,000 affiliated colleges. Barring a reference to promoting inter-university centres, the new policy has nothing to say about research intensity in the academic sector. The new policy is biased in favour of public and private research segments at the cost of the higher education sector. Even though universities accounted for over 52% of total cumulative national research publications for the decade 1997-2007 (Gupta and Dhawan 2008), they were allocated just 5% of GERD. In fact, this has been the case in the post-independence period. Universities in the OECD countries accounted for 20% and Japanese universities accounted for around 15% of GERD in the last decade. Even Chinese universities increased their share of GERD from around 5% in the 1990s to over 12% currently. Policy measures to increase the research intensity in universities and nurture them to attain world-class standards in China were part of their national innovation strategy. Project 211 in the mid-1990s allocated $7.98 billion for 100 universities. Project 985 further shortlisted 39 universities to develop them into a “Chinese Ivy League”, starting from the late 1990s with a budget of $4.87 billion. We have not only fallen behind our global competitors, but have failed to adequately address the question of research intensity and gross enrolment ratios in the higher education sector.

Hardly 15% of our universities come under the label of teaching and research universities. Around 85% of our universities are just teaching institutions at different tiers of teaching standards and levels. The bulk of our higher education sector is yet to attain what is known as the ‘Humboldtian’ goal of teaching and research excellence. STIP 2013 has not given the space and focus that the attainment of this goal deserves. On the other hand, it has proposed a number of goals such as increasing human resources in R&D, research publications, international collaboration in big science, attaining global benchmarks in basic research and fostering science excellence and relevance towards attaining a position among top-five global scientific powers in a decade. How can we attain these goals without looking into the research intensity of the higher educational sector (leave alone primary and school education) of the national innovation system, of which, it is one of the main pillars? A couple of schemes such as INSPIRE are important but unlikely to make any headway in attaining the larger goals. Much of the new and high technology innovation is happening at the intersection of disciplines and interdisciplinary faculties in the universities. In Japan, South Korea, Singapore and China, leading universities are not only moving towards infusing entrepreneurial culture but are embedded in national innovation strategies as frontiers of innovation. Hence any view to keep R&D in higher education outside the purview of STIP is erroneous, for we will then not be able to build new innovation and human resource capacities.

Revamp SMEs and Cluster Policies

STIP 2013 seeks to move towards a new paradigm of STI policy with a view to focus on inclusive growth and innovation. It goes on to identify a number of sectors such as energy and environment, food, water, habitat, unemployment, and healthcare, among others. But where is the focus and strategy to address the real challenges? The Twelfth Plan and the National Innovation Conference report have already indicated the move towards inclusive growth and innovation. One witnesses this in the National Rural Employment Guarantee Scheme, the Aadhar Smart Card and the recent cash transfers scheme. So what is so “new” about inclusive innovation? Is it that the science agencies such as the Council for Scientific and Industrial Research, the Indian Council of Agricultural Research, the Indian Council of Medical Research among others will be mandated to devote a proportion of their R&D effort to inclusive innovation? What is intended from the new policy is not clear. On the other hand, the STIP 2013 has not given the required policy attention to SMEs and the manufacturing sectors that they deserve. There is no clue as to how these are going to sustain themselves in this globalised era in the coming decades. There are more than 600 SME industrial clusters and 3,500 artisan clusters, from metal, wood, leather, pottery, cane and bamboo to textiles and wool, spanning the country’s industrial districts and cottage enterprises. For sure, the small industry policies that we have followed so far have run out of steam. For instance, the brassware market including exports has, so far, survived with four-decades old, metal melting, casting, moulding and die technologies in industrial clusters like Moradabad. This cluster is unlikely to grow with these age-old techniques and obsolete technology for a long time (Gulrajani 2007). Similar is the case with the Aligarh lock industry cluster, which has failed to capitalise on modern information-based locks. Firms and enterprises in these hundreds of clusters are on the brink of closure. These village and district industrial enterprises lack institutional support in upgrading skills among artisans and are unable to access modern tools to compete in the globalising markets.

Liberalisation and globalisation have not only enforced greater competition but are demanding a new paradigm of regional and rural innovation systems. Such a perspective has the promise to bring various actors (policymakers, knowledge institutions, small and medium enterprises, district authorities and other stake holders) at the district level to interact with each other towards building technological capabilities. The role of knowledge institutions (particularly universities and colleges) can come to play a major role in designing courses, developing skills and imparting training in the regional and rural innovation systems. The time has come to put into practice existing proven concepts such as sectorial systems of innovation and cluster innovation systems. India needs to evolve institutional and organisational mechanisms to link knowledge institutions with capacity building institutions at the district level. Such intermediary institutions will fulfil an important task of forging links between formal R&D institutions and the needs and demands of firms in SMEs and clusters (Siddharthan and Rajan 2002). There are about 6,000 Industrial Training Institutes (ITIs) that urgently need modernisation and a total revamp of teaching methods. As nearly 93% of our labour force is in the informal sector, how many ITIs does the country India require in the coming decade to professionalise this work force? By all means regional and rural innovation systems need to become an integral part of STI policies.

Need to Forge New Links

STIP 2013 underlines the importance of bringing agricultural R&D policy together with the national R&D system as a part of overall STI policy. This is a good move but why are we not strengthening the existing links or initiating cross collaborations between strategic R&D institutions (involving defence, atomic energy and space) and civilian R&D institutions? India acquired considerable scientific and technological capabilities in the strategic R&D sectors over the last several decades. But we are yet to see their impact felt in the civilian R&D sector. Space may be a possible exception. The time has come to convert our strategic R&D capability to boost civilian R&D and innovation via certain policy measures. We must also think of ways and means by which we could optimise our scarce S&T and R&D resources through cross-institutional collaboration. Acquiring sophisticated equipment and instrumentation is a capital-intensive affair. Such inter-science agency collaborations not only stand to enhance the mobility of research personnel but they will also enable them to share scarce S&T resources. We must learn from the experiences of other countries. In the last two decades, 80% of all CNRS (French National Research Council) laboratories were reorganised to establish joint R&D units and laboratories with universities in their close proximity. They follow a system of joint appointments to enhance mobility between different institutions and establish joint incubation and innovation centres to commercialise technologies (Mustar and Laredo 2002). Similar changes are needed to bring our CSIR labs, universities and other institutions together via certain policy mechanisms.

Road Ahead

“Creating a robust national innovation system” is one of the key elements listed in the STIP 2013. It is strange that such an important perspective as National Innovation System (NIS) finds just one line in the document. There are now over 500 PhD dissertations in the world on this theme. The basic feature of the NIS concept is that various actors and agencies in the system must be organised in such a way so as to enable them to interact with each other to infuse dynamism into the system as a whole (Lundval 1992; and Nelson 1993). Some institutional mechanisms of coordination and consultation will have to be put in place, which mandates various actors (for instance, the Department of Science and Technology (DST) or relevant department, human resource development, finance, industry, Planning Commission, universities and business enterprises, etc) to collectively deliberate on the formulation and implementation of national innovation policies.

To benchmark with best cases India needs a series of comparative studies from various countries with qualitative, quantitative and impact indicators in STI. We need a set of new S&T laws to govern various research and innovation schemes, tax incentives and risk capital investments. Above all we need a new breed of S&T policy professionals, economists, MBAs, social scientists and other policy analysts to be placed in the Ministry of Science and Technology, DST, department of biotechnology and other science departments. So far, these agencies have no provision for recruitment of such professionals and to institutionalise interdisciplinary teams. The move indeed reflects a new mindset insofar as the intent is to bring about organisational changes towards building a robust NIS. As we progress into the third year of the “Innovation Decade”, it is time to move forward. However, it is only time that will tell whether we really embarked on this radical move to create a dynamic NIS or left it as another good idea in our policy discourses.


India’s R&D spending has yet to rise above one per cent of its GDP. As in the 2003 policy, the new science policy too wants to boost the country’s research spending to two per cent of GDP with greater private sector R&D investment. The new policy too wants to achieve the same goal of higher research spending. With greater R&D inputs, the country’s share of global trade in high technology products is to be doubled from the current level of around eight per cent. But, having a new policy makes sense only if it spurs change; otherwise it is just an exercise in mouthing platitudes. Well-focused government initiatives are needed in a number of areas, rather than just some piecemeal measures, to flesh out the laudable objectives laid out in the science policy. The domestic market must, for instance, be leveraged, such as through appropriate government procurement policies, to allow indigenous technology to flourish and compete internationally. That’s something China has done with remarkable success.

India must make the necessary structural changes in the system. We also need to create an environment and ecosystem which demands a framework to be laid down by the policy makers. The government, public and private sector must co-operate in laying the foundations of innovation through research and development in India.


Mufaddal Dahodwala (20 Posts)

The author is ex-employee of Accenture and he is currently pursuing MMS finance from JBIMS,mumbai. He has won several prizes from top MNCs for his contribution towards articles as well as idea generation and business plans having a social impact to the society.