White Paper

Department of Science & Technology Ministry of Science & Technology Government of India
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Stimulation of Investment of Private Sector into Research and Development in India

Report of The Joint Committee of Industry and Government (JCIG)
Bhan MK Brahmachari SK Nayak S Ramasami T (Co-Chair) Shukla BK (Co-Member Secretary) Bhartia HS Forbes N Gopalakrishnan S Muthuraman B (Co-Chair) Das A (Co-Member Secretary)
May 2013
Bhan MK Brahmachari SK Nayak S Ramasami T (Co-Chair) Shukla BK (Co-Member Secretary)
Bhartia HS Forbes N Gopalakrishnan S Muthuraman B (Co-Chair) Das A (Co-Member Secretary)
Foreword
Shri S Jaipal Reddy

Union Minister of Science & Technology and Earth Sciences, Government of India Aspirations of Indian Science Sector are rising. If India were to emerge as a global leader in science, private sector investments into R&D must undergo significant increases. The Ministry of Science and Technology constituted a Joint Committee of Industry and Government (JCIG) for preparing a white paper on policy environment for stimulation of private sector investment into R&D in India. JCIG has now submitted a white paper. It has made six key recommendations for stimulating the private sector investments into R&D. It is hoped that the private sector investments into R&D would match those of public sector by the end of 12th Plan period. The white paper, I see, has been prepared after wide consultations with major stakeholders and intensive deliberations. The white paper is now available for detailed examination by both industry and government for early implementation. I sincerely hope that the key recommendations would be acted upon in a time bound manner and their impact on Indian R&D would become tangible and traceable.
I congratulate the Co-chairs and all distinguished members of the Joint Committee for carrying out a commendable work. I expect some transformational changes in the Indian Science Sector leading societal benefits and wealth creation from R&D outputs of India.
Shri S Jaipal Reddy Union Minister of Science & technology and Earth Sciences 31 May, 2013
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Acknowledgements
The Joint Committee of Industry & Government would like to thank the Department of Science & Technology, Government of India for the opportunity to develop the White Paper on Stimulation of Investment of Private Sector into Research & Development in India. A comprehensive study of the current national scenario in private sector investment in R&D and practices adopted by many other countries in this area as well as feedback and suggestions from wide stakeholder consultations have been used as the basis for developing this white paper. The Joint Committee acknowledges with thanks all those who made important suggestions and provided inputs in the preparation of this White Paper. We are pleased to submit this report to the Ministry of Science & Technology, Government of India.
Bhan MK
Bhartia HS
Brahmachari SK
Forbes N
Nayak S
Gopalakrishnan S
Ramasami T
Muthuraman B
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Shukla BK
Das A
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CONTENTS
Page no. Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02 1 2 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05 Work Elements Behind The White Paper . . . . . . . . . . . . . . . 07
2.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07 2.2 Formation and Constitution of JCIG . . . . . . . . . . . . . . . . . . . . . 08 2.3 Statement of Main Tasks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09 2.4 Studies and Stakeholder Consultations . . . . . . . . . . . . . . . . . . 11
3 4
Stakeholder Aspirations and Suggestions . . . . . . . . . . . . . . 20 Six Key Recommendations of JCIG . . . . . . . . . . . . . . . . . . . . . 37
Annex-1 The composition of the JCIG and its Terms . . . . . . . . . . . . 42 of Reference Annex-2 Background on Global Trends . . . . . . . . . . . . . . . . . . . . . . 45
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1.0 Executive Summary

India aspires to emerge as one of the top five knowledge powers in the world in the area of Science, Technology and Innovation. Such aspiration demands bench marking against global best practices in shaping the Indian research and development sector. While public investments meet nearly global benchmarks of 0.7% of GDP in India, private sector engagements into R&D are significantly lower than those in developed and other emerging economies. A Joint Committee of Industry and Government (JCIG) has been constituted to develop a white paper for stimulating the investments of private sector into R&D. The JCIG has studied global practices, held wide consultations with stake holders and has made recommendations. After evaluating the global trends, India's current scenario and studying stakeholders' inputs and aspirations, the JCIG has addressed the issue holistically and made six key recommendations. a) The entire value chain of Industrial R&D includes R&D in the laboratory; Pilot production/Test beds/design & development/ Standardizations / field trials, etc.; and Pre-commercialization trial productions. Computation of expenditure of private sector into the entire value chain seems appropriate. Currently used criteria for computation of R&D investments by Indian industry do not seem to cover the entire value chain. It seems possible that the extent of private sector investments into R&D is being underestimated. Hence, redefining private sector investments into R&D as per global norms and capturing all relevant data for reassessing private sector engagements seem a necessary step. b) Make it mandatory for all Public Sector Units and the Corporate Sector to report and declare investments into R&D in the Annual Report.
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c) The JCIG has recognized a need for special thrust in some priority areas and sectors for building global leadership and to develop and
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deploy technology solutions of relevance to Indian society. Hence a comprehensive strategy, and implementing mechanism including risk and failure management procedures for select sectors of interest to private sector is necessary. d) JCIG records that current indirect incentives (such as 200% Weighted Tax deductions) offered by the Indian Government are one of the best in the world already. While retaining current direct and indirect fiscal incentives, some rationalization for covering the entire value chain of industrial R&D and technology commercialization may be examined and simplification and rationalization processes enacted. e) The key to research is a qualified Human Resource. It will be imperative to build a large pool of quality professionals suited for industrial R&D and create both high value and a large volume of employment in the private sector for research oriented functions. f) Commercialization of R&D outputs is a key step. Public-PrivatePartnerships and well designed incentive mechanisms to trigger commercialization of R&D outputs would be required to stimulate private sector investment into R&D.
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2.0 Work Elements Behind The White Paper

2.1 Motivation
It is widely recognized that access to science-based innovations, technologies and engineering would determine the global competitiveness of Nations. Currently the global investments into Research and Development are estimated at 1.2 trillion USD, of these, the private sector is the major investor. In developed and emerging economies, the private: public investments into R&D are generally in the range of 2:1. On the other hand, in India private investments into R&D are estimated at only half of that of the public sector. In countries where private sector engagement into R&D is large, time to commercialization of technologies is shorter. The extent of commercialization of outputs from public funded research is generally lower. Hence, it is in the national interest of India to stimulate the private sector engagement into R&D and aim at Public : Private sector investments into R&D at levels of 1:1 by 2017. Science derived innovations and technologies based on Research and Development in India should focus on all three contributors to economic growth, viz agriculture, manufacturing and services. Intellectual Properties generated through public funded research, in the absence of a strong participation of the private sector, could tend to focus on scientific publications in peer valued journals as major outputs. In recent times, Indian Industry has started investing in R&D in overseas entities, while Multinational Companies invest into R&D in India for generation of Intellectual Properties for global exploitation. These tendencies indicate that MNCs are able to leverage expertisearbitrage of Indian R&D systems for early leads, while Indian
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Corporate sector is focused on R&D with shorter time to marketneeds. Time to market for the R&D outputs emanating from public funded R&D in India needs to be minimized and extent of commercialization of Intellectual Properties generated through public funded R&D should be increased significantly. Commercialization of IPs does involve several steps including significant investment and completion of the entire R&D value chain, viz. translation R&D, pilot studies, establishment of testbeds etc. These are defined to minimize risks of failure. Inclusion of investments of private sector for such risk minimization protocols as R&D costs seems justified and these are included as R&D costs in many countries. Both, the Government and Industry in India are equally concerned that the private sector investment into R&D is less than optimum levels in comparison to the current trends in global best practices. One of the recommendations emanating from the subcommittee on PM's Council on Trade and Industry for PPP for R&D and clean energy is that the policy environment would need to be triggered for stimulation of investment of Private sector into R&D in India. The report of the steering committee constituted for the development of the 12th Plan for S&T Sector also aims at an investment of private sector into R&D to match the levels of public investment planned to be invested during the plan periods.
In order to address these issues comprehensively and to arrive at an implementable plan of action, a joint committee of industry and Government has now been constituted for co-development of a white paper for stimulation of the private sector investment into R&D in India.
2.2 Formation and Constitution of JCIG

In order to step up the investments of private sector into R&D in India and to match the global standards and pursuant to the
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decision taken during the interactive session with Hon'ble MOS th (S&T) with private sector CEOs on 12 November 2011 in Mumbai, the Department of Science & Technology constituted a Joint Committee of Industry and Government. The composition of the JCIG and its Terms of Reference is given in Annexure 1. Terms of Reference for the JCIG was to prepare a white paper for stimulating private sector investment in R&D and suggest policy th initiatives to the Government from time to time during the 12 Plan period. Dr.T. Ramasami, Secretary DST and Mr.B Muthuraman are the CoChairs of the committee. Other members are Mr. Hari Bhartia, Mr. Kris Gopalakrishnan, Dr. Naushad Forbs and Secretaries of DBT, DSIR and Ministry of Earth Sciences. The Committee met twice on 7th May and 13th July 2012 and deliberated on the subject and discussed at length on various measures needed for "Stimulation of Private Sector Investment into R&D in India". The suggestions emanating from the meetings of JCIG were captured in form of draft background note for further consultations and refinements. A larger consultation and interaction of Industry with the then th MOS, was also organized in Mumbai on 8 October, 2012. This White Paper is the final product of such consultations, and includes some actions that the industry has promised to undertake.
2.3 Statement of Main Tasks

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The Government of India has laid high emphasis on attracting investment of private sector into R&D to match public investments (that is 1% of GDP each by Government and Industry) before the end of the 12th Five year plan. Hon'ble Prime Minister has made several calls to the Private Sector to invest into R&D and match the public investments into R&D and had added that the Government could facilitate industry to do so through policy environments and other means. One major task of JCIG will be to identify key elements for stimulation of private sector investments into R&D.
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The size of the 12 Plan for S&T sector has now been estimated with a public investment of Rs. 1,20,430 crores in only six departments. Additional investments are planned under Defence Research Development Organization, various other socioeconomic ministries as well as academic and state sectors. The table also presents an approximate phasing to achieve the target of 1% of GDP each as mentioned above.
th
Indicative Outlay for 12th Five Year Plan Central Scientific Ministries/Departments/Agencies
S&T Department /Agency 1 2 3 4 5 6 Department of Atomic Energy (R&D sector) M/o Earth Sciences Department of Science & Technology Department of Biotechnology Department of Scientific and Industrial Research including CSIR Department of Space Grand Total
Source: Draft 12th Five Year Plan 2012-17, Volume 1 ,Planning Commission, GOI document
12thPlan (2012-17) Outlay (Rs. Cr) 19,878 9,506 21,596 11,804 17,896 39,750 1,20,430
The table below outlines an approximate phasing of investment of Public and th Private sector into R&D during the 12 Plan
Year
2011 76%
2012 73%
2013 67%
2014 61%
2015 56%
2016 50%
Share of Public investment as % of R&D investment in public sector. Share of industry sector investment as % of R&D investment.
24%
27%
33%
39%
44%
50%
Source: Report of the Steering Committee on S&T for the formulation of 12 Five Year Plan
th
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Given the current levels of investment of the private sector, an approximately 8 fold increase in the engagement of the private sector into
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R&D would become necessary if the targets of 12th plan for R&D sectors were to be fully realized. The JCIG is of the view that the current investment of the private sector into R&D might be underestimated and the estimate may not capture all investments being made by the non-government sectors in India. The JCIG also emphasized the importance of validating the data on investments of private sector into R&D and establishing a continuous updating mechanism. The JCIG focused on the need to critically assess and agree upon various elements of the key enablers for boosting private sector's investment to match the expectations as planned during the 12th Five year plan. The JCIG resolved that if the Indian industry were to match the global benchmarks of investments into R&D, the policy environment in India as well as classification of what qualifies for grouping under R&D in India should also match those of major countries. The global bench marking study was commissioned to CII for ensuring realistic comparisons. The JCIG decided to concentrate on the following five major tasks in order to arrive at the recommendations:.
l Studying
global practices and classification of R&D heads as practiced
globally
l Revalidating the data on private sector investments into R&D in India l Identifying
key enablers for stimulating private sector investments into
R&D
l Studying
l Suggesting
measures for implementation with industrial sector driving the desired changes in the private sector
2.4
Studies and Stakeholder Consultations

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The JCIG assigned the CII team the task of carrying out the following studies with a view to global benchmarking of the private sector investment into R&D in India
various policy instruments deployed by other countries for maximizing the provisions and benefits of PPP for R&D as tools of change in manufacturing and
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a) R&D Expenditure - What expenditures are considered as R&D expenditure in all three phases - Research, Development and Deployments/Applications? Find out what definitions are prevalent in India and other countries. b) R&D Classifications - What are the models, structures, investment patterns, monetization, IP ownerships, financial benefits to stakeholders etc. and examples of (a) purely private sector R&D (b) purely Public sector/Government R&D and (c) PPP R&D, prevalent in India and in other countries? c) R&D Incentives - What are the current incentives offered by the Government of India and other countries for all the above types of R&D (Private, Public & PPP) and how simple or complex are the procedures to avail such incentives. Also, how many players are availing such incentives in India and in other countries? d) R&D Risks and Failure Management - How are risks of R&D covered and how failures are treated and managed in all categories (Private, Public & PPP) of R&D in India and other countries? e) R&D Human Resource - How R&D Human Resources are developed, incentivized and trained on industrial R&D for delivering results through Private, Public & PPP mode of R&D in India in comparison to other countries? In addition to using its internal knowledge base with its members and others, CII commissioned a research study to Arthur D' Little for generating inputs for the elements listed above in order to have a fuller and more authentic picture in a short time. While a detailed report on Global Trend is attached in Annexure 2 as Background Information, salient features of the research findings are summarized in this section. Regarding the information about India, remarks about such items qualified as R&D expenditure, incentives etc, are made in this section only in a brief manner. Further details about India are presented in the next section while making the recommendations of JCIG.
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2.4.1 Governments provide support to R&D ecosystem in the form of incentives which are broadly classified into direct and indirect categories.
% of GDP 0.4 0.35 0.3 0.25 0.045 0.2 0.15 0.1 0.18 0.05 0 USA
Indirect government support through R&D tax incentives Direct Government funding of BERD 0.185
0.075 0.047 0.15 0.083 UK France 0.06 Germany 0.058 Israel

0.03
0.08
0.12 0.15 0.075 South Korea Finland
Japan
Source: Arthur D. Little Analysis, OECD Website l Direct
incentives include grants, credits and public procurement
o Various direct incentives have differential impact on the R&D costs o R&D grants and loans affect the cost of performing R&D, but contracts usually awarded through competitive bidding do not directly affect the cost of performing R&D o Countries such as Sweden, Finland and Germany prefer direct funding allowances, social security contributions, reductions in R&D, labour taxes o Japan, Netherlands and Canada rely mostly on tax incentives Countries such as France and USA combine both instruments namely l direct funding and Tax incentives
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India generally l
provides indirect incentives as 200% Weighted Tax Deduction. Direct funding is not a commonly used instrument in India.
Indirect funding refers to all tax incentives related to R&D; tax credit l
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2.4.2 Incentives are generally based on Government approval guidelines on nature and jurisdiction of R&D activities, which in turn decide the ownership of the IP generated In India, the indirect incentives are to be claimed as Weighted Tax Deduction with the Income Tax Department. However, processes for special approval/authentication from Ministry of Science & Technology are sought, which makes the process complex and long drawn. It is particularly difficult for small and medium companies and even big industries require considerable special efforts to avail the incentives from public fund.
Nature of benefit available
Extent of income tax benefit available
Specific approval required from government No
Refundable/ Any cap R&D to be carry forward on benefit physically performed within the jurisdiction Carry forward No Yes
IP to reside in the country No
USA
Income tax Plain at the federal deduction & state levels and tax credit Income tax & cash subsidy Income tax Super deduction
UK
No
Refundable and carry forward and carry back Refundable and carry forward
No
Anywhere
Yes/No*
France
Tax credit off No set against tax Yes Yes
No
Yes
No
Germany Cash subsidy Cash subsidy Israel Income tax & cash subsidy Super deduction
Not applicable Yes Refundable Yes
Yes Anywhere (for tax benefits For grants (only Israel) Anywhere Anywhere
Yes Yes
Japan South Korea
Income tax Income tax & cash subsidy
Tax credits Tax credit
No No
Carry forward Yes Carry forward No
Yes No
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2.4.3 Qualified expenditures heads for R&D are broadly classified in five major categories
R&D Personnel Land & Building Materials & Equipment Services/Prototypes /Pilot Plan Others
Annual wages and salaries and all associated costs or fringe benefits, such as bonus payments, holiday pay, contributions to pension funds and other social security payments, payroll taxes, etc. For PhD candidates, students who are on the payroll of universities or R&D units (e.g. as research assistants) and/or receive external funds for R&D (such as research scholarships) are included in the statistics
This comprises land acquired for R&D (e.g. testing grounds, sites for laboratories and pilot plants) and buildings constructed or purchased, including major improvements, modifications and repairs. The R&D share of the expenditures for new buildings is often difficult to quantify, and many countries ignore this element of R&D expenditure (in the higher education sector) or at best estimate it on the basis of scheduled use.
This covers major instruments and equipment acquired for use in the performance of R&D including embodied software
Utilities, such as telephone, telex, electricity, water, and gas
Fees for patent filing, patent maintenance and plant variety protection certificates
Total costs of acquiring equipment and machinery that are used exclusively for R&D activities; elsethe proportion of expenditure accounted for by R&D activities is estimated according to use
Cost of computer software used in R&D activities
Expenses incurred for the protection of patents and plant variety protection certificates
Prototyping Cost Pilot Plant Cost
Standardization expenses
Technology watch expenses
There are certain border line items, as listed below that are treated differently in OECD countries, as compared to other countries.
Item Industrial design and drawing Treatment Divided Remarks Design during R&D is included and design during production is excluded. Included if testing involves full time testing and subsequent further design and engineering Include feedback R&D and subsequent improvements in processes of production Except feedback R&D
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Trial production
Divided
Industrial engineering and tooling up
Divided
Patent and license work After sales service and troubleshooting Routine tests and data collection Public inspection, control, enforcements of standards
Excluded Excluded Excluded Excluded
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In India the qualified expenditure is mostly around R&D personnel, material & equipment, cost of computer software and utilities & services used for R&D. Prototypes / pilot plants and items listed in other categories in Table 2.4.3 are rarely included as items for computing R&D expenditure. 2.4.4 Certain incentive schemes are specifically directed towards human resource development, which are a set of both direct and indirect incentives
Countries Finland Incentives l Allowable expenses related to costs incurred for maintenance of professional or vocational skills l Study loan allowances l Income tax credits for educational expenses in higher education and in secondary education l Tax credit on interest burden of loans incurred by students in higher education to finance their studies l Income tax exemption on wages earned by apprentices l Income tax exemption on wages earned by pupils and students working during school or university holidays l Deduction of education/training costs as income related expense l Deduction of education/training costs as a special expense l Deduction of tuition fees for own children in private schools l Loans up to $30000 given by various state universities for doctoral students with a payment period of up to 15 years l Waiver up to 20 per centon loans if the candidate joins the same university l Tuition deduction of up to $4000 for expenses on higher education of children, spouse or any other dependant l Interest deduction on student loans or payment of loans by the government during college. l Full or partial remission of tuition fees is granted on meritocracy and need basis in both national and private universities l Japan Student Services Organization (JASSO) gives loans (interest free and low interest) to students with outstanding academic achievements in post graduate programs. l Talent development program supporting and mentoring students. l International scholarship policy forum which collaborates with world bodies and institutions for donation. l Separate national scholarship for science and engineering
France
Germany
USA
Japan
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South Korea
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In India, such clear-cut provisions do not exist. Tax deductions exist for contribution to educational institutions but they are not to be linked with industry's main R&D needs. 2.4.5 Treatment of failure predominantly revolves around 'Loan Guarantee Schemes
Countries Scheme
USA State Small Business Credit Initiative (SSBCI) Features
l Enable small businesses to
Guarantor
l The state provides collateral
obtain loans and lines of credit l Businesses of all types corporations, partnerships and proprietorships - eligible for loans l Loans of size $5 million to $20 million l Guarantees loans from private institutions to businesses
and accepts burden of repayment to the financial institution l Reserve fund is established to pay loans
UK
Germany
German United l Improves collateral situation and
l Government provides
Loan Guarantees
financial credibility
l Provides lower interest rates l Help banks lower credit risk
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financial guarantees for loans should the firm be unable to repay
National Loan l Helps businesses access cheaper l Guarantor does not Guarantee finance by reducing the cost guarantee loans to Scheme of bank loans businesses l l (NLGS) Specific banks participate in Individual is liable for the scheme repayment of NLGS loans, l Businesses are eligible by: the government holds no v Having less than 50 million in collateral revenue v A business contributing to the UK economy v Is not in financial difficulty l Businesses in NLGS receive a discount of 1% on their loan compared to the interest rate they would normally have l Individual banks determine max/min amounts that can be borrowed l NLGS qualifies as state aid to businesses as per European Commission regulations
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Countries
Germany
Scheme German United Loan Guarantees
Features
l Criteria
v Young industries without history v Dynamic companies in difficult
Guarantor
industries
v Crisis situation
requiring venture/equity capital v Projects must contribute to economic development of Germany v Managed by PwC with a local partnership
l The state automatically
Israel
Israeli R&D policy
l The main OCS program (the
R&D Fund) supports R&D projects of Israeli companies by offering conditional grants of up to 50% of the approved R&D expenditure. If the project is commercially successful, the company shall be under the obligation to repay the grant by royalty payments.
l If not successful, the company
becomes the guarantor in this case.
is not obligated to return the funding and it becomes a grant. Japan

Japan Bank for l Provide investment loans,
l Government organization
International Cooperation Loan Guarantee scheme

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financing overseas investment and resource development by Japanese firms l Credit guarantee enables CGC to guarantee financial institution against risk associated with loans to SMEs l Credit insurance funded by public money reinsures credit guarantees l CGC's guarantee loans, provide deposit l Scheme provides v Fund for credit insurance v Subsidies for CGC funds v Deposits v Compensation for loss
guarantees and accepts burden
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Countries
Scheme
Features
l Public finance institution
Guarantor
l By guaranteeing the
South Korea
Korea Credit Guarantee Fund (KODIT)
providing support specifically for SMEs in the form of v Guarantee for Bank Loans v Commercial bills guarantee v Guarantee for bidding, contract v Tax payment guarantee
v P-CBO guarantee
loans, KODIT agrees to accept the burden of payment should the company be unable to repay debts l Capital fund of $3.2 billion for Credit Guarantees for SMEs
l KODIT guarantees loans from
private banks l Has helped SMEs out of oil crises and the recent financial crisis
In India, direct funding is rare. For instance, funding is through the Technology Development Board and some schemes of the Ministry of S&T. In such cases each failure is treated as a separate case and goes through complex procedures and legal processes, even when the genuineness of failure is evident.
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3.0 Stakeholder Aspirations and Suggestions

JCIG deliberated in depth on all the parameters that impact industrial R&D and analyzed the global best practices. CII had reached out to many industry captains and received their recommendations for stimulation of private sector investment into R&D. A special interactive session with the then MoS was also organized in Mumbai by CII. This section captures the deliberations, analysis and the recommendations received from many stakeholders on various aspects. The final key recommendations of this white paper are of high priority demanding early actions. However, all inputs received from stakeholders are listed here. They are of equal importance and merit consideration for implementation in mid and long term periods.
3.1 Data validation of private sector's investment in R&D in India

Estimates of current data on private sector investments into R&D in India originate from the R&D statistics brought out periodically by the National Science and Technology Management Information System (NSTMIS) of the Department of Science and Technology. The methodology adopted by NSTMIS involves generation of primary data from industrial houses through survey mode. In this mode of data compilation, a lower bound value is feasible and the lag time involved in gathering and reporting is too long for effective policy building. During the last few years, fiscal incentives for private sector investments into R&D have been announced by the Government of India. Changes in response to such alterations in policy environment in the country are not well defined.
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Tax foregone in R&D

2007-08 Tax foregone under current policy regime for supporting R&D (Rs. in Crores) Computed investments of Private Sector into R&D based on tax foregone estimates (Rs. in Crores) 2000 2008-09 2526 2009-10 2416 2010-11 4685 2011-12 2012-13 (estimate) 5745 6335
6060
7654
7321
14196
17409
19197
Source : Ministry of Finance, Govt of India website
The computed investments are gross estimates and would not include the direct investments of private sectors which are not covered by Section 35 (2AA) and Section 35 (2AB). R&D investments are meant for 100% write-off in the first year. Reliable estimates of investment which are actually eligible for 100% writeoff in the first year are not known. Current CAGR of tax foregone since 2 years is 16.3%. Based on CAGR it is estimated that private sector investment into R&D, eligible for being considered under Section 35 (2AA) and Section 35 (2AB) are estimated to be Rs. 40,844 Crores by 2017. However, published report of a team of Administrative Staff College of India as observed from Prowess database reveals interesting trends and changes. The study reveals that for a group of companies with turnover of about 70% of India's manufacturing base, there has been doubling of turn over between the annual figures of 2010 relative to 2005 while the reported R&D investments by them have undergone a change of 2.5 times. In other words, the published study of ASCI reports an R&D investment of Rs. 17,500 crores in 2010 by the private sector units studied, registering an increase of over Rs. 10,000 crores relative to 2005.
1
Published research by Dr. Bagchi, ASCI, Hyderabad
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Multiple mechanisms are being explored for revalidating the data on investments of private sector into R&D in India. There are three major groups of private investors into R&D, who need to be considered. They are a) Multinational companies investing into R&D b) National investments of private sector into in-house R&D c) National investments of private sector into public funded R&D entities A study of annual reports of various companies in the country employing Prowess database as source reveals that transportation, electronics, non-electronics, drugs and pharma and mineral sectors are major investors into R&D in the country. It is not clear from the available data as to whether companies invested into resident research or funded some foreign entities abroad. It might be useful to assess private sector investments into R&D by th the end of the 12 plan if business-as-usual approaches under the present policy regimes of the country were adopted. CII has also initiated a parallel study of their member units for assessing their R&D investment plans for the 12th plan period. Data validation within the structure of classification of what constitutes R&D investments is currently in progress. Inputs / Suggestions received from stakeholders
3.1.1
Current initiative of Technology Development Board to capture investment by private sector through CII and other industry associations should be concluded at the earliest and the efforts to continue regularly Reporting by companies in the annual report / balance sheet indicating their expenditure in R&D from Financial Year 201314 onwards may be mandated. Global Innovation & Technology Alliance may capture the data and publish Annual Reports on Private Sector's investment into R&D
3.1.2
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3.1.3
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3.2 What expenditure of private sector should be considered as R&D expenditure

Currently, the following expenditures incurred at the designated in-house R&D units of private sectors are considered as R&D expenditure for the purpose of Tax benefits. a) Plant & Machinery b) Materials & Consumables c) Utilities & Services d) Human Resources Inputs / Suggestions received from stakeholders Apart from the current practice of consideration of R&D expenditure, the following expenditure of private sector may be considered as "R&D expenditure" for the purpose of availing tax and/or other benefits from 2013-14. Infrastructure 3.2.1 Cost of land and building for setting up R&D laboratories 3.2.2 Cost of using R&D infrastructure of public institutions Human Resource 3.2.3 Fees / Remuneration for National and overseas experts / expert organizations
3.2.4 Fund provided by industry to PhD scholars in institutions for industrial research 3.2.5 Cost of human resource development for R&D Technology adoption 3.2.6 Cost of Intellectual Property purchased as sub-components of final R&D output
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IP Protection and management 3.2.7 Cost of Patent filing / maintaining and license work (in-house & outsourced) Pre Commercialization activities 3.2.8 Cost of Prototyping, Industrial design and drawing (in-house & outsourced) 3.2.9 Cost of Trial production from R&D / Test Beds (in-house & outsourced) 3.2.10 Cost of Clinical drug trials and/or bio equivalence studies (in-house & in other locations) 3.2.11 Cost of Quality Control & Certification Expenses (in-house & outsourced) 3.2.12 Cost of Industrial engineering and tooling (in-house & out-sourced) 3.2.13 Cost of Tests and data collection for Quality standardization (inhouse & out-sourced) 3.2.14 Cost of Public inspection, control, enforcements of standards (inhouse & out-sourced) 3.2.15 Cost of first marketing of R&D outputs Investment by Venture Capitalist and non-manufacturing organizations 3.2.16 Investment (by Venture Capital industry) of VC funds in technology ventures
3.2.17 Investment (by non-manufacturing Design firms) in design activities 3.2.18 Investment (by non-manufacturing R&D firms) in R&D activities by re-introducing Section 80 -IB (8A) of the Income tax 1961
3.3 Indirect Incentives to private sector

Currently following indirect incentives are provided to private sector for R&D.
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l 100% write
off of revenue expenditure on R&D; (Section 35(1) (i) of Income Tax Act).
l 100% write
off of capital expenditure on R&D in the year the expenditure is incurred; (Sec.35(1)(iv) of Income Tax Act).
l Weighted tax deduction @200% for sponsored research programs in
approved national laboratories, Universities and IITs, available to the sponsor. (Section 35 (2AA) of Income Tax Act).
l Weighted
tax deduction @200% on in-house R&D expenditure to companies engaged in the business of bio-technology or in the business of manufacture or production of any article or thing not being an article or thing specified in the list of the eleventh schedule. (Section 35(2AB) of the Income Tax Act).
l Income-tax exemption @175% to donations made to approved non-
commercial Scientific and Industrial Research Organizations (Section 35(1)(ii) and 35(1)(iii) of the Income Tax Act).
l Accelerated
depreciation allowance for investment on plant and machinery, made on the basis of indigenous technology (Rule 5(2) of Income Tax Rules, 1962).
l Customs
duty exemption to R&D institutions and scientific & industrial research organizations, both for capital equipment and consumables needed for R&D. (Notification No.51/96-Customs, dated 23 July 1996).
l Central
l Central
Excise duty waiver for 3 years on goods designed and developed by a wholly owned Indian company and patented in any two countries out of: India, USA, Japan and any one country of the European Union (Notification No.15/96-CE dated July 23, 1996, amended vide Notification No.13/99-CE dated 28 February, 1999).
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Excise duty exemption to R&D institutions and scientific & industrial research organizations, both for capital equipment and consumables needed for R&D. (Notification No. 10/97-Central Excise, dated 1st March 1997).
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l Exemption
from customs duty on imports made for R&D projects funded by the Government in industry. (Notification No.50/96Customs dated 23 July 1996).
l Pharmaceutical
reference standards allowed to be imported duty free {notification No. 26/2003-Customs dated 1 March 2003 (entry substituted at S.No 138 of the table in the said notification)}.
l Goods
specified in List-28 (comprising of analytical and specialty equipment) for use in the pharmaceutical and biotechnology sector allowed to be imported duty free {notification No. 26/2003-Customs dated 1 March 2003 (entry substituted at S.No 248 of the table in the said notification)} provided: o The goods are imported for research & development purposed by an importer registered with DSIR for installation in the R&D wing of the importer within six months of the date of importation on submission of a certificate from the jurisdictional assistant commissioner of central excise or the Deputy commissioner of central excise to the assistant commissioner of customs or the Deputy commissioner of customs at the port of importation. The goods imported should not be transferred or sold for a period of seven years from the date of installation.
o The goods are imported for use in the manufacture of commodities and the total value of goods imported does not exceed 25% of the FOB value of exports made during the preceding financial year and installation in the factory of the importer within six months of the date of importation on submission of a certificate from the jurisdictional assistant commissioner of central excise or the Deputy commissioner of central excise to the assistant commissioner of customs or the Deputy commissioner of customs at the port of importation. The goods imported should not be transferred or sold for a period of seven years from the date of installation. Inputs / Suggestions received from stakeholders Apart from the current indirect incentives to private sectors for R&D expenditure, the following indirect incentives may be provided to the private sector from 2013-14:
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Special Incentives 3.3.1 Special incentives of additional 50% weighted tax deduction on the R&D expenditure for products and services developed through R&D and are exported.
3.3.2 A provision may be made where the profit generated from the revenues of new products from IPR acquired from Public Funded Institutions would be tax exempt for 1-2 years. Public Procurement and standards 3.3.3 20% public procurement from Indian MSMEs on the products and services commercialized from public funded R&D. 3.3.4 L1 Criteria and insistence on Past Track Record (PTR) discourages innovations. Weightage by way of price preference or otherwise may be given for indigenously developed products and technology. Incentivize industry to use indigenous products and technology to help create PTR. 3.3.5 Standards and their compliance should be used effectively to give advantage to indigenous products and technology. This practice is followed by most of the developed countries. Incentivize Public funded Institutions 3.3.6 Provide Government grants to public funded R&D entities equal to twice the sum of investments of private sector into joint research into those entities 3.3.7 Balance roles of public funded research between autonomous institutes and higher education system and improve the vibrancy of the public research system in general. 3.3.8 A robust confidentiality structure needs to be built in the institutions for doing joint industrial and contract research to avoid pilferage of knowhow.
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Establish Incubation Centres 3.3.9 Incubation centres should be created where there is a high concentration of educational institutions as these centres will create new companies and jobs. A performance based incentive approach for promotion of Technology Business Incubators (TBIs) under PPP model is the next best step for service economy based growth model of India. Incentivize R&D professionals 3.3.10 Special income tax incentives to Indian professionals who work in R&D both in private and public sectors 3.3.11 Special Income tax incentives to Indian Diaspora (Scientists/ Technologists) who come back to work with private sector R&D in India IP as mortgage-able asset 3.3.12 At present knowhow is treated as an intangible asset by banks and financial institutions, making it difficult for the companies, especially SMEs, to get loans against their Intellectual Property. Credit guarantee by government to Financial Institutions to consider Industry's Intellectual Property as a mortgage-able asset would encourage industry.
3.4 Direct Incentives to private sector

Currently, the following direct incentives are provided to private sector for R&D and commercialization of technologies.
l Grant
by the Department of Scientific and Industrial Research (DSIR), Govt. of India, for up-scaling technologies, under its TePP and TDDP schemes
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Loan/Equity l
by the Technology Development Board (TDB), under the Department of Science & Technology, DST, for manufacturing and commercializing of all technology-based products.
Loan/Grant by the Department of Science & Technology (DST) as a l R&D support fund for undertaking Special Projects on: Development of Drugs and Pharmaceutical products Loan/Grant l by the Technology Information, Forecasting, Assessment Council (TIFAC), as a R&D support fund for undertaking Special Projects on: Technology missions' projects for Sugar, Flyash, Advanced Composites and Bamboo.
Financial l
support by the Indian Renewable Energy Development Agency (IREDA), under the Ministry of New and Renewable Energy (MNRE), for the development of non-conventional sources of energy, besides energy efficiency and conservation strategies. support by the Department of Biotechnology (DBT), under SBIRI and BIPP programmes for the development of biotech related products, etc.
Financial l
Financial l
support by the Council of Scientific and Industrial Research (CSIR), for the development and production of products and processes in new and emerging fields, under the New Millennium India Technology Leadership Initiatives (NMITLI).
Inputs / Suggestions received from stakeholders Apart from the current direct incentives to the private sector for R&D, the following direct incentives will be provided from 2013-14: Budget Allocation of Public fund for private sector's R&D 3.4.1 A proper budget allocation with certain proportion of public funds earmarked for R&D by private sector may be done on a grant basis. Some percentages (progressively in the 12th five year plan period to reach 25% in 2016-17) of public spending can be allocated for investing in private sector R&D and PPP R&D with matching investment from private sectors.
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3.4.2 A 50:50 PPP fund may be created to provide 75% support to private sector for R&D and deployment/commercialization of technologies with public institutions (public or private universities/colleges) in the sectors/areas of social welfare such as affordable healthcare, renewable energy, water treatment/purification, waste treatment/ processing etc. 3.4.3 A special fund (generated from R&D Cess received by Government) on Global Partnerships may be launched where the Indian industry will partner with global partners for R&D, technology acquisitions, deployment/commercialization of technologies and, capacity building of human resources. This fund may be administered by Global Innovation & Technology Alliance on a 50:50 funding mechanism on a case to case basis. Priority sectors for PPP R&D 3.4.4 Prioritize about 5 sectors/areas based on social relevance and global competitiveness for PPP R&D. Currently, sectors that seem to invest are a) transportation, b) electronics, c) non-electronics, d) drugs and pharma, e) minerals f) metallurgy. Sector specific road maps for stimulating investments into these sectors complete with monitoring systems may be positioned soon, for implementation. 3.4.5 PPP model for R&D as infrastructure projects needs to be worked out. Renewable and clean energy is a nationally important sector. PPP for such sectors for R&D may need new instruments of partnerships. Public procurement from R&D based manufacturing is a globally accepted policy for consideration. Incentivize Joint R&D 3.4.6 Investment by private sector for R&D with public institutions in any sector/area may be matched on a 50:50 basis or more by public funds. The proportion of public fund may go up to 75% in case of MSMEs.
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Support Pre-commercialization phase 3.4.7 Investments into pilot plants and semi-commercial level plant infrastructures into public funded institutions do not often provide adequate returns. Therefore, schemes for joint investments into test beds could be considered instead. 3.4.8 IPR assets owned by public funded entities could be valorized using modern management practices. Private sector could be encouraged to invest into test beds for evaluating the commercialization potentials of such IPR assets which are not exploited for periods longer than 5 years. A sweat equity mechanism for the public entity with commercialization rights for the private sector could be considered. 3.4.9 Private sector investments into in-house R&D enjoy fiscal benefits. Expertise manpower required for carrying out translatable R&D is special and not easily available in the country. Especially in areas such as drug discovery, a pool of such expertise needs to be developed. International expertise also seems necessary. Sector specific schemes for part supporting expert manpower for R&D through public funds may be considered. Support Human Resource 3.4.10 Government grant up to 50% of the salary of (a) PhD scholars from Indian institutions appointed by industry and (b) PhD scholars of Indian origin from overseas appointed by industry.
3.4.11 Mobility scheme for Scientists/Engineers from public funded bodies to industry may be worked out with a provision of a 3 year payprotection for doing R&D in industry. 3.4.12 Mobility of R&D professionals from Industry to public funded R&D institutions with a 3 year pay-protection needs to be met from the Government or part of it. Industry needs to top up the salary of the R&D professionals.
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3.4.13 Doctoral fellowships in Public Private Partnerships may be considered for greater Industry-Academia interaction.
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Support Infrastructure 3.4.14 Government grant up to 50% of the R&D infrastructure cost incurred by the industry. Support Start-ups 3.4.15 A special end to end package for Technology driven Startups may be developed to fuel technology-driven entrepreneurship in the country.
3.5 Industry Sectors that can avail R&D Incentives

Currently, the following sectors/products, manufactured by the Indian industry are not permitted to avail the R&D incentives.
l Beer, wine and other alcoholic spirits. l Tobacco
and tobacco preparations, such as, cigars and cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff.
l Cosmetics and toilet preparations. l Tooth paste, dental cream, tooth powder and soap. l Aerated waters in the manufacture of which blended flavouring
concentrates in any form are used.

l Confectionery and chocolates. l Gramophones,
including record-players and gramophone
records.
l Projectors. l Photographic apparatus and goods. l Office machines and apparatus such as typewriters, calculating
machines, cash registering machines, cheque writing machines, intercom machines and Tele-printers.
l Steel furniture, whether made partly or wholly of steel.
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l Safes,
strong boxes, cash and deed boxes and strong room
doors.
l Latex foam sponge and polyurethane foam. l Crown
corks, or other fittings of cork, rubber, polyethylene or any other material.
l Pilfer-proof caps for packaging or other fittings of cork, rubber,
polyethylene or any other material. Inputs / Suggestions received from stakeholders 3.5.1 The items listed in the "restricted items" are no longer "lowtechnology" items. Most of the items are either imported in India or Indian companies are paying a heavy royalty to foreign suppliers. Hence, all sectors and areas of industry except for (1) Beer, wine and other alcoholic spirits and (2) Tobacco and tobacco preparations, such as, cigars and cheroots, cigarettes, biris, smoking mixtures for pipes and cigarettes, chewing tobacco and snuff, should be eligible for availing both direct and indirect R&D incentives. 3.5.2 Multinational companies operating from India in other areas may be treated at par with Indian companies for availing R&D incentives provided that (1) R&D and manufacturing are done in India and (2) they have R&D partnership and further production & marketing arrangement with Indian companies with a target of minimum of 50% exports from such products.
3.6 Procedure to avail Tax incentives

Currently, the following procedures exist for the industry to avail tax benefits. a) The R&D centres should hold valid recognition by DSIR. b) The company should have well defined R&D programs.;
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c) The company maintains proper documentation for the R&D programs taken up.;
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d) The in-house R&D centre is located in a separate earmarked area/building and has exclusive R&D manpower of its own.; e) The R&D centres are exclusively engaged in research and development for the production of any article or thing not being an article or thing specified in the list of the eleventh schedule of the Income Tax Act. f) All applications need to be sent to the Secretary, DSIR (each set of applications should be tagged on the left corner and should not be spiral bound). g) Documents required to be submitted for initial approval in Form 3CM (3 sets):i. Application in Income Tax prescribed Form 3CK giving address of each in-house R&D Centre recognized by DSIR duly signed by the Managing Director and a witness. ii. Copy of DSIR recognition letter for each in-house R&D Centre. iii. Clearly defined objectives of R&D not exceeding 6 lines. iv. Latest audited financial statement along with the annual report. v. Additional information as per annexure - III of the guidelines vi. Additional information for seed companies. vii.One page write-up clearly summarizing the R&D activities taken up separately at each of the R&D Centre/s recognized by DSIR.
viii. Confirmation that the company does not manufacture any product listed in Schedule 11 of IT Act. ix. Total capital cost of in-house research facility, giving break-up of the expenditure of the complete research facility including cost of equipment, land & building as on 31st March of the last completed financial year. x. An undertaking that the company shall reflect the capital and revenue expenditure on R&D in the audited financial statement of the company prepared for the purpose of published annual report as well as for the purpose of Income Tax returns.
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xi. A commitment that the company shall submit the desired information as per DSIR Guidelines every year for the approved period while filing the Income Tax returns. h) Documents required to be submitted for extension of approval in Form 3CM (2 sets): i. Income Tax prescribed Form 3CK giving address of each in-house R&D centre recognized by DSIR and duly signed by the Managing Director and a witness. ii. Copy of the renewal of recognition letter issued by DSIR. i) Documents required to be submitted by 31st October of each succeeding year of approved period to facilitate submission of Report in Form 3CL (2 sets): i. Complete details as per DSIR guidelines. Inputs / Suggestions received from stakeholders 3.6.1 Procedure to avail Tax incentives needs complete overhaul. 3.6.2 As an immediate and interim step, the procedures may be extremely simplified and hassle-free. 3.6.3 As step 2, a professional expert group may be constituted for studying the existing procedures and recommend for rationalization towards accreditation of private sector's R&D activities by professional accrediting agencies and this being used for tax claims directly from the tax authorities. This is crucial to provide a hassle free environment for private sector to invest in R&D and create innovative products from India for domestic and global markets.
3.7 R&D Risks and Failure Management

Current financial audit procedures are risk averse and prohibit risky ventures. In the deployment of public funds and loans from banks especially, R&D led innovations do not receive adequate support.
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Inputs / Suggestions received from stakeholders 3.7.1 Work out provisions for writing off government loans/grants for private sector R&D failures. Caps may be defined for small, medium and large firms. 3.7.2 Institute a simple and one-window apex system in the Ministries to clear such items expeditiously. 3.7.3 A professional expert group involving financial experts may be commissioned to study the Israel and Singapore models for adaptation to suit the national innovation eco system.
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4.0 Six Key Recommendations of JCIG

The Joint Committee on Industry and Government (JCIG) has received several inputs from various stakeholders. They have been compiled in the previous chapters. The major observation emanating from various inputs from stakeholders is that the current estimate of private sector's investment into R&D may be generally under-estimated. Global practices for computing private sector investment into R&D may seem to extend beyond those heads of accounts relating to direct research or R&D costs. Translation and pre-commercialization activities which receive considerable investment from the private sector seem to be included as R&D investment in many other countries. The current Indian practice may, therefore, need to be reviewed. The JCIG has grouped various recommendations with inputs received for computing R&D investment into three verticals, namely, i) direct R&D cost currently qualified for tax deduction under section 35 (2AA)and 35 (2AB); ii) Translation of R&D and pre-commercialization trials and iii) human resource development which could qualify under Corporate Social Responsibility also. Current policies make provisions for 100% write-off of indirect costs associated with R&D as indicated in the report. After due deliberation, the JCIG has grouped various recommendations and inputs from stakeholders, as given in figures below:
R&D Expenditure by Industry
For Fiscal Benefits
For Appropriate Accounting
Under CSR
Prototyping
Training / Education of Industry Personnel
IPR Acquisition / Protection
Test Beds
Skills Development
Design
Clinical drug trials and Bioequivalence studies Trial Production of finite numbers of bulk
Employment Generation
Scholarships to PhD Scholars
Education
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Direct R&D Plant & Machinery l l Materials & consumables l Utilities & services l Human Resource
Land & Building
Technology Business/ Incubation of Start-ups
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The JCIG, after studying various factors, has made six key recommendations for consideration of the Government for creating a policy environment which could stimulate higher investments by private sector into R&D consistent with the goal of Science, Technology and Innovation Policy, 2013, released in January 2013. One of the goals of the 12thFive Year Plan is to trigger and stimulate private sector investments for matching those by the Government by the end of 2017. In order to achieve such targets, JCIG considers that the recommendations made below may be of value:
4.1.Redefine private sector R&D investment as per global norms and practices
Current estimates of private sector investment into R&D are generally limited to those incurred for direct research in a laboratory in the form of plant and machinery, manpower, consumables and utilities. They do not cover costs relating to translation of R&D like test-bed, design and development, standardization, field costs, etc., as well as pre-commercialization trial production. These precommercialization trails and field trials could be performed either inhouse or in any other organization in India. These are not currently considered as R&D investment. JCIG recommends that the translation expenditure incurred on translation and precommercialization trials could be included as apart of R&D costs. Inclusion of such costs could be notified by the Government after examination. Industry could submit a specific proposal for consideration.
4.2.Mandatory disclosure of R&D investment by Private Sector

Currently companies are not mandated to disclose expenditure incurred on R&D in their balance sheets and Annual Reports. Some voluntary disclosures provide access to information. Since current mechanism does not enable a realistic estimation of investment of private sector into R&D, the Government may mandate disclosure of R&D investment in public domain as an obligation. This would help in proper quantification of investment of private sector into R&D.
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4.3.Constitution of an Expert Committee for rationalization of Heads of R&D investment for direct and indirect facilitation
JCIG has grouped various heads of accounts for computing R&D investment including those incurred for translation, precommercialization trials. A suitable Expert Committee may be constituted by the Government to study the recommendations emanating from the stakeholders, provide inputs to JCIG and examine the possibilities of inclusion of some of the heads of accounts grouped by the JCIG for extending the provisions of 100% write-off for inclusion in the section 35 (2AA) and 35 (2AB). The professional expert group may also study the existing procedures and recommend rationalization towards accreditation of private sector R&D activity by an accredited agency or self-declaration of companies for availing benefits.
4.4.Valuing IPR assets and Provide for demand pool for R&D outputs through provisions for public procurement:
To encourage Micro, Small and Medium Enterprises for participation in R&D and generation of IP, a special Credit Guarantee Scheme may be provided by the Government to banks and financial institutions to consider IP as a mortgage-able asset. All investments made in procurement of IPR through a formal mechanism of private sector enterprises from either public funded institutions in India or abroad may be considered as R&D investment as included for consideration for tax benefits under section 35 (2AA) and 35 (2AB). Public procurement system may be rationalized including a relaxation of past track records for MSME when the products are developed through indigenous R&D or technology developed from public funded institutions are commercialized. In order to cover the risk failures of IP in commercialization, provide two year income-tax holiday on the sales proceeds of products and services emanating from new IPRs.
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4.5.Build Technology Depth of Industry in Priority Sectors and usher an era of PPP R&D and Technology Deployments for providing technology solutions to National Priority Areas
Dedicated sector-specific funds may be allocated from the Government's budget for building technology depth in 5 priority sectors: a) transportation b) electronics c) Pharmaceutical and Biotechnology d) minerals, materials & metallurgy e) Next generation manufacturing technologies f) Heavy industries. Similarly, dedicated area-specific funds may be allocated from the Government's budget for investments into PPP for developing and deploying technology solutions in 5 national priority sectors: a) affordable healthcare b) renewable energy c) water treatment/purification d) sanitation & waste management e) homeland & cyber security f) Business of data. The fund will be used as grants from the government to match (50:50) the industry's investment on flagship projects. The projects under the priority sectors will cover all the Capex and Opex for doing research or adopting state-of-the-art technologies developed by others across the globe, development activities during pre-commercialization phase and finally setting up and producing products on a commercial scale. Early establishment of the fund is recommended. The recently incorporated PPP Section 25 Company, Global Innovation & Technology Alliance (GITA) may be entrusted with the responsibility of managing this initiative under duly constituted Joint Apex Council. A professional expert group involving financial experts may be commissioned to come out with a recommendation at the earliest, on the provisions for writing off government loans/grants for private sector R&D failures by instituting a simple and onewindow apex system in the Ministries to clear such items expeditiously.
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4.6.Incentives for commercialization on R&D:

The JCIG recommends an incentive system for stimulating individual inventors, public funded institutions and private sector for commercialization on R&D outputs. The Committee recommends positioning of an internal system as presented in the table below:
For Individual Inventors A percentage of payments received from the industry to be shared with individual inventors in the line of existing guidelines of IITs, IISc and CSIR Link R&D grants released to individual inventors with commercialization of their outputs For Public Funded R&D Institutions Increase commercialization of R&D outputs from public funded R&D through performance related incentive system For Private Sector R&D Introduce a scheme for conditional grant to industry for commercialization of IPs from public funded R&D by the private sector
Link R&D plan grant to the institution with the value of payments received through royalty, know-how etc. contract research grants and other direct payments received for commercialization of intellectual property generated from public funded R&D Link Incentive to R&D plan grant for basic research, matching the receipt equivalent to the external funding from non-budgetary sources
Introduce a Small Business Innovation Research Scheme similar to that of SBIR of USA
Encourage inventors to spin off companies
Provide additional R&D incentive grant to inventors matching the value of payments received from the industry for commercialization
Introduce a Research Award Introduce a cash subsidy Scheme for institutions for scheme similar to that of commercialization of public Germany and Israel funded R&D with values of the order of Rs. 5, 3, 1 crores
Note: It may be noted that many suggestions and recommendations mentioned in the Chapter 3 of this report, could not find place in the final six key recommendations. While all the suggestions have been found important and necessary, the JCIG felt that immediate actions should start with a few items to be implemented in 2013-14. However, the JCIG will look at all other suggestions; those are important and will take appropriate recommendations to the Government for consideration in later years.
Encourage private sector to share equity and long term differed royalty with R&D institutions against technology transfer in lieu of cash payment
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Annexure - 1
No. l6/1/2011-NEB Government of India Ministry of Science & Technology Department of Science & Technology Technology Bhawan New Mehrauli Road New Delhi-II 00 16 Dated: 30th November 2011 OFFICE ORDER Sub: Constitution of "Joint Committee of Industry and Government for stimulating private sector investment into R&D". Pursuant to the decision taken during the interactive session with Hon'ble th MOS (S&T) with private sector CEOs on 12 November 2011 in Mumbai, the Department of Science & Technology has decided to constitute a "Joint Committee of Industry and Government for stimulating private sector investment into R&D". The composition of the Joint Committee is as under: 1. Dr. T Ramasami Secretary Department of Science & Technology New Delhi 2. Mr. B Muthuraman President, CII Vice Chairman, Tata Steel Limited Chairman, Tata International Limited 3. Mr. S Gopalakrishnan Vice President, CII Executive Chairman, Infosys Technologies Limited Co-chairman
Co-Chairman
Member
4. Secretary or his representative Deptt. of Scientific & Industrial Research New Delhi 5. Mr.Hari S Bhartia Co-Chairman & MD Jubilant Life Sciences Ltd, Noida 6. Secretary or his representative Deptt. of Biotechnology New Delhi 7. Dr.Naushad Forbes Director Forbes Marshall Pvt. Ltd., Pune 8. Secretary or his representative Ministry of Earth Sciences New Delhi 9. Mr. Anjan Das Executive Director Confederation of Indian Industry 10. Dr. B. K. Shukla Scientist G Department of Science & Technology 2.
Member
Member
Member
Member Member
Co-Member Secretary
Co-Member Secretary
The terms of reference and tenure of the joint committee is as follows:(i) Prepare a white paper for stimulating private sector investment into R&D. (ii) Select appropriate institutions/agencies/consultants for commissioning studies which would facilitate preparation of the white paper. (iii) Suggest policy initiatives to the Government from time to time during the 12th Plan Period.
(iv) Co-chairmen can co-opt additional Members from the Industry/Government as special invitees depending on the specific requirement. (v) The tenure of the Joint Committee would be for 3 years from the date of constitution. 3. Travel expenses and honorarium etc. would be paid to non-official Members of the Committee as per norms by Technology Development Board for holding Joint Committee Meetings. (Dr. B K Shukla) Scientist G Copy to:1. 2. 3. 4. Co-chairmen & all the Members of the Committee. PPS to Secretary, DST, Mr. H K Mittal, Secretary, Technology Development Board, New Delhi Mr. Anjan Das, Executive Director, CII, New Delhi.
Annexure - II
Background - Global Trends2

The Nation's economic development (GDP per capita) and its journey towards Innovation driven economies (currently 35 nations in this bracket having GDP per capita of more than 17,000 USD) has been largely dictated by the outputs of nations' robust Science, Technology & Innovation (STI) ecosystem. The key pillar of nation's competitiveness is technological innovation. Although substantial gains can be obtained by improving institutions, building infrastructure, reducing macroeconomic instability, or improving human capital, all these factors eventually seem to run into diminishing returns. The same is true for the efficiency of the labor, financial, and goods markets. In the long run, standards of living can be enhanced only by technological innovation. This is particularly important for economies as they approach the frontiers of knowledge and the possibility of integrating and adapting exogenous technologies tends to disappear. Although lessadvanced countries can still improve their productivity by adopting existing technologies or making incremental improvements in other areas, for those that have reached the innovation stage of development this is no longer sufficient for increasing productivity. Firms in these countries must design and develop cutting-edge products and processes to maintain a competitive edge. This progression requires an environment that is conducive to innovative activity, supported by both the public and the private sectors. In particular, it means sufficient investment in research and development (R&D), especially by the private sector; the presence of high-quality scientific research institutions; extensive collaboration in research between universities and industry; and the protection of intellectual property. In light of the recent sluggish recovery and rising fiscal pressures faced by advanced economies, it is important that public and private sectors resist pressures to cut back on the R&D spending that will be so critical for sustainable growth going into the future.
2
This paper is compiled from OECD Science, Technology & Industry Outlook 2010
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The main trends in national science, technology and innovation policies, introduced by many nations towards public-sector research, government support for business R&D and innovation, collaboration and networking among innovating organizations, globalizsation of R&D and open innovation, human resources for S&T, and the evaluation of research and innovation policies are as follows:
One of the key enablers of a country's strong STI ecosystem is improving the industry's competencies and enhancing incentives for Business R&D. Increasing public support to R&D: Despite the slowdown in economic growth and the resulting fall in tax revenue, government investments in R&D have outpaced outlays in other areas. Government investments or spending and tax cuts, taken together, have represented on average more than 3% of GDP in the OECD area and up to 5% of GDP in the United States and Korea.
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Recognizing that innovation is a source of long-term growth, many governments have policies to improve infrastructure, support basic science, R&D and innovation, strengthen human capital, and promote green
2% 30% 52% 45% 68%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
7%
4%
6% 23%
9%
77%
68%
65%
7% Japan
28%
29%
32%
38%
Germany
USA
Uk
France
India
Others (% of Total Exp) Private Expenditure in R&D (% of Total Exp) Public Expenditure in R&D (% of Total Exp)
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technology and innovation, and foster entrepreneurship. Israel spends more than 4% of GDP in Research & Development (R&D) while. Japan, South Korea and Scandinavian countries spend more than 3%. US, France, Germany spend more than 2% and. China spends more than 1.50%. But the most important point is, in all these countries, industry spends more than government in R&D - in some countries 3 times more than Government spending. In India, while total spending in R&D is around 1%, Government's spending is 2 to 3 times more than that of Industry's. A number of specific measures have been taken to stimulate the recovery from the recent economic crisis. The European Union has urged member states to increase planned investments in R&D and consider ways to increase private-sector R&D investments. As part of the American Reinvestment and Recovery Act of 2009, the United States government has increased its spending on R&D related to climate change by USD 26.1 billion, and to energy by USD 6.36 billion. An additional USD 10 billion was allocated for biomedical research funded by the US National Institutes of Health and an additional USD 2.3 billion was allocated to research funded by the National Science Foundation. The response to the crisis has also given a boost to efforts.
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Fostering business R&D and innovation: Business enterprises are the main source of innovation. They play a primary role in funding and performing R&D in most countries and, more than ever, governments seek to increase business investment in R&D and innovation. Global competition has led countries to seek to boost the innovative capacity of the business sector. In the EU, another catalyst has been the EU's 3% R&D spending target, which is to be achieved primarily by increasing business expenditures on R&D (BERD) to 2% of GDP. The intensity of BERD indicates the financial effort devoted by the business sector to advance research. Japan and Sweden, for example, have high BERD and patenting intensities. The shares of the services sector and SMEs in BERD tend to mirror the structure of business R&D systems and the relative contribution of non-manufacturing and SMEs to R&D performance. Triadic patenting is an indicator of the ability of innovation systems to generate new inventions that may be exploited globally. In addition to framework conditions such as competition policy and access to capital markets, a broad range of direct policy instruments, such as block grants or competition based schemes, are used to stimulate business R&D and innovation. Increasingly, many direct support R&D schemes are being oriented or targeted to strategic sectors/technologies in order to foster competitiveness but also to help firms in their specialization strategies. Soft support, such as assistance in firm creation, counselling and entrepreneurship measures, is also being used to complement direct R&D support and to encourage risk-taking attitudes. While the general tax system is used to foster investment in innovation by firms, specific R&D tax incentives remain important in many economies, even if their design and scope continues to evolve. Finally, many governments increasingly look to use public procurement as a way to accelerate the diffusion of innovative products or services in the business sector while meeting public demand for goods and services. It is clear that direct support to business innovation, in the form of competitive grants or subsidiszed and guaranteed loans, remains important and has increased in some countries, especially for key industrial sectors such as renewable energy, advanced manufacturing, ICTs and health. However, the balance between merit-based and block instruments varies
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considerably according to factors such as industrial structure, existence of large R&D-intensive firms, R&D intensity and specialization.
Direct & Indirect Government funding (% of GDP) of Business Expenditure on R&D (BERD) and tax incentives for R&D
0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0
tat dS e t i Un
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Indirect Govt support thru R&D Tax incentives (% of GDP) Direct Government Funding of BERD (% of GDP)
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Stimulate private investments in R&D and innovation: As mentioned above, direct public funding through grants, subsidies and loans remains the most frequent form of support to business R&D, with competitive and merit based grant programmes having gained ground. However tax relief for R&D continues to complement more direct measures in many countries. Tax credits on social charges for researchers engaged in R&D have recently been introduced as a subsidy for highly skilled human capital, especially in small research intensive firms. There are broadly three major forms of R&D tax incentives: i) R&D tax credits that allow a deduction from the tax payable; ii) R&D allowances that represent an additional deduction from taxable income; and iii) depreciation allowances. Depending on the country, tax concessions are calculated either on a volume share of R&D expenditure, an incremental share (marginal R&D performed above a certain threshold of qualified expenditures), or a mix of both. Moreover, differences in country practices (e.g. eligible R&D activities, expenses base, rolling base versus
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e y m d en nd nc ark an do an ed rl a Fra nm rm inl e ng i e Sw e z F it D G dK Sw i te Un
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fixed base for incremental credits, carry forward of unused R&D tax credits, tax credit refund mechanisms) add to the great variety of fiscal schemes. In addition to the three major types of schemes, the Belgian and Dutch systems represent a fourth category, as tax incentives in those countries aim at lowering the cost of researchers either by diminishing wage tax and social contributions or just the taxes on wages. While tax credits for R&D are particularly widespread in many countries, where over 80% of public support to business R&D is provided in the form of fiscal incentives, in countries like the United States (through competitive R&D contracts), direct support remains the main vehicle for public funding of business R&D. The wider issue of how many firms take part in public support schemes for innovation (as opposed to R&D) is not well documented. It is estimated that between onetenth and one-third of innovating firms participate in public support programmes for innovation, with large firms receiving support more frequently than SMEs. Although some countries do not offer any tax incentives for R&D or innovation, R&D tax subsidies have become more generous over the decade to 2008 in many countries. Support for R&D and innovation in SMEs and start-ups: Although large firms tend to introduce more "novel" innovations than SMEs, which tend instead to be adopters, SMEs form the bulk of businesses and play a key role in knowledge diffusion. Their contribution is more significant in marketing or organizational innovation than in technological innovation. SMEs typically have more limited access to finance than large firms and fewer resources for generating and stocking knowledge. The credit crunch caused by the crisis has raised serious concerns about their capacity to remain innovative. Consequently, many countries have developed specific policy instruments to foster innovation among SMEs. Direct financial support to small firms is used to subsidize R&D, finance technology investments, and help them develop human capital or access knowledge-intensive services. Innovation vouchers aim to encourage and help SMEs to access and use knowledge from the higher education and research sectors. At the same time, innovation vouchers help firms to formalize their knowledge needs and allow knowledge institutions to identify business demand and make public
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research more relevant. Innovation vouchers have already been implemented in many countries and policy makers have tended to simplify their use and to extend their scope. Venture capital (VC) plays a crucial role in promoting innovation and is a key determinant of entrepreneurship. But venture capital is highly sensitive to economic downturns and the appetite in markets for new technology-based firms. Most private venture capital funding concerns expansionary capital in higher-technology industries. Consequently, governments have tended to provide funds for early-stage and seed financing, often along a "fund of funds" model in which government invests along with private actors and the fund is privately managed. Support for R&D and innovation in specific industries and technological areas: The Government has a key role to play in sustaining industrial competitiveness and promoting cutting-edge research in advanced technology areas. Canada has maintained individual programmes, such as the Strategic Aerospace and Defence Initiative (SADI), which offers repayable investments for industrial research and pre-competitive development in aerospace, defence, security and space industries (up to CAD 225 million a year). In 2009, France implemented the Pacte Automobile, a national plan for the automobile industry which involves EUR 6.5 billion in participative loans for car manufacturers, an upto-90% guarantee fund managed by OSEO, a EUR 600 million sectoral fund, higher partial unemployment compensation, and support schemes to innovation. To address its lag in expanding fields, such as nanotechnology and biotechnology, France has boosted funding for nanotechnology research by EUR 70 million. Japan has allocated funds to research on advanced and innovative technologies such as regenerative biology. More broadly, the Japanese New Growth Strategy aims to address the issues of an ageing society and long life expectancy by promoting innovative pharmaceuticals and medical and nursing care technologies and fostering drug development ventures. Korea announced a Green New Deal and government investment in green technology R&D for a total of USD 4.7 billion over four years.
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R&D and innovation in services and non-technological innovation: While many economies are services-based, services still contribute a much smaller share of R&D activity. It represents less than 10% of total business R&D expenditures in France, Germany, Japan or Korea. Services firms contribute substantially to non-technological innovation. In some countries, more than half of the firms in the services sector introduced organizational or marketing innovations and appear to be even more innovative than the manufacturing sector leading to more services than manufacturing firms have introduced non-technological innovation. Policy makers have paid increasing attention to promoting innovation in the services sector. Health services have particularly benefitted from the increased policy focus. Demand-side innovation policies: Demand-oriented innovation policies have recently attracted much attention from policy makers, partly in response to interest in increasing market demand and uptake of innovation that can address certain societal needs while improving economic performance. The existence of market or system failures which stunt market demand for innovation (e.g. information asymmetries, spillovers, externalities or appropriability of public goods) may justify policy action, especially in areas for which the public sector is a provider of goods and services. Targeted demand-oriented innovation policies include public procurement, lead markets, regulations and standards, pricing schemes and consumer policies. Encourage the development of STI platforms and open infrastructures: It is widely recognized that the effectiveness and efficiency of innovation systems are determined to a considerable extent by the degree and quality of linkages and interactions among various actors, including firms, universities, research institutes and government agencies. Four indicators can be used to measure the connectivity of innovation infrastructures: i) the regional concentration of patenting as a percentage of Patent Cooperation Treaty (PCT) patent applications; ii) the number of broadband subscribers per 100 inhabitants; iii) the share of innovative firms engaged in collaboration on innovation and iv) the degree of collaboration on scientific publications (per capita). The regional concentration of patents indicates the presence of
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research hubs that host public labs, leading research universities and innovative firms. The broadband penetration rate reflects how widespread are high-speed networks that serve as a platform supporting innovation. Broadband has become the leading delivery system for a wide range of content and has dramatically changed personal and business practices. The share of innovative firms engaged in collaboration and the degree of collaboration on research publications provide direct measures of collaboration in industry and in science. Virtually all countries give high priority to policies aiming to improve the physical STI infrastructure and to link public research to industry and society. In fact, the development of STI platforms and infrastructures ranks as a top priority for Canada and Japan, where collaboration in industry for the former and in both industry and science for the latter, are weaker than in many other countries. Finland and Sweden seem to show the best performance in terms of STI infrastructure. Nurture world-class nodes and bridge industry and science: Reinforcing industry-science linkages continues to be a major thrust of innovation policies. Linkages between public research institutes and industry occur in many ways, from the most direct - joint research projects or joint ventures (spin-offs) - to the more indirect - training, consultancy, staff mobility - to informal co-operation. Public-Private Partnerships have been encouraged at different levels and by different levers. Reforms in general policy, regulation or changes in organizational structures have created new areas of cooperation. Governments have increased financial support to collaborative schemes and research projects involving public and private partners.
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Clusters: Strengthening existing or developing clusters has become a pillar of national innovation policy. Clusters group together enterprises, higher education institutions and public research institutes that collaborate in a certain area. In many countries, innovation is geographically concentrated owing to the existence of local clusters and the dynamics of regional economies. Since the early 1990s many countries have promoted a clusterbased approach to innovation in parallel with a traditional sectoral R&D programmes policy. More recently, health, energy, natural resources and food production have been particularly targeted.
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Strengthen physical infrastructures for STI: Sound physical infrastructure, especially high-speed broadband access and powerful IT equipment, are essential to support knowledge advancement, communication and cooperation. As part of their stimulus packages many countries have made large investments in ICT infrastructure and applications. These investments will have lasting effects on STI infrastructures by closing the broadband gap and extending access to remote areas without connectivity, on the one hand, and by upgrading the existing network and accelerating the adoption of highspeed technologies, on the other. Several countries are reinforcing their IT systems to permit faster communication and wider information dissemination among public and private agents. Encouraging innovation diffusion and enhancing access to scientific information: Governments foster diffusion of public research results to enhance firms' productivity. In the Netherlands, the Act of Higher Education entrusts Dutch universities with the task of ensuring the transfer of knowledge transfer, in addition to their mission of research and education. Many countries have promoted wider dissemination of public data in centralizing public research output and developing ICT-based information systems that enhance access to information. Improving the access to public information ensures that public research has a broader impact in the economy. IPRs and knowledge diffusion: Appropriate IPR regimes and practices are necessary to secure returns on investments in innovation and to encourage knowledge sharing. A key issue for policy is finding a balance between rights to control use of an invention via IPR and the diffusion of knowledge about the invention (through licensing, publication, open networks, etc.). Getting the balance "right" is the key goal of the knowledge networks and markets that are emerging as a means to trade and exchange knowledge within more open networked systems of innovation. Although few internationally comparable data are available at this stage, three indicators may reflect the emergence and spread of knowledge networks and markets, or at least the parts of these that focus on patent development and exchange: i) the
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average share of patents filed by public research institutes in a specific time span; ii) the country share in total exports of royalties and license fees, compared to the country share in total services exports; and iii) the growth index of triadic patent families over a specific time frame. The share of patents filed by public research institutes shows the degree to which inventions resulting from public research are marketable. A country's relative share in exports of royalties and license fees highlights its capacity to market internationally inventions that are developed locally (inventions as codified in patents). The rise in patenting is a direct measure of the expansion of patenting activities. Reforms to IPR: In the Netherlands, reforms of patent legislation came into force in 2009 with a change in the fee structure that meant lower entrance costs, the abolition of the so-called six-year (non-examined) patent and the introduction of the possibility of filing (national) patent applications in English. In 2009, France adopted a new decree relative to IPRs and implemented the specialization of IP jurisdictions that would enforce guarantees offered to claimants. In Germany, since 2008 SIGNO has been supporting higher education institutions, SMEs, start-up entrepreneurs and inventors for legally protecting and commercializing their innovative ideas. In addition IPRs have been enforced by law with the Act on Better Enforcement of Intellectual Property Rights that came into force in 2008. Israel has recently undertaken to enhance and strengthen its IPR mechanisms. Steps were taken to streamline the patent registration process and shorten the examination period. A new Exposure Bill requires the publication of patent applications promptly after the expiration of an 18-month period from the filing date at Israel's Patents Authority. Furthermore, a draft is under preparation to amend the Patent Law to reduce the number of reference countries (from 21 to the five major EU countries and the United States). Israel is also about to extend the term of protection of pharmaceuticals tests after marketing approval. In the context of the economic crisis, the European Union urged its member states to reduce fees for patent applications and maintenance by up to 75%. Furthermore. the European Commission adopted in 2009 a recommendation to the Council that would provide the Commission
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with negotiating directives for the conclusion of an agreement creating a Unified Patent Litigation System (UPLS). This European and EU Patents Court (EEUPC) would lead to significant savings compared to the costs of piecemeal litigation. Such reductions in legal costs could permit many SMEs to enforce their patent rights in all EU and European Patent Convention (EPC) countries. Japan has tested the Super Accelerated Examination System on a pilot basis since 2008. Green-technology-related patent applications have been eligible for treatment under the conventional accelerated examination system on a pilot basis since 2009. In addition, examination guidelines have been revised in order to expand the patentable subject in advanced medical technologies and the Patent Law was amended in spring 2009 to revise the registration system for non-exclusive licenses and to expand the claim period during which one may request an appeal against a refusal. Encouraging SMEs to patent innovations and build IP capacity is another goal of policies. The Japan Patent Office (JPO) provides aid to SMEs for overseas development through the SME support centres of prefectural governments. Sweden has implemented a pilot action to fund SMEs for professional IP consultancy. The Netherlands allows the use of innovation vouchers to cover (part of) the costs involved in an SME's first patent application. Facilitating the commercialization of public research: The commercialization of the results of public R&D, through patenting or spinoffs, is an important channel for transferring knowledge. Recent initiatives in this area include some countries that have added funding schemes to support technology transfer and commercialization in academia. Countries have also provided public research institutes with infrastructure and nonfinancial support. Adjusting to the globalization of R&D and innovation: The globalization of R&D and innovation also affects the scope for national policy intervention. Consequently, more economies increasingly take into account recent trends in the globalization of R&D when formulating their national strategies. Levels of policy priority given to the internationalization of national STI vary markedly from one country to another. In Finland, Japan and Norway, this
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ranks high among STI policy priorities; it ranks lower in Austria, the Netherlands and the United States, countries that at the same time are open and internationalized. Three indicators reflect the internationalization of STI and the extent to which a country may access international knowledge: i) foreign direct investment as a percentage of GDP, ii) the share of international students in tertiary enrolment; and iii) the percentage of patent applications filed under the Patent Cooperation Treaty (PCT) with coinventors located abroad. The intensity of FDI inflows reflects the degree to which a country may benefit from knowledge spillovers and additional R&D investment from multinationals. The presence of many international students suggests the contribution of foreign talent to research and the building of connections with international university networks. The share of PCT patents with foreign co-inventors is a direct measure of international cooperation in research. Linking domestic firms to foreign sources of knowledge, attracting knowledge intensive businesses and foreign highly skilled workers, providing opportunities for inward and outward international mobility are key aims of policies to adjust to and benefit from globalization. Encouraging the internationalization of innovation actors: With the continuing internationalization of science and innovation, tapping into foreign sources of knowledge becomes more important. This has led to a range of policy initiatives in various countries. Regional, cultural and historical dynamics are efficient drivers of R&D internationalization and international co-operation. Enhancing the internationalization of the national innovation system requires governments to reinforce their own capacities. Direct funding, fiscal incentives and provision of infrastructures are also used to promote the involvement of national firms in international co-operation. Countries are also seeking to improve their attractiveness to foreign firms. In Finland, registered foreign-owned companies are also eligible for public funding, and foreign entities, firms or research institutions are treated on equal terms with Finnish ones. Finland has also created the Fin Node Innovation Centre Network as a gateway for international enterprises looking for business contacts, cutting-edge research or R&D resources to link
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with partners in Finland. Fin Node is already operating in China, Japan, Russia and the United States. Germany has implemented international advertising campaigns (e.g. South Korea Pilot Measure) under the umbrella campaign "Research in Germany" to facilitate the initiation of R&D co-operation with new partners abroad. Canada is reforming its system of international taxation to facilitate investment, cut red tape and streamline the compliance process associated with the taxation of cross-border activity. Support for the internationalization of SMEs is also emphasized in strategies to improve attractiveness. Sweden has set up public cost support offices to help SMEs in strategic sectors, such as biotechnology, forestry and transport. In 2009, The Swedish government also launched a pilot programme, VINN EXPORT, to support SMEs financially to develop their innovation capacity with partners or customers on export markets. Developing and strengthening human capital: Human resources in science and technology are essential for advancing science and innovation and generating productivity growth. Over the past decade, employment in HRST occupations has grown faster than total employment, owing to the increasing participation of women and the fast-growing demand for professionals and technicians in the services sector. Some countries with low HRST shares have been catching up too. At the same time, several countries have expressed concerns that the supply of highly skilled workers is diminishing and will not be able to meet demand. With an ageing population in many countries, the current supply of new graduates may not be sufficient to replace outgoing cohorts. Many countries have therefore sought to increase the supply and quality of HRST. Policy actions take place at various levels during general education, scientific university studies, advanced research programmes and postdoc training or after workers have entered the labour market. Policy actions target pupils, students, households, employees and employers. In general, many countries give a high level of priority to developing HRST in their national STI strategy. Consequently, many have policies to increase HRST. Governments' intervention aim broadly to: i) raise interest in science among youth and wider civil society and create a culture of innovation; ii) improve formal education at all levels and beyond
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S&T fields; iii) improve employment conditions, especially in research careers, and lifelong learning opportunities. Improving the supply of skills for innovation: Higher education systems are the main source of HRST, together with immigration and job-to-job mobility. Accordingly, many countries give a high or medium high priority to improving education for innovation. Four indicators can reflect the capacity of national education systems to supply skills for innovation: i) total public and private expenditures on education, as a percentage of GDP; ii) the percentage of new university graduates in science and engineering; iii) the graduation rate at the doctoral level and iv) female participation in doctoral studies. The intensity of education expenditures measures the proportion of a nation's wealth that is invested in educational institutions and shows the priority a country gives to education in terms of its overall resource allocation. The percentage of university graduates in science and engineering indicates the country's potential to absorb, develop and diffuse knowledge, on the one hand, and to supply the labour market with scientists and engineers, on the other. The graduation rate at the doctoral level shows the country's capacity to provide students with the highest education level and train them specifically to conduct research and contribute to knowledge diffusion. Finally the female participation rate in doctoral studies reflects the gender balance in doctoral programmes and early research career paths. Ensuring that education delivers the right mix of skills: Mathematics and science proficiency used to be considered the foundation of a knowledgebased and innovation-driven society. However, recent developments and the growing importance given to non-technological innovation have stressed the need for complementary skills, including entrepreneurial capacities and "soft" skills. Some countries have emphasized reinforcing mathematics and science education. Improving teaching has been a first axis of policy action. The United States has introduced various programmes to improve teaching in mathematics (e.g. Race to the Top), to build local communities of support around teachers and develop civic participation in bringing discovery-based science experiences to students in grades K-12 (e.g. National Lab Day), and to
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foster private and philanthropic involvement in support of STEM teaching and learning. Japan has developed initiatives to enhance teachers' educational activities in science, mathematics and technology. Israel is offering the three-year Guastella Fellowship to outstanding doctoral students to promote research and development in the field of science teaching. Revising the curriculum is another way to improve students' participation and literacy in mathematics and science. Entrepreneurship education is also part of the focus on innovation skills. In 2010, Denmark launched a new Strategy for Education and Training in Entrepreneurship, including education in management, start-up and interdisciplinary cooperative skills. The idea is to develop pupils' and students' knowledge about entrepreneurship, as well as their ability to act entre preneurially, by stimulating their ability to think innovatively, to see opportunities and to turn ideas into value. A new fund, the Foundation for entrepreneurship, has been established to pool efforts in this area. The Netherlands also supports entrepreneurial education and has introduced entrepreneurship education from primary school up to university to help students acquire knowledge, competences and positive attitudes to entrepreneurship. Germany's EXIST start-up programme provides special training and support for future entrepreneurs. Japan is also promoting vocational education to cultivate students' entrepreneurial abilities. Meanwhile, South Africa, as part of the 2008 IPRs Act, is supporting entrepreneurial skills together with IP management skills and industry training. Industry post-docs: The Industry's involvement in the funding, design and steering of PhD and postdoc training continues to be used to ensure that public academic research responds better to business and societal needs. The industry PhD programmes for instance, allow a PhD student to carry on an industry-oriented research project and share time between a university lab and a firm. Such programmes bring together academic research projects and the business world and give PhD students the opportunity to experience both working environments. The industry PhD programmes are also effective ways to build organizational and personal networks that bridge the gap between academia and the private sector.
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Attractiveness of careers in research and innovation: Changes in the international labour market for researchers have deeply affected employment conditions and the career paths of researchers, even in the public sector. The polarization of legal status and the growing number of temporary contracts in universities and public research institutes have led to the emergence of a "secondary" labour market where lack of clear rules on recruitment, employment and promotion may lead to job insecurity and inequity. Consequently, many countries are addressing issues of career development in research more broadly. Mobility of human resources is a key component of knowledge diffusion among firms and from academia to industry. Governments can encourage the employment and mobility of the highly skilled, first as employers themselves, then by providing incentives to firms. Several countries are addressing the issue of researcher mobility. Future challenges: The contribution of innovation to productivity growth and competitiveness remains a key issue for many countries who continue to reform their science, technology and innovation policies to improve the efficiency of their national innovation systems. The increasing focus on STI to address environmental sustainability, energy security and at the same time to foster new growth industries and services illustrates the convergence of competitiveness goals with efforts to mobilize STI to address social challenges. Indeed, these challenges are increasingly driving countries' research and innovation agendas. Public support to the "supply side" of research and innovation remains a key area for STI policies although attention to the "demand side" of innovation, such as public procurement, standards and involvement of users to "pull" innovation, continues to gain ground. Changes in innovation processes, not least those driven by the broadening of innovation, the rise of new global players and global value chains, and technological convergence also affect how governments design, develop and implement policies to support scientific and innovative performance. This places pressures on governments to monitor and adjust the effectiveness of national STI governance structures and policies to ensure co-ordination and coherence at the regional, national and, increasingly, international level. The near-term outlook for public and private
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investment in research and innovation remains positive as governments continue to support investments in STI to foster longer term growth. But fiscal pressures and continued slow growth in many countries will affect business investment decisions as well as the scope for public support. One implication is that there will arguably be greater pressure on governments to set strategic as well as thematic priorities for research and to improve effectiveness of innovation policies and instruments, given limits to public investments in research and in novation. In the longer term, the participation of emerging and developing economies in global R&D and innovation networks will re-draw the global map for STI, even if developed nations will continue to predominate in R&D. This reflects a change in the understanding of the role of and interplay between the creation and diffusion of technology. The notion in developmental theories that countries need to"exhaust" their potential for catching up before embarking on their "own" innovation and R&D activities is being challenged. This opens up avenues for mutual learning and multilateral collaboration in science, technology and innovation between developed and developing countries.
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Department of Science & Technology Ministry of Science & Technology Government of India

Stimulation of Investment of Private Sector into Research and Development in India

Bhan MK Brahmachari SK Nayak S Ramasami T (Co-Chair) Shukla BK (Co-Member Secretary)

Bhartia HS Forbes N Gopalakrishnan S Muthuraman B (Co-Chair) Das A (Co-Member Secretary)

Shri S Jaipal Reddy

Stimulation of Investment of Private Sector into Research and Development in India

Stakeholder Aspirations and Suggestions . . . . . . . . . . . . . . 20 Six Key Recommendations of JCIG . . . . . . . . . . . . . . . . . . . . . 37

1.0 Executive Summary

Stimulation of Investment of Private Sector into Research and Development in India

Stimulation of Investment of Private Sector into Research and Development in India

2.0 Work Elements Behind The White Paper

2.2 Formation and Constitution of JCIG

2.3 Statement of Main Tasks

global practices and classification of R&D heads as practiced

key enablers for stimulating private sector investments into

Studies and Stakeholder Consultations

Stimulation of Investment of Private Sector into Research and Development in India

Stimulation of Investment of Private Sector into Research and Development in India

0.075 0.047 0.15 0.083 UK France 0.06 Germany 0.058 Israel

0.12 0.15 0.075 South Korea Finland

Source: Arthur D. Little Analysis, OECD Website l Direct

incentives include grants, credits and public procurement

Stimulation of Investment of Private Sector into Research and Development in India

Nature of benefit available

Extent of income tax benefit available

Specific approval required from government No

IP to reside in the country No

Tax credit off No set against tax Yes Yes

Stimulation of Investment of Private Sector into Research and Development in India

Not applicable Yes Refundable Yes

Japan South Korea

Income tax Income tax & cash subsidy

Tax credits Tax credit

Carry forward Yes Carry forward No

Utilities, such as telephone, telex, electricity, water, and gas

Cost of computer software used in R&D activities

Prototyping Cost Pilot Plant Cost

Technology watch expenses

Industrial engineering and tooling up

Excluded Excluded Excluded Excluded

Stimulation of Investment of Private Sector into Research and Development in India

Stimulation of Investment of Private Sector into Research and Development in India

German United l Improves collateral situation and

financial guarantees for loans should the firm be unable to repay

Stimulation of Investment of Private Sector into Research and Development in India

Scheme German United Loan Guarantees

Israeli R&D policy

l The main OCS program (the

becomes the guarantor in this case.

is not obligated to return the funding and it becomes a grant. Japan

International Cooperation Loan Guarantee scheme

guarantees and accepts burden

Korea Credit Guarantee Fund (KODIT)

l KODIT guarantees loans from

Stimulation of Investment of Private Sector into Research and Development in India

3.0 Stakeholder Aspirations and Suggestions

3.1 Data validation of private sector's investment in R&D in India

Stimulation of Investment of Private Sector into Research and Development in India

Tax foregone in R&D

Source : Ministry of Finance, Govt of India website

Published research by Dr. Bagchi, ASCI, Hyderabad

Stimulation of Investment of Private Sector into Research and Development in India

3.2 What expenditure of private sector should be considered as R&D expenditure