Indian Economy
R&D Expenditure Ecosystem in India
- 25 Jul 2019
- 6 min read
The report titled “Research and Development (R&D) Expenditure Ecosystem” was also released during the global launch of Global Innovation Index (GII)–2019 by the Economic Advisory Council to the Prime Minister (EAC-PM).
- The objectives of the report are:
- To address the data gaps in compiling R&D data so that up to date data on R&D is available in order to reflect India’s true rank globally.
- The second objective is to examine expenditure trends in various sectors and their shortcomings.
- The final objective is to lay down the road map for achieving the desired target of R&D spend by the year 2022, i.e 2% of the GDP.
Economic Advisory Council to the Prime Minister
- Economic Advisory Council to the Prime Minister (EAC-PM) is a non-constitutional, non-statutory, independent body constituted to give advice on economic and related issues to the Government of India, specifically to the Prime Minister.
- As of July, 2019, the Council consists of: Dr. Bibek Debroy (Chairman), Shri Ratan P. Watal (Member Secretary), Dr. Rathin Roy (Part-Time Member), Dr. Ashima Goyal (Part-Time Member) and Dr. Shamika Ravi (Part-Time Member).
- The terms of reference of EAC-PM are:
- Analyzing any issue, economic or otherwise, referred to it by the Prime Minister and advising him thereon,
- Addressing issues of macroeconomic importance and presenting views thereon to the Prime Minister.
- These could be either suo-motu or on reference from the Prime Minister or anyone else.
- It also includes attending to any other task as may be desired by the Prime Minister from time to time.
Recommendations
- The growth in research and development (R&D) expenditure should be commensurate with the economy’s growth and should be targeted to reach at least 2% of the Gross Domestic Product (GDP) by 2022.
- The line ministries at the Centre could be mandated to allocate a certain percentage of their budget for research and innovation for developing and deploying technologies as per the priorities of the respective ministries.
- To stimulate private sector’s investment in R&D from current 0.35% of GDP, it is suggested that a minimum percentage of turn-over of the company may be invested in R&D by medium and large enterprises registered in India.
- To help and keep the industry enthused to invest in R&D, the weighted deduction provisions on R&D investment should continue.
- The states can partner Centre to jointly fund research and innovation programmes through socially designed Central Sponsored Schemes (CSS).
- The report also pitched for creating 30 dedicated R&D Exports Hub and a corpus of Rs 5,000 crore for funding mega projects with cross cutting themes which are of national interest.
Background
- Investments in R&D are key inputs in economic growth. The impact of this is proven on productivity, exports, employment and capital formation.
- India’s investment in R&D has shown a consistent increasing trend over the years.
- However, as a fraction of GDP, it has remained constant at around 0.6% to 0.7%.
- This is below the expenditure of countries like the US (2.8), China (2.1), Israel (4.3) and Korea (4.2).
- Government expenditure, almost entirely the Central Government, is the driving force of R&D in India which is in contrast to the advanced countries where the private sector is the dominant and driving force of R&D spend.
- There is a need for greater participation of State Governments and the private sector in overall R&D spending in India especially in application oriented research and technology development.
- Earlier in 2018, the Prime Minister of India had underlined that there should be greater emphasis on collaborative R&D by the Central Public Sector Enterprises (CPSEs) with a focus on partnerships with Indian Institute of Technologies and Universities.
- Consequently, one hundred fifty-four such innovation cells have been set up by CPSEs which will work on market oriented research.
- From the year 2014-15 to 2017-18, there has been an increase of 116% in R&D spending by CPSEs.
- CPSEs of the petroleum and power sector are the biggest spenders in R&D. Therefore, the need of the hour is that all CPSEs must come on board for higher spend on R&D.
