DST-CII White Paper on Stimulating Private sector investment in R&D

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In order to fulfill India’s aspiration to emerge as one of the top five knowledge powers in the world, private sector’s investments into Research & Development need to increase from its current 0.3% of GDP that is significantly lower than those in developed and other emerging economies. A Joint Committee of CII and government was constituted to develop a white paper for stimulating investments of private sector into R&D, to reach 1% of GDP with equal contribution from the Government during 12th Five Year Plan. After evaluating the global trends, India's current scenario and studying stakeholders' inputs and aspirations, the Joint Committee has addressed the issue holistically and made six key recommendations. The Joint Committee will also oversee the implementation of these recommendations on a time bound manner.
  • 1. Stimulation of Investment of Private Sector into Research and Development in India WHITE PAPER ON Department of Science & Technology Ministry of Science & Technology Government of India Report of The Joint Committee of Industry and Government (JCIG) 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)
  • 2. 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)
  • 3. Foreword 01 WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 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 significantincreases. The Ministry of Science and Technology constituted a Joint Committee of Industry and Government (JCIG) for preparing a white paper on policy environmentforstimulationofprivatesectorinvestmentintoR&DinIndia. JCIGhasnowsubmittedawhitepaper.Ithasmadesixkeyrecommendations 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 wideconsultationswithmajorstakeholdersandintensivedeliberations. 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 impactonIndianR&Dwouldbecometangibleandtraceable. 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 benefitsandwealthcreationfromR&DoutputsofIndia. ShriSJaipalReddy UnionMinisterofScience&technologyandEarthSciences 31May,2013 Shri S Jaipal Reddy Union Minister of Science & Technology and Earth Sciences, Government of India
  • 4. Acknowledgements WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 02 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 PrivateSectorintoResearch&DevelopmentinIndia. 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 consultationshavebeenusedasthebasisfordevelopingthiswhitepaper. 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,GovernmentofIndia. Ramasami T Muthuraman B Bhan MK Bhartia HS Brahmachari SK Gopalakrishnan S Das A Forbes N Nayak S Shukla BK
  • 5. WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia CONTENTS Page no. Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01 Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02 1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05 2 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 Stakeholder Aspirations and Suggestions . . . . . . . . . . . . . . 20 4 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 03
  • 6. 05 WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 1.0 ExecutiveSummary 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 otheremergingeconomies.A JointCommittee of Industry and Government (JCIG) has been constituted to develop a whitepaperforstimulatingtheinvestmentsofprivatesectorintoR&D. The JCIG has studied global practices, held wide consultations with stakeholders andhasmaderecommendations. After evaluating the global trends, India's current scenario and studying stakeholders' inputs and aspirations, the JCIG has addressed theissueholisticallyandmadesix keyrecommendations. 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 under- estimated. Hence, redefining private sector investments into R&D as per global norms and capturing all relevant data for reassessing privatesectorengagementsseemanecessarystep. 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. c) The JCIG has recognized a need for special thrust in some priority areas and sectors for building global leadership and to develop and
  • 7. WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 06 deploytechnologysolutionsofrelevancetoIndiansociety.Hencea comprehensive strategy, and implementing mechanism including risk and failure management procedures for select sectors of interesttoprivatesectorisnecessary. 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 rationalizationprocessesenacted. 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 intheprivatesectorforresearchorientedfunctions. f) Commercialization of R&D outputs is a key step. Public-Private- Partnerships and well designed incentive mechanisms to trigger commercialization of R&D outputs would be required to stimulate privatesectorinvestmentintoR&D.
  • 8. 07 WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 2.0 The White Paper Work Elements Behind 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 thepublicsector. 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 expertise- arbitrage of Indian R&D systems for early leads, while Indian 2.1 Motivation
  • 9. WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 08 Corporate sector is focused on R&D with shorter time to market- needs. 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 publicfundedR&Dshouldbeincreasedsignificantly. 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 test- beds 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&Dcostsinmanycountries. Both,theGovernmentandIndustryinIndiaareequallyconcerned 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 sub- committeeonPM'sCouncilonTradeandIndustryforPPPforR&D and clean energy is that the policy environment would need to be triggeredforstimulationofinvestmentofPrivatesectorintoR&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 publicinvestmentplannedtobeinvestedduringtheplanperiods. 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 intoR&DinIndia. 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 2.2 FormationandConstitutionofJCIG
  • 10. 09 WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 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 JCIGanditsTermsofReferenceisgiveninAnnexure1. 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 Planperiod. Dr.T. Ramasami, Secretary DST and Mr.B Muthuraman are the Co- Chairsofthecommittee.OthermembersareMr.HariBhartia,Mr. Kris Gopalakrishnan, Dr. Naushad Forbs and Secretaries of DBT, DSIR and Ministry of Earth Sciences. The Committee met twice th th on 7 May and 13 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 draftbackgroundnoteforfurtherconsultationsandrefinements. 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. 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 hasmadeseveralcallstothePrivateSectortoinvestintoR&Dand 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 investmentsintoR&D. 2.3 Statementof MainTasks
  • 11. WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 10 S&T Department /Agency 12thPlan (2012-17) Outlay (Rs. Cr) 1 Department of Atomic Energy (R&D sector) 19,878 2 M/o Earth Sciences 9,506 3 Department of Science & Technology 21,596 4 Department of Biotechnology 11,804 5 Department of Scientific and Industrial Research 17,896 including CSIR 6 Department of Space 39,750 Grand Total 1,20,430 th Indicative Outlay for 12 Five Year Plan Central Scientific Ministries/Departments/Agencies th Source: Draft 12 Five Year Plan 2012-17, Volume – 1 ,Planning Commission, GOI document ThetablebelowoutlinesanapproximatephasingofinvestmentofPublicand th PrivatesectorintoR&Dduringthe12 Plan Year 2011 2012 2013 2014 2015 2016 Share of Public investment 76% 73% 67% 61% 56% 50% as % of R&D investment in public sector. Share of industry sector 24% 27% 33% 39% 44% 50% investment as % of R&D investment. th Source: Report of the Steering Committee on S&T for the formulation of 12 Five Year Plan th 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 socio- economic ministries as well as academic and state sectors. The table also presents an approximate phasing to achieve the target of1%ofGDPeachasmentionedabove. Given the current levels of investment of the private sector, an approximately 8 fold increase in the engagement of the private sector into
  • 12. 11 WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia th R&Dwouldbecomenecessaryifthetargets of12 planforR&Dsectorswere tobefullyrealized. 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 privatesectorintoR&Dandestablishingacontinuousupdating 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 investmentsintoR&D,thepolicyenvironmentinIndiaaswellasclassification 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 followingfivemajortasksinordertoarriveattherecommendations:. Studying global practices and classification of R&D heads as practiced globally RevalidatingthedataonprivatesectorinvestmentsintoR&DinIndia Identifying key enablers for stimulating private sector investments into R&D Studying various policy instruments deployed by other countries for maximizing the provisions and benefits of PPP for R&D as tools of change inmanufacturingand Suggesting measures for implementation with industrial sector driving thedesiredchangesintheprivatesector The JCIG assigned the CII team the task of carrying out the following studies with a view to global benchmarking of the private sector investmentintoR&DinIndia l l l l l 2.4 Studies and Stakeholder Consultations
  • 13. WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 12 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 inIndiaandothercountries. 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 inIndiaandinothercountries? 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 availingsuchincentivesinIndiaandinothercountries? 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)ofR&DinIndiaandothercountries? e) R&DHumanResource-HowR&DHumanResourcesaredeveloped, incentivized and trained on industrial R&D for delivering results through Private, Public & PPP mode of R&D in India in comparison toothercountries? 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 nextsectionwhilemaking therecommendationsofJCIG.
  • 14. 13 WHITEPAPERON StimulationofInvestmentofPrivateSectorinto ResearchandDevelopmentinIndia 2.4.1 Governments provide support to R&D ecosystem in the form of incentives which are broadly classified into direct and indirect categories. 0.18 0.083 0.15 0.06 0.058 0.03 0.15 0.075 0.045 0.047 0.075 0.08 0.12 0.185 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 USA UK France Germany Israel Japan South Korea Finland Indirect government support through R&D tax incentives Direct Government funding of BERD Source: Arthur D. Little Analysis, OECD Website % of GDP l l l l Direct incentives include grants, credits and public procurement o VariousdirectincentiveshavedifferentialimpactontheR&Dcosts o R&D grants and loans affect the cost of performing R&D, but contracts usually awarded through competitive bidding do not directlyaffectthecostofperformingR&D o Countries
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