The role of Research and Development (R&D) as a driver of economic growth is irrefutable. Studies have shown that R&D spending can increase productivity and further raise output. The validity of this hypothesis has led to increasing R&D expenditure by almost every government across countries.

Further, the role of government is rationalised due to the public nature (non-excludable and non-rivalrous) of knowledge which is an externality of R&D. Over the years, it has been proven that government intervention in R&D has been invaluable to areas such as health, defence, space, and agriculture; areas which have shown, and are likely to show, low private investment.

Era of dirigisme

However, the history of science and technology policies (STP) shows that the objective of the policy was not always to achieve economic growth. The world witnessed the evolution of STP with a marked shift from ‘guns’ in 16th century England, to ‘butter’ in 19th century Denmark. Technology policies related to ‘guns’ modified existing property rights and leveraged public procurement as a policy instrument to achieve national security. In parallel, the policies concerning ‘butter’ or diffusion of dairy techniques paved way for the establishment of the Agricultural University in Copenhagen in 1856.

It was from the mid-20th century (post World War II and the advent of the Cold War), that various countries began to focus on medical research. Further, the Soviet Union, China, and several Western economies framed science policies that were motivated by national prestige and ideological competition between the East and West. Consequently, the goal of scientific research (both basic and applied) became societal welfare, economic growth, and national security.

Era of Laissez Faire

Nevertheless, with increasing government spending, a phenomenon contrary to the popular belief was also observed in many countries. The returns to R&D spending beyond a certain point was seen exhibiting diminishing marginal returns as government R&D funding was found to be crowding out private R&D investments. However, not much is known about the threshold after which the returns to government R&D spending become negligible. From the 1980s developed economies started witnessing a paradigm shift wherein the share of private R&D in the pie of gross R&D spending started increasing.

Interestingly, this change was also reflected in national science and technology policies. The intent of commercialisation started dominating the public discourse on scientific research. These policies started focusing on strengthening the linkages between universities, industries, and laboratories, backed by consistent capacity building and patent laws, in order to achieve industrial competitiveness– also known as the national innovation system approach.

STP in India

The history of science policy in India can be traced back to 1958 with the release of the Science Policy Resolution followed by the Technology Policy statement in 1983 that aimed to achieve self-reliance on technology. In India, a formal Science and Technology Policy saw the light of the day only in 2003, which aimed to increase R&D investments.

After almost a decade, the Department of Science and Technology (DST), Government of India has released ‘Draft 5th Science, Technology and Innovation Policy (STIP)’ for public consultation. The National STIP which is still at the draft stage aims to achieve technological self-reliance, build and retain human capital and increase private R&D expenditure through a system approach. It proposes various fiscal and non-fiscal measures to achieve its goals. Along similar lines but with more tangible interventions, the Government of Tamil Nadu launched its R&D Policy in 2022 that aims to double government and private R&D spending in the State. One may observe that the governments at both national and subnational levels are increasingly adopting more of a supportive role, without directly getting involved in ‘performing’ the R&D.

Way forward

Strengthening the regional innovation systems will require dedicated cooperation from the Central Government. A research linked incentive (RLI) proposed by the Government of India may prove to be a crucial step at this juncture, but not without proper definitions and standards in place. For instance, should RLI treat process improvement and product development in the same fashion? At what stage of R&D should the incentive be offered? Should the Government of India establish its definitions for identification of R&D or should it follow the standard nomenclatures prescribed by Frascati and Oslo Manuals for OECD? These are among the many questions that the Centre will be required to think through in the coming days.

But to start with, a robust strategy should be formulated for collecting private and government R&D spending data by leveraging cooperative federalism. While India’s Gross Expenditure on R&D (GERD) is considerably lower (at about 0.7 per cent of GDP) as compared to OECD countries (average GERD to GDP of OECD countries is above 2.5 per cent), its performance in the Global Innovation Index is commendable (40th Rank out of 132 in 2022). One can only take a wild guess that India has not yet reached the threshold point beyond which the returns to Government R&D are diminishing. But even if one argues otherwise, it is beyond doubt that an optimal strategy mix of dirigisme and laissez-faire is required to create an impetus for private R&D spending which can further enhance regional and national innovation systems.

Chakravarty is Associate Vice President, Guidance Tamil Nadu; Krishnan is Additional Chief Secretary to Govt. Industries, Investment Promotion and Commerce Department, Govt of Tamil Nadu. Views are personal

Related Topics