Structural complexities of investment in research sector

Although it is true that a developing country spends less on R&D because it has the scope to borrow new technology from rich countries. However, even doing this requires some level of R&D. When the Green Revolution took place in India, the country was able to introduce high yielding seed varieties developed elsewhere because it had its own R&D infrastructure to adapt them to Indian conditions.

India was also successful in the field of pharma as it had sufficient research capabilities to produce reverse engineered pharmaceuticals and generic drugs.

A major share of India’s R&D is spent in health (18 percent), agriculture (13 percent), space (9 percent) and defense (17 percent), while less than 10 percent is spent in industrial production, technology, transportation and telecommunications.

The lack of expenditure in the R&D sector in India is due to the low contribution of the private sector and not the public sector, whereas the R&D budget in this sector should be much higher.

Now the question is also why the Indian private sector spends so little on research and development? We know that knowledge is not so easy to protect. It can be easily stolen or even disappear completely especially if this knowledge is with the person doing the research.

Why do private companies invest less in R&D? Corporate tax incentives for R&D were given in India for many years but these were abolished with the reduction in corporate tax in the year 2018. One argument given for this was that previous tax incentives had not led to any significant increase in R&D. However, it is also possible that their structure may not be correct due to which this may not have happened.

Obviously, the way forward is to create better incentive schemes for private sector R&D investment. Along with this, our big universities and institutes will have to be properly attracted towards the system of research and development instead of insisting that R&D should be limited to some places and we should be satisfied with its limited findings.

Instead of imposing a 2 percent tax on the net profits of private companies, it would be more helpful if the private sector’s energy was focused on investing more in R&D.

Ajay Chhibber