1. Aggressive on R&D

Aggressive on R&D

Public sector is a major spender on research and innovation

By: | Published: August 12, 2015 12:03 AM

Research & development, innovation and constant upgradation of technology are crucial for economic growth. India’s dependency on developed countries for technology is a matter of concern. A culture of R&D and technology upgradation can raise the country’s productivity and complement the government’s Make in India programme.

The public sector has been investing aggressively on R&D. In the three years from 2011-12 to 2013-14, central public sector enterprises (CPSEs) cumulatively spent Rs 19,324 crore on R&D. The figure assumes added significance given that India’s share in global R&D spend remains stuck at the low 2.7% ( as per Battelle forecast for 2014), compared to 31.1% and 17.5% for the US and China, respectively, and that the country ranks 76th in the Global Innovation Index, below BRICs countries like Brazil and China.

While the department of public enterprises guidelines stipulate R&D expenditure of at least 1% of net profit for Maharatna and Navratna PSEs and 0.5% for mini-Ratnas and others, the actual spending by some PSEs, especially those in the defence sector, has been much higher.

In 2013-14, Bhel led the way by spending Rs 1,114 crore on R&D, which works out to 32% of the company’s net profits. Hindustan Aeronautics spent 40% of its profits (Rs 1,083 crore) while Bharat Electronics Ltd spent Rs 467 crore, which was half of its profits of Rs 932 crore.

Among non-defence PSEs which went beyond the mandatory spend, ONGC, Indian Oil, Hindustan Petroleum and Steel Authority are prominent. While hydrocarbon upstream major ONGC spent Rs 530 crore or 2.4% of its net profit of a whopping Rs 22,095 crore,  IOC invested 2.5% of its Rs 7,019 crore profit, Sail, 5.7% and HPCL 5.8% of their net profits during 2013-14. Power major NTPC spent 1.2%, but that works out to over R130 crore given that it earned Rs 10,975 crore in profit that year.

Public enterprises are constantly scouting for new technologies and acquisitions to stay abreast of the technological advances globally. Many PSEs have established dedicated R&D centres and centres of excellence for technology upgradation and breakthroughs. Thanks to such efforts, the products manufactured by some of the PSEs are highly technology intensive.

To encourage PSEs to spend on research, the government has assigned 5% weightage to R&D in the memorandums of understanding signed with them. Since PSEs have been playing a leading role in the government’s planned development process and heartily supporting its economic revival drive, the government has scaled up capital expenditure investment target for CPSEs by 34% to Rs 3.17 lakh crore in 2015-16.

The investment made by PSEs in technology should help them play a key role in the Make in India programme, being promoted by the government to raise the share of domestic manufacturing from 16% to 25% of GDP by 2025, with an eye on creating 100 million jobs.

Defence manufacturing and space, electricity machinery, renewable energy, oil & gas and mining are the sectors where the public sector has a sizeable presence and can play a crucial role. Energy, power and steel are key inputs for the manufacturing industry.

With the government focusing on domestic manufacturing of equipment for defence forces, nine defence PSEs, including HAL, BEL, BEML, Mazagon Dock and Bharat Dynamics which spent Rs 1,725 crore towards R&D in 2013-14 are set to play a critical role in helping India emerge as a manufacturer of high-tech weapon systems.

The public sector has been a major source of strength to the Indian economy. With more and more PSEs taking to R&D to face up to competition and with their robust institutional mechanism promoting an R&D culture, PSEs are geared to contribute significantly to the country’s domestic manufacturing industry.

The author is director-general, Scope

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