Some time ago, the Prime Minister had announced that India should promote itself as a global hub for research and development (R&D). The move is timely given the growing global interest in India?s capabilities in knowledge-driven industries and its low-cost scientific and technical manpower. But just a cursory look at the R&D scene in India reveals that the realisation of that goal and leveraging our advantage would require a new approach to policy and delivery mechanisms.

R&D spend in India remains below 1 per cent of GDP, way below the 2.5-3 per cent range in advanced countries and those such as Israel and Korea. The composition of R&D spending is weighed in favour of the Central government that accounts for around two-thirds of the expenditure and another 20 per cent comes from public sector units/state governments. Private sector contributes only about 15 per cent to the total. India?s aspiration to become a global R&D hub implies that national spending would have to jump around two-and-a-half to three times in the next few years or whatever the target date is.

With the growing role of the private sector in the economy following the ?90s reform, the diminishing role of public sector in industry, and also the fiscal constraint facing the Centre and states, the biggest increase in R&D spend will have to come from the private sector. This is where the challenge lies. Currently, there are fiscal incentives for promoting R&D such as 100 per cent deduction for revenue and capital spending on R&D. Further, there is a weighted deduction of 125 per cent for sponsors of research programmes in universities/IITs and approved national labs and of 150 per cent to companies in select areas such as pharmaceuticals, electronic and telecom equipment, computers, chemicals etc. Thus far these incentives have failed to produce the desired result. Commitment to R&D cannot be a statutory requirement but can only be driven the needs of the market and competition.

For years, the private sector was hemmed in by a plethora of controls ranging from what to produce to how to produce, including selection of technology and its price. It was required to sell in a protected market and was even barred from a number of areas. Expectedly, despite a decade of post-reform market-driven growth, the size of Indian private sector companies remains abysmally small when compared to their counterparts in advanced nations. Only two Indian private companies make it to the Fortune 500 list and only a handful of them have a turnover of over a billion dollars.

Research and new product development is an expensive and high-risk activity and even the bigger Indian companies lack the muscle to withstand the shock of failure. For example, had the Indica failed, Tata Motors may have found it difficult to survive the shock. Ditto for Mahindra & Mahindra?s launch of the Scorpio last year. Policy would, therefore, have to focus on how to reduce the cost of R&D for corporates by elimination of all taxes and simplification of procedures.

Second, the current incentive framework is narrowly focused on hi-tech areas like IT and pharma and ignores manufacturing. This mindset has to change. India is now emerging as a competitive player in skill-intensive manufacturing and this needs to be supported. Indeed, as contract farming and private extension services to farmers increase, manufacturing can play a major role in transforming agriculture.

Third, the interface between government and university R&D establishment and the corporate sector needs to be redefined. The availability of research infrastructure in the government sector and its sharing with private companies can also reduce costs provided an appropriate revenue model acceptable to private companies is developed for these labs. At the moment, they are unable to define proper terms of engagement with the private sector, and new initiatives here can help faster commercialisation of technologies developed by CSIR labs, ICAR and DRDO. The success of the Indian private sector in R&D would pull in more foreign players towards India. Lastly, quality of scientific and technical manpower needs to be improved. The move to increase the number of IITs has to be supplemented by allowing not just trusts and societies but private companies to invest in education.

The author is an advisor to Ficci. Views expressed herein are personal