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July 28, 2022

Indian Economy|Development Strategy

A grand strategy for technology

By Nitin Desai


A grand strategy for technology

Nitin Desai

India cannot count on businesses to lead its technological drive 

A grand strategy for development that looks decades ahead, not just years, requires a rethink in many areas of development policy. One such area is technology development. India’s research & development (R&D) spending as a percentage of gross domestic product (GDP) is way below that of major economies — 0.67 per cent in 2018-19 as against over 2 per cent in China and the European Union, over 3 per cent in the US and Japan and a whopping 4.5 per cent in South Korea. Moreover, while this percentage has stagnated in India, it has risen steadily in the other major economies. The discrepancy may be less striking if one looks at the numbers employed in R & D because of the lower salaries in India. But in terms of outcomes, the relative spending numbers are not misleading.

The Union government accounts for about 45 per cent of the spending. About 60 per cent of this is on defence, space, atomic energy and agriculture, with significant technological gains in the last three. But it does mean that the Union government is not a major player in industrial or service sector R&D and depends largely on the private and public sector companies. Most of these are not technology developers but adapters of imported technology with perhaps some work on product development. A grand strategy for technology that looks ahead at decades must change this.

The R&D model that we should look at is what made the US the leading force in technology development in the latter half of the 20th century, which saw path-breaking developments in information technology, communication, medicine, space exploration, energy, and a lot more. The US played a pioneering role in most of these areas. Because of its strongly free enterprise-oriented economic philosophy, it is sometimes believed that the roots of this leadership lie in the private sector. That is not quite correct. The leadership was provided by the Federal government, not just in defence and space technology, but also in other areas.

This comes across very clearly in the graph, which shows Federal and business R&D spending as a percentage of GDP. As this graph shows, the leadership of the Federal government began in the early 1950s and grew rapidly till the mid-60s when its R&D spending reached 1.86 per cent of GDP, while the business R&D spending grew slowly only to 0.86 per cent of GDP. This was the period when the Federal government promoted research in new areas. They set up the Defense Advanced Research Projects Agency (DARPA), which supported projects that were not just incremental but revolutionary. The most spectacular example of this adventurous approach to R&D is the support they gave for the development of the Internet at a time when even the word “internet” was not known!

The Federal government spent money on technology projects that had a time horizon of 15-20 years to come to fruition, something that a commercial enterprise would seldom do. But their focus was on technologies that would be taken up when they had matured by private businesses. Even in areas like defence and space, where the primary user was the Federal government, determined efforts were made to associate the private sector. The goal of energising business R&D was attained and from the late 1980s onwards. Business R&D grew rapidly from the 1990s onwards often on commercialisation of technologies pioneered through the Federal R&D spending rather than on basic or applied research, which still needs heavy public support.

In the US, the government continues to play a major role in promoting very forward-looking research, even now. For instance, the Federal government has set up an Advanced Research Project Agency-Energy (ARPA-E) and a fund for promoting Energy Frontier Research Centres in Universities. In the pharmaceutical sector, Federal spending on R&D through the National Institute of Health amounts to $41.7 billion, mainly as grants to universities but also to finance its own laboratories, which employ 6,000 scientists. It is estimated that 75 per cent of the new molecules for medical treatment come from public investment. Business R&D in pharmaceuticals is more on value addition to a medicine, often to extend its patent life.

The key challenge is the funding of the transition from the results obtained in basic and applied research to commercial development of technology. This needs angel investors who are ready to take chances on projects that have not yet proved their commercial viability. But because this is not something that is done readily by private investors, the US government provides 20-25 per cent of funding for early-stage technology firms. Compaq, Intel and Apple are some of the companies that have benefited from this Federal largesse. The venture funds came later because they invest in ventures that are sufficiently commercialised to deliver returns in five to seven years through initial public offerings or merger/acquisitions, and their horizon is too short for commercialising nascent technologies.

From the point of view of technology development, India is at the stage where the US was in the 1950s and ’60s. We cannot count on businesses to lead our technological drive. At this stage of development, the most important priority is to do what the US did in the ’50s and ’60s. Our grand strategy for technology development must include:

  • A five-fold increase in Union government spending on R&D from 0.3 per cent of GDP at present to 1.5 per cent of GDP in 3-5 years’ time; to be used not just to fund government research laboratories, but to promote a broader base for basic and applied research.
  • The reorganisation of Union government science & technology departments into mission-oriented set-ups that reach out to research capacities outside the government with a performance assessment that empowers them to take risks of failure.
  • Connecting the private sector better with focused mission-oriented research institutions like the Defence Research and Development Organisation, and Space Commission.
  • New mission-oriented programmes focussed on emerging challenges like climate change, bioeconomy and long-term opportunity potentials like nanotechnology, artificial intelligence. Strengthening of University/IIT research capacity with a substantial increase in research grants, built around key technology goals.
  • Setting a soft target for large corporations on their R&D spending as a proportion of their profits. A better link between government R&D spending and the private sector, particularly with a provision for angel investment in high-technology start-ups.

India already has a global presence in some areas of technology like chip design and pharmaceutical end- products. A new grand strategy for R & D that promotes a symbiotic relationship between government, business and research institutions in a broader area can make it a major global technology player in a decade or two.

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