Stimulation of Investment of

Private Sector into

Research and Development in India
WHITE PAPER ON
Department of Science & Technology
Ministry of Science & Technology
Government of India
Report of
The Joint Committee of Industry and Government (JCIG)
May 2013
Bhan MK
Brahmachari SK
Nayak S
Ramasami T (Co-Chair)
Shukla BK (Co-Member Secretary)
Bhartia HS
Forbes N
Gopalakrishnan S
Muthuraman B (Co-Chair)
Das A (Co-Member Secretary)
Bhan MK
Brahmachari SK
Nayak S
Ramasami T (Co-Chair)
Shukla BK (Co-Member Secretary)
Bhartia HS
Forbes N
Gopalakrishnan S
Muthuraman B (Co-Chair)
Das A (Co-Member Secretary)
Bhan MK
Brahmachari SK
Nayak S
Ramasami T (Co-Chair)
Shukla BK (Co-Member Secretary)
Bhartia HS
Forbes N
Gopalakrishnan S
Muthuraman B (Co-Chair)
Das A (Co-Member Secretary)
Foreword
01
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Aspirations of Indian Science Sector are rising. If India were to emerge as a
global leader in science, private sector investments into R&D must undergo
significant increases.
The Ministry of Science and Technology constituted a Joint Committee of
Industry and Government (JCIG) for preparing a white paper on policy
environment for stimulation of private sector investment into R&D in India.
JCIG has now submitted a white paper. It has made six key recommendations
for stimulating the private sector investments into R&D. It is hoped that the
private sector investments into R&D would match those of public sector by
the end of 12th Plan period. The white paper, I see, has been prepared after
wide consultations with major stakeholders and intensive deliberations.
The white paper is now available for detailed examination by both industry
and government for early implementation. I sincerely hope that the key
recommendations would be acted upon in a time bound manner and their
impact on Indian R&D would become tangible and traceable.
I congratulate the Co-chairs and all distinguished members of the Joint
Committee for carrying out a commendable work. I expect some
transformational changes in the Indian Science Sector leading societal
benefits and wealth creation from R&D outputs of India.
Shri S Jaipal Reddy
Union Minister of Science & technology and Earth Sciences
31 May, 2013
Shri S Jaipal Reddy
Union Minister of Science & Technology
and Earth Sciences, Government of India
Foreword
01
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Aspirations of Indian Science Sector are rising. If India were to emerge as a
global leader in science, private sector investments into R&D must undergo
significant increases.
The Ministry of Science and Technology constituted a Joint Committee of
Industry and Government (JCIG) for preparing a white paper on policy
environment for stimulation of private sector investment into R&D in India.
JCIG has now submitted a white paper. It has made six key recommendations
for stimulating the private sector investments into R&D. It is hoped that the
private sector investments into R&D would match those of public sector by
the end of 12th Plan period. The white paper, I see, has been prepared after
wide consultations with major stakeholders and intensive deliberations.
The white paper is now available for detailed examination by both industry
and government for early implementation. I sincerely hope that the key
recommendations would be acted upon in a time bound manner and their
impact on Indian R&D would become tangible and traceable.
I congratulate the Co-chairs and all distinguished members of the Joint
Committee for carrying out a commendable work. I expect some
transformational changes in the Indian Science Sector leading societal
benefits and wealth creation from R&D outputs of India.
Shri S Jaipal Reddy
Union Minister of Science & technology and Earth Sciences
31 May, 2013
Shri S Jaipal Reddy
Union Minister of Science & Technology
and Earth Sciences, Government of India
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Acknowledgements
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02
CONTENTS
Page no.
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02
1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05
2 Work Elements Behind The White Paper . . . . . . . . . . . . . . . 07
2.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07
2.2 Formation and Constitution of JCIG . . . . . . . . . . . . . . . . . . . . . 08
2.3 Statement of Main Tasks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09
2.4 Studies and Stakeholder Consultations . . . . . . . . . . . . . . . . . . 11
3 Stakeholder Aspirations and Suggestions . . . . . . . . . . . . . . 20
4 Six Key Recommendations of JCIG. . . . . . . . . . . . . . . . . . . . . 37
Annex-1 The composition of the JCIG and its Terms. . . . . . . . . . . . 42
of Reference
Annex-2 Background on Global Trends . . . . . . . . . . . . . . . . . . . . . . 45
The Joint Committee of Industry & Government would like to thank the
Department of Science & Technology, Government of India for the
opportunity to develop the White Paper on Stimulation of Investment of
Private Sector into Research & Development in India.
A comprehensive study of the current national scenario in private sector
investment in R&D and practices adopted by many other countries in this
area as well as feedback and suggestions from wide stakeholder
consultations have been used as the basis for developing this white paper.
The Joint Committee acknowledges with thanks all those who made
important suggestions and provided inputs in the preparation of this White
Paper. We are pleased to submit this report to the Ministry of Science &
Technology, Government of India.
Ramasami T Muthuraman B
Bhan MK Bhartia HS
Brahmachari SK
Gopalakrishnan S
Das A
Forbes N
03
Nayak S
Shukla BK
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Acknowledgements
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02
CONTENTS
Page no.
Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 01
Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 02
1 Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05
2 Work Elements Behind The White Paper . . . . . . . . . . . . . . . 07
2.1 Motivation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07
2.2 Formation and Constitution of JCIG . . . . . . . . . . . . . . . . . . . . . 08
2.3 Statement of Main Tasks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09
2.4 Studies and Stakeholder Consultations . . . . . . . . . . . . . . . . . . 11
3 Stakeholder Aspirations and Suggestions . . . . . . . . . . . . . . 20
4 Six Key Recommendations of JCIG. . . . . . . . . . . . . . . . . . . . . 37
Annex-1 The composition of the JCIG and its Terms. . . . . . . . . . . . 42
of Reference
Annex-2 Background on Global Trends . . . . . . . . . . . . . . . . . . . . . . 45
The Joint Committee of Industry & Government would like to thank the
Department of Science & Technology, Government of India for the
opportunity to develop the White Paper on Stimulation of Investment of
Private Sector into Research & Development in India.
A comprehensive study of the current national scenario in private sector
investment in R&D and practices adopted by many other countries in this
area as well as feedback and suggestions from wide stakeholder
consultations have been used as the basis for developing this white paper.
The Joint Committee acknowledges with thanks all those who made
important suggestions and provided inputs in the preparation of this White
Paper. We are pleased to submit this report to the Ministry of Science &
Technology, Government of India.
Ramasami T Muthuraman B
Bhan MK Bhartia HS
Brahmachari SK
Gopalakrishnan S
Das A
Forbes N
03
Nayak S
Shukla BK
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1.0 Executive Summary
India aspires to emerge as one of the top five knowledge powers in the
world in the area of Science, Technology and Innovation. Such
aspiration demands bench marking against global best practices in
shaping the Indian research and development sector. While public
investments meet nearly global benchmarks of 0.7% of GDP in India,
private sector engagements into R&D are significantly lower than
those in developed and other emerging economies. A Joint Committee
of Industry and Government (JCIG) has been constituted to develop a
white paper for stimulating the investments of private sector into R&D.
The JCIG has studied global practices, held wide consultations with
stake holders and has made recommendations.
After evaluating the global trends, India's current scenario and
studying stakeholders' inputs and aspirations, the JCIG has addressed
the issue holistically and made six key recommendations.
a) The entire value chain of Industrial R&D includes R&D in the
laboratory; Pilot production/Test beds/design & development/
Standardizations / field trials, etc.; and Pre-commercialization trial
productions. Computation of expenditure of private sector into
the entire value chain seems appropriate. Currently used criteria
for computation of R&D investments by Indian industry do not
seem to cover the entire value chain. It seems possible that the
extent of private sector investments into R&D is being under-
estimated. Hence, redefining private sector investments into R&D
as per global norms and capturing all relevant data for reassessing
private sector engagements seem a necessary step.
b) Make it mandatory for all Public Sector Units and the Corporate
Sector to report and declare investments into R&D in the Annual
Report.
c) The JCIG has recognized a need for special thrust in some priority
areas and sectors for building global leadership and to develop and
05
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1.0 Executive Summary
India aspires to emerge as one of the top five knowledge powers in the
world in the area of Science, Technology and Innovation. Such
aspiration demands bench marking against global best practices in
shaping the Indian research and development sector. While public
investments meet nearly global benchmarks of 0.7% of GDP in India,
private sector engagements into R&D are significantly lower than
those in developed and other emerging economies. A Joint Committee
of Industry and Government (JCIG) has been constituted to develop a
white paper for stimulating the investments of private sector into R&D.
The JCIG has studied global practices, held wide consultations with
stake holders and has made recommendations.
After evaluating the global trends, India's current scenario and
studying stakeholders' inputs and aspirations, the JCIG has addressed
the issue holistically and made six key recommendations.
a) The entire value chain of Industrial R&D includes R&D in the
laboratory; Pilot production/Test beds/design & development/
Standardizations / field trials, etc.; and Pre-commercialization trial
productions. Computation of expenditure of private sector into
the entire value chain seems appropriate. Currently used criteria
for computation of R&D investments by Indian industry do not
seem to cover the entire value chain. It seems possible that the
extent of private sector investments into R&D is being under-
estimated. Hence, redefining private sector investments into R&D
as per global norms and capturing all relevant data for reassessing
private sector engagements seem a necessary step.
b) Make it mandatory for all Public Sector Units and the Corporate
Sector to report and declare investments into R&D in the Annual
Report.
c) The JCIG has recognized a need for special thrust in some priority
areas and sectors for building global leadership and to develop and
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06
deploy technology solutions of relevance to Indian society. Hence a
comprehensive strategy, and implementing mechanism including
risk and failure management procedures for select sectors of
interest to private sector is necessary.
d) JCIG records that current indirect incentives (such as 200%
Weighted Tax deductions) offered by the Indian Government are
one of the best in the world already. While retaining current direct
and indirect fiscal incentives, some rationalization for covering the
enti re val ue chai n of i ndustri al R&D and technol ogy
commercialization may be examined and simplification and
rationalization processes enacted.
e) The key to research is a qualified Human Resource. It will be
imperative to build a large pool of quality professionals suited for
industrial R&D and create both high value and a large volume of
employment in the private sector for research oriented functions.
f) Commercialization of R&D outputs is a key step. Public-Private-
Partnerships and well designed incentive mechanisms to trigger
commercialization of R&D outputs would be required to stimulate
private sector investment into R&D.
07
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2.0
The White Paper
Work Elements Behind

It is widely recognized that access to science-based innovations,
technologies and engineering would determine the global
competitiveness of Nations. Currently the global investments
into Research and Development are estimated at 1.2 trillion USD,
of these, the private sector is the major investor. In developed
and emerging economies, the private: public investments into
R&D are generally in the range of 2:1. On the other hand, in India
private investments into R&D are estimated at only half of that of
the public sector.
In countries where private sector engagement into R&D is large,
time to commercialization of technologies is shorter. The extent
of commercialization of outputs from public funded research is
generally lower. Hence, it is in the national interest of India to
stimulate the private sector engagement into R&D and aim at
Public : Private sector investments into R&D at levels of 1:1 by
2017.
Science derived innovations and technologies based on Research
and Development in India should focus on all three contributors
to economic growth, viz agriculture, manufacturing and
services.
Intellectual Properties generated through public funded
research, in the absence of a strong participation of the private
sector, could tend to focus on scientific publications in peer
valued journals as major outputs. In recent times, Indian Industry
has started investing in R&D in overseas entities, while
Multinational Companies invest into R&D in India for generation
of Intellectual Properties for global exploitation. These
tendencies indicate that MNCs are able to leverage expertise-
arbitrage of Indian R&D systems for early leads, while Indian
2.1 Motivation
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06
deploy technology solutions of relevance to Indian society. Hence a
comprehensive strategy, and implementing mechanism including
risk and failure management procedures for select sectors of
interest to private sector is necessary.
d) JCIG records that current indirect incentives (such as 200%
Weighted Tax deductions) offered by the Indian Government are
one of the best in the world already. While retaining current direct
and indirect fiscal incentives, some rationalization for covering the
enti re val ue chai n of i ndustri al R&D and technol ogy
commercialization may be examined and simplification and
rationalization processes enacted.
e) The key to research is a qualified Human Resource. It will be
imperative to build a large pool of quality professionals suited for
industrial R&D and create both high value and a large volume of
employment in the private sector for research oriented functions.
f) Commercialization of R&D outputs is a key step. Public-Private-
Partnerships and well designed incentive mechanisms to trigger
commercialization of R&D outputs would be required to stimulate
private sector investment into R&D.
07
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2.0
The White Paper
Work Elements Behind

It is widely recognized that access to science-based innovations,
technologies and engineering would determine the global
competitiveness of Nations. Currently the global investments
into Research and Development are estimated at 1.2 trillion USD,
of these, the private sector is the major investor. In developed
and emerging economies, the private: public investments into
R&D are generally in the range of 2:1. On the other hand, in India
private investments into R&D are estimated at only half of that of
the public sector.
In countries where private sector engagement into R&D is large,
time to commercialization of technologies is shorter. The extent
of commercialization of outputs from public funded research is
generally lower. Hence, it is in the national interest of India to
stimulate the private sector engagement into R&D and aim at
Public : Private sector investments into R&D at levels of 1:1 by
2017.
Science derived innovations and technologies based on Research
and Development in India should focus on all three contributors
to economic growth, viz agriculture, manufacturing and
services.
Intellectual Properties generated through public funded
research, in the absence of a strong participation of the private
sector, could tend to focus on scientific publications in peer
valued journals as major outputs. In recent times, Indian Industry
has started investing in R&D in overseas entities, while
Multinational Companies invest into R&D in India for generation
of Intellectual Properties for global exploitation. These
tendencies indicate that MNCs are able to leverage expertise-
arbitrage of Indian R&D systems for early leads, while Indian
2.1 Motivation
09
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decision taken during the interactive session with Hon'ble MOS
th
(S&T) with private sector CEOs on 12 November 2011 in Mumbai,
the Department of Science & Technology constituted a Joint
Committee of Industry and Government. The composition of the
JCIG and its Terms of Reference is given in Annexure 1.
Terms of Reference for the JCIG was to prepare a white paper for
stimulating private sector investment in R&D and suggest policy
th
initiatives to the Government from time to time during the 12
Plan period.
Dr.T. Ramasami, Secretary DST and Mr.B Muthuraman are the Co-
Chairs of the committee. Other members are Mr. Hari Bhartia, Mr.
Kris Gopalakrishnan, Dr. Naushad Forbs and Secretaries of DBT,
DSIR and Ministry of Earth Sciences. The Committee met twice
th th
on 7 May and 13 July 2012 and deliberated on the subject and
discussed at length on various measures needed for "Stimulation
of Private Sector Investment into R&D in India". The suggestions
emanating from the meetings of JCIG were captured in form of
draft background note for further consultations and refinements.
A larger consultation and interaction of Industry with the then
th
MOS, was also organized in Mumbai on 8 October, 2012. This
White Paper is the final product of such consultations, and
includes some actions that the industry has promised to
undertake.
The Government of India has laid high emphasis on attracting
investment of private sector into R&D to match public
investments (that is 1% of GDP each by Government and Industry)
before the end of the 12th Five year plan. Hon'ble Prime Minister
has made several calls to the Private Sector to invest into R&D and
match the public investments into R&D and had added that the
Government could facilitate industry to do so through policy
environments and other means. One major task of JCIG will be to
identify key elements for stimulation of private sector
investments into R&D.
2.3 Statement of Main Tasks
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
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i
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t

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d
i
a
08
Corporate sector is focused on R&D with shorter time to market-
needs. Time to market for the R&D outputs emanating from
public funded R&D in India needs to be minimized and extent of
commercialization of Intellectual Properties generated through
public funded R&D should be increased significantly.
Commercialization of IPs does involve several steps including
significant investment and completion of the entire R&D value
chain, viz. translation R&D, pilot studies, establishment of test-
beds etc. These are defined to minimize risks of failure. Inclusion
of investments of private sector for such risk minimization
protocols as R&D costs seems justified and these are included as
R&D costs in many countries.
Both, the Government and Industry in India are equally concerned
that the private sector investment into R&D is less than optimum
levels in comparison to the current trends in global best
practices.
One of the recommendations emanating from the sub-
committee on PM's Council on Trade and Industry for PPP for R&D
and clean energy is that the policy environment would need to be
triggered for stimulation of investment of Private sector into R&D
in India. The report of the steering committee constituted for the
development of the 12th Plan for S&T Sector also aims at an
investment of private sector into R&D to match the levels of
public investment planned to be invested during the plan periods.
In order to address these issues comprehensively and to arrive at
an implementable plan of action, a joint committee of industry
and Government has now been constituted for co-development
of a white paper for stimulation of the private sector investment
into R&D in India.
In order to step up the investments of private sector into R&D in
India and to match the global standards and pursuant to the
2.2 Formation and Constitution of JCIG
09
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
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n

o
f

I
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v
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o
f

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e

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i
a
decision taken during the interactive session with Hon'ble MOS
th
(S&T) with private sector CEOs on 12 November 2011 in Mumbai,
the Department of Science & Technology constituted a Joint
Committee of Industry and Government. The composition of the
JCIG and its Terms of Reference is given in Annexure 1.
Terms of Reference for the JCIG was to prepare a white paper for
stimulating private sector investment in R&D and suggest policy
th
initiatives to the Government from time to time during the 12
Plan period.
Dr.T. Ramasami, Secretary DST and Mr.B Muthuraman are the Co-
Chairs of the committee. Other members are Mr. Hari Bhartia, Mr.
Kris Gopalakrishnan, Dr. Naushad Forbs and Secretaries of DBT,
DSIR and Ministry of Earth Sciences. The Committee met twice
th th
on 7 May and 13 July 2012 and deliberated on the subject and
discussed at length on various measures needed for "Stimulation
of Private Sector Investment into R&D in India". The suggestions
emanating from the meetings of JCIG were captured in form of
draft background note for further consultations and refinements.
A larger consultation and interaction of Industry with the then
th
MOS, was also organized in Mumbai on 8 October, 2012. This
White Paper is the final product of such consultations, and
includes some actions that the industry has promised to
undertake.
The Government of India has laid high emphasis on attracting
investment of private sector into R&D to match public
investments (that is 1% of GDP each by Government and Industry)
before the end of the 12th Five year plan. Hon'ble Prime Minister
has made several calls to the Private Sector to invest into R&D and
match the public investments into R&D and had added that the
Government could facilitate industry to do so through policy
environments and other means. One major task of JCIG will be to
identify key elements for stimulation of private sector
investments into R&D.
2.3 Statement of Main Tasks
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
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n
t

o
f

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e

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a
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d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
08
Corporate sector is focused on R&D with shorter time to market-
needs. Time to market for the R&D outputs emanating from
public funded R&D in India needs to be minimized and extent of
commercialization of Intellectual Properties generated through
public funded R&D should be increased significantly.
Commercialization of IPs does involve several steps including
significant investment and completion of the entire R&D value
chain, viz. translation R&D, pilot studies, establishment of test-
beds etc. These are defined to minimize risks of failure. Inclusion
of investments of private sector for such risk minimization
protocols as R&D costs seems justified and these are included as
R&D costs in many countries.
Both, the Government and Industry in India are equally concerned
that the private sector investment into R&D is less than optimum
levels in comparison to the current trends in global best
practices.
One of the recommendations emanating from the sub-
committee on PM's Council on Trade and Industry for PPP for R&D
and clean energy is that the policy environment would need to be
triggered for stimulation of investment of Private sector into R&D
in India. The report of the steering committee constituted for the
development of the 12th Plan for S&T Sector also aims at an
investment of private sector into R&D to match the levels of
public investment planned to be invested during the plan periods.
In order to address these issues comprehensively and to arrive at
an implementable plan of action, a joint committee of industry
and Government has now been constituted for co-development
of a white paper for stimulation of the private sector investment
into R&D in India.
In order to step up the investments of private sector into R&D in
India and to match the global standards and pursuant to the
2.2 Formation and Constitution of JCIG
11
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
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v
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D
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v
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p
m
e
n
t

i
n

I
n
d
i
a
th
R&D would become necessary if the targets of 12 plan for R&D sectors were
to be fully realized.
The JCIG is of the view that the current investment of the private sector into
R&D might be underestimated and the estimate may not capture all
investments being made by the non-government sectors in India. The JCIG
also emphasized the importance of validating the data on investments of
private sector into R&D and establishing a continuous updating mechanism.
The JCIG focused on the need to critically assess and agree upon various
elements of the key enablers for boosting private sector's investment to
match the expectations as planned during the 12th Five year plan. The JCIG
resolved that if the Indian industry were to match the global benchmarks of
investments into R&D, the policy environment in India as well as classification
of what qualifies for grouping under R&D in India should also match those of
major countries. The global bench marking study was commissioned to CII
for ensuring realistic comparisons. The JCIG decided to concentrate on the
following five major tasks in order to arrive at the recommendations:.
Studying global practices and classification of R&D heads as practiced
globally
Revalidating the data on private sector investments into R&D in India
Identifying key enablers for stimulating private sector investments into
R&D
Studying various policy instruments deployed by other countries for
maximizing the provisions and benefits of PPP for R&D as tools of change
in manufacturing and
Suggesting measures for implementation with industrial sector driving
the desired changes in the private sector
The JCIG assigned the CII team the task of carrying out the following
studies with a view to global benchmarking of the private sector
investment into R&D in India
l
l
l
l
l
2.4 Studies and Stakeholder Consultations
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
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s
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f

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e

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d

D
e
v
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l
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p
m
e
n
t

i
n

I
n
d
i
a
10
S&T Department /Agency 12thPlan (2012-17)
Outlay (Rs. Cr)
1 Department of Atomic Energy (R&D sector) 19,878
2 M/o Earth Sciences 9,506
3 Department of Science & Technology 21,596
4 Department of Biotechnology 11,804
5 Department of Scientific and Industrial Research 17,896
including CSIR
6 Department of Space 39,750
Grand Total 1,20,430
th
Indicative Outlay for 12 Five Year Plan
Central Scientific Ministries/Departments/Agencies
th
Source: Draft 12 Five Year Plan 2012-17, Volume 1 ,Planning Commission, GOI document
The table below outlines an approximate phasing of investment of Public and
th
Private sector into R&D during the 12 Plan
Year 2011 2012 2013 2014 2015 2016
Share of Public investment 76% 73% 67% 61% 56% 50%
as % of R&D investment in
public sector.
Share of industry sector 24% 27% 33% 39% 44% 50%
investment as % of R&D
investment.
th
Source: Report of the Steering Committee on S&T for the formulation of 12 Five Year Plan
th
The size of the 12 Plan for S&T sector has now been estimated
with a public investment of Rs. 1,20,430 crores in only six
departments. Additional investments are planned under Defence
Research Development Organization, various other socio-
economic ministries as well as academic and state sectors. The
table also presents an approximate phasing to achieve the target
of 1% of GDP each as mentioned above.
Given the current levels of investment of the private sector, an
approximately 8 fold increase in the engagement of the private sector into
11
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
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o
n

o
f

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D
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v
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l
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p
m
e
n
t

i
n

I
n
d
i
a
th
R&D would become necessary if the targets of 12 plan for R&D sectors were
to be fully realized.
The JCIG is of the view that the current investment of the private sector into
R&D might be underestimated and the estimate may not capture all
investments being made by the non-government sectors in India. The JCIG
also emphasized the importance of validating the data on investments of
private sector into R&D and establishing a continuous updating mechanism.
The JCIG focused on the need to critically assess and agree upon various
elements of the key enablers for boosting private sector's investment to
match the expectations as planned during the 12th Five year plan. The JCIG
resolved that if the Indian industry were to match the global benchmarks of
investments into R&D, the policy environment in India as well as classification
of what qualifies for grouping under R&D in India should also match those of
major countries. The global bench marking study was commissioned to CII
for ensuring realistic comparisons. The JCIG decided to concentrate on the
following five major tasks in order to arrive at the recommendations:.
Studying global practices and classification of R&D heads as practiced
globally
Revalidating the data on private sector investments into R&D in India
Identifying key enablers for stimulating private sector investments into
R&D
Studying various policy instruments deployed by other countries for
maximizing the provisions and benefits of PPP for R&D as tools of change
in manufacturing and
Suggesting measures for implementation with industrial sector driving
the desired changes in the private sector
The JCIG assigned the CII team the task of carrying out the following
studies with a view to global benchmarking of the private sector
investment into R&D in India
l
l
l
l
l
2.4 Studies and Stakeholder Consultations
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
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n
t

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f

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D
e
v
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l
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p
m
e
n
t

i
n

I
n
d
i
a
10
S&T Department /Agency 12thPlan (2012-17)
Outlay (Rs. Cr)
1 Department of Atomic Energy (R&D sector) 19,878
2 M/o Earth Sciences 9,506
3 Department of Science & Technology 21,596
4 Department of Biotechnology 11,804
5 Department of Scientific and Industrial Research 17,896
including CSIR
6 Department of Space 39,750
Grand Total 1,20,430
th
Indicative Outlay for 12 Five Year Plan
Central Scientific Ministries/Departments/Agencies
th
Source: Draft 12 Five Year Plan 2012-17, Volume 1 ,Planning Commission, GOI document
The table below outlines an approximate phasing of investment of Public and
th
Private sector into R&D during the 12 Plan
Year 2011 2012 2013 2014 2015 2016
Share of Public investment 76% 73% 67% 61% 56% 50%
as % of R&D investment in
public sector.
Share of industry sector 24% 27% 33% 39% 44% 50%
investment as % of R&D
investment.
th
Source: Report of the Steering Committee on S&T for the formulation of 12 Five Year Plan
th
The size of the 12 Plan for S&T sector has now been estimated
with a public investment of Rs. 1,20,430 crores in only six
departments. Additional investments are planned under Defence
Research Development Organization, various other socio-
economic ministries as well as academic and state sectors. The
table also presents an approximate phasing to achieve the target
of 1% of GDP each as mentioned above.
Given the current levels of investment of the private sector, an
approximately 8 fold increase in the engagement of the private sector into
13
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

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f

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r
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e
a
r
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h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
2.4.1 Governments provide support to R&D ecosystem in the form
of incentives which are broadly classified into direct and
indirect categories.
0.18
0.083
0.15
0.06 0.058
0.03
0.15
0.075
0.045
0.047
0.075
0.08
0.12
0.185
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
USA UK France Germany Israel Japan South
Korea
Finland
Indirect government support through R&D tax incentives
Direct Government funding of BERD
Source: Arthur D. Little Analysis, OECD Website
% of GDP
l
l
l
l
Di rect i ncenti ves i ncl ude grants, credi ts and publ i c
procurement
o Various direct incentives have differential impact on the R&D costs
o R&D grants and loans affect the cost of performing R&D, but
contracts usually awarded through competitive bidding do not
directly affect the cost of performing R&D
o Countries such as Sweden, Finland and Germany prefer direct
funding
Indirect funding refers to all tax incentives related to R&D; tax credit
allowances, social security contributions, reductions in R&D, labour
taxes
o Japan, Netherlands and Canada rely mostly on tax incentives
Countries such as France and USA combine both instruments namely
direct funding and Tax incentives
India generally provides indirect incentives as 200% Weighted Tax
Deduction. Direct funding is not a commonly used instrument in India.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
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s
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f

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d

D
e
v
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l
o
p
m
e
n
t

i
n

I
n
d
i
a
12
a) R&D Expenditure - What expenditures are considered as R&D
expenditure in all three phases - Research, Development and
Deployments/Applications? Find out what definitions are prevalent
in India and other countries.
b) R&D Classifications - What are the models, structures, investment
patterns, monetization, IP ownerships, financial benefits to
stakeholders etc. and examples of (a) purely private sector R&D (b)
purely Public sector/Government R&D and (c) PPP R&D, prevalent
in India and in other countries?
c) R&D Incentives - What are the current incentives offered by the
Government of India and other countries for all the above types of
R&D (Private, Public & PPP) and how simple or complex are the
procedures to avail such incentives. Also, how many players are
availing such incentives in India and in other countries?
d) R&D Risks and Failure Management - How are risks of R&D covered
and how failures are treated and managed in all categories (Private,
Public & PPP) of R&D in India and other countries?
e) R&D Human Resource - How R&D Human Resources are developed,
incentivized and trained on industrial R&D for delivering results
through Private, Public & PPP mode of R&D in India in comparison
to other countries?
In addition to using its internal knowledge base with its members and
others, CII commissioned a research study to Arthur D' Little for
generating inputs for the elements listed above in order to have a fuller
and more authentic picture in a short time. While a detailed report on
Global Trend is attached in Annexure 2 as Background Information,
salient features of the research findings are summarized in this section.
Regarding the information about India, remarks about such items
qualified as R&D expenditure, incentives etc, are made in this section
only in a brief manner. Further details about India are presented in the
next section while making the recommendations of JCIG.
13
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

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r
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D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
2.4.1 Governments provide support to R&D ecosystem in the form
of incentives which are broadly classified into direct and
indirect categories.
0.18
0.083
0.15
0.06 0.058
0.03
0.15
0.075
0.045
0.047
0.075
0.08
0.12
0.185
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
USA UK France Germany Israel Japan South
Korea
Finland
Indirect government support through R&D tax incentives
Direct Government funding of BERD
Source: Arthur D. Little Analysis, OECD Website
% of GDP
l
l
l
l
Di rect i ncenti ves i ncl ude grants, credi ts and publ i c
procurement
o Various direct incentives have differential impact on the R&D costs
o R&D grants and loans affect the cost of performing R&D, but
contracts usually awarded through competitive bidding do not
directly affect the cost of performing R&D
o Countries such as Sweden, Finland and Germany prefer direct
funding
Indirect funding refers to all tax incentives related to R&D; tax credit
allowances, social security contributions, reductions in R&D, labour
taxes
o Japan, Netherlands and Canada rely mostly on tax incentives
Countries such as France and USA combine both instruments namely
direct funding and Tax incentives
India generally provides indirect incentives as 200% Weighted Tax
Deduction. Direct funding is not a commonly used instrument in India.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
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l
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p
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e
n
t

i
n

I
n
d
i
a
12
a) R&D Expenditure - What expenditures are considered as R&D
expenditure in all three phases - Research, Development and
Deployments/Applications? Find out what definitions are prevalent
in India and other countries.
b) R&D Classifications - What are the models, structures, investment
patterns, monetization, IP ownerships, financial benefits to
stakeholders etc. and examples of (a) purely private sector R&D (b)
purely Public sector/Government R&D and (c) PPP R&D, prevalent
in India and in other countries?
c) R&D Incentives - What are the current incentives offered by the
Government of India and other countries for all the above types of
R&D (Private, Public & PPP) and how simple or complex are the
procedures to avail such incentives. Also, how many players are
availing such incentives in India and in other countries?
d) R&D Risks and Failure Management - How are risks of R&D covered
and how failures are treated and managed in all categories (Private,
Public & PPP) of R&D in India and other countries?
e) R&D Human Resource - How R&D Human Resources are developed,
incentivized and trained on industrial R&D for delivering results
through Private, Public & PPP mode of R&D in India in comparison
to other countries?
In addition to using its internal knowledge base with its members and
others, CII commissioned a research study to Arthur D' Little for
generating inputs for the elements listed above in order to have a fuller
and more authentic picture in a short time. While a detailed report on
Global Trend is attached in Annexure 2 as Background Information,
salient features of the research findings are summarized in this section.
Regarding the information about India, remarks about such items
qualified as R&D expenditure, incentives etc, are made in this section
only in a brief manner. Further details about India are presented in the
next section while making the recommendations of JCIG.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
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f

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d
i
a
14
In India, the indirect incentives are to be claimed as Weighted Tax
Deduction with the Income Tax Department. However,
processes for special approval/authentication from Ministry of
Science & Technology are sought, which makes the process
complex and long drawn. It is particularly difficult for small and
medium companies and even big industries require considerable
special efforts to avail the incentives from public fund.
2.4.2 Incentives are generally based on Government approval
guidelines on nature and jurisdiction of R&D activities, which in
turn decide the ownership of the IP generated
USA Income tax Plain No Carry forward No Yes No
at the federal deduction
& state levels and tax
credit
UK Income tax Super No Refundable No Anywhere Yes/No*
& cash deduction and carry
subsidy forward and
carry back
France Income tax Tax credit off No Refundable No Yes No
set against and carry
tax forward
Germany Cash subsidy Cash Yes Not applicable Yes Yes Yes
subsidy
Israel Income tax Super Yes Refundable Yes Anywhere Yes
& cash deduction (for tax
subsidy benefits
For grants
(only Israel)
Japan Income tax Tax credits No Carry forward Yes Anywhere Yes
South Income tax Tax credit No Carry forward No Anywhere No
Korea & cash
subsidy
Nature of Extent of Specific Refundable/ Any cap R&D to be IP to
benefit income tax approval carry forward on benefit physically reside
available benefit required performed in the
available from within the country
government jurisdiction
15
W
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E

P
A
P
E
R

O
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S
t
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a
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f

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i
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d

D
e
v
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l
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p
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e
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t

i
n

I
n
d
i
a
2.4.3 Qualified expenditures heads for R&D are broadly classified in
five major categories
R&D Personnel Land &
Building
Materials &
Equipment
Services
/Pilot Plan
/Prototypes Others
Prototyping Cost
Standardi
expenses
zation
Pilot Plant Cost Technology watch
expenses
Annual wages and
salaries and all
associated costs or
fringe benefits, such as
bonus payments, holiday
pay, contributions to
pension funds and other
social security
payments, payroll taxes,
etc.
For PhD candidates,
students who are on the
payroll of universities or
R&D units (e.g. as
research assistants)
and/or receive external
funds for R&D (such as
research scholarships)
are included in the
statistics
Total costs of acquiring
equipment and
machinery that are used
exclusively for R&D
activities; elsethe
proportion of expenditure
accounted for by R&D
activities is estimated
according to use
This comprises land
acquired for R&D (e.g.
testing grounds, sites for
laboratories and pilot
plants) and buildings
constructed or
purchased, including
major improvements,
modifications and
repairs.
This covers major
instruments and
equipment acquired for
use in the performance
of R&D including
embodied software
Fees for patent filing,
patent maintenance and
plant variety protection
certificates
Utilities, such as telephone,
telex, electricity, water, and
gas
Cost of computer software
used in R&D activities
Expenses incurred for the
protection of patents and
plant variety protection
certificates
The R&D share of the
expenditures for new
buildings is often difficult
to quantify, and many
countries ignore this
element of R&D
expenditure (in the
higher education sector)
or at best estimate it on
the basis of scheduled
use.
There are certain border line items, as listed below that are treated
differently in OECD countries, as compared to other countries.
Item Treatment Remarks
Industrial design and drawing Divided Design during R&D is
included and design during
production is excluded.
Trial production Divided Included if testing involves full
time testing and subsequent
further design and engineering
Industrial engineering and tooling up Divided Include feedback R&D and
subsequent improvements in
processes of production
Patent and license work Excluded
After sales service and troubleshooting Excluded Except feedback R&D
Routine tests and data collection Excluded
Public inspection, control, enforcements of standards Excluded
W
H
I
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E

P
A
P
E
R

O
N
S
t
i
m
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l
a
t
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o
n

o
f

I
n
v
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s
t
m
e
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t

o
f

P
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e

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14
In India, the indirect incentives are to be claimed as Weighted Tax
Deduction with the Income Tax Department. However,
processes for special approval/authentication from Ministry of
Science & Technology are sought, which makes the process
complex and long drawn. It is particularly difficult for small and
medium companies and even big industries require considerable
special efforts to avail the incentives from public fund.
2.4.2 Incentives are generally based on Government approval
guidelines on nature and jurisdiction of R&D activities, which in
turn decide the ownership of the IP generated
USA Income tax Plain No Carry forward No Yes No
at the federal deduction
& state levels and tax
credit
UK Income tax Super No Refundable No Anywhere Yes/No*
& cash deduction and carry
subsidy forward and
carry back
France Income tax Tax credit off No Refundable No Yes No
set against and carry
tax forward
Germany Cash subsidy Cash Yes Not applicable Yes Yes Yes
subsidy
Israel Income tax Super Yes Refundable Yes Anywhere Yes
& cash deduction (for tax
subsidy benefits
For grants
(only Israel)
Japan Income tax Tax credits No Carry forward Yes Anywhere Yes
South Income tax Tax credit No Carry forward No Anywhere No
Korea & cash
subsidy
Nature of Extent of Specific Refundable/ Any cap R&D to be IP to
benefit income tax approval carry forward on benefit physically reside
available benefit required performed in the
available from within the country
government jurisdiction
15
W
H
I
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E

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A
P
E
R

O
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t
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m
u
l
a
t
i
o
n

o
f

I
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v
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s
t
m
e
n
t

o
f

P
r
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v
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t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
2.4.3 Qualified expenditures heads for R&D are broadly classified in
five major categories
R&D Personnel Land &
Building
Materials &
Equipment
Services
/Pilot Plan
/Prototypes Others
Prototyping Cost
Standardi
expenses
zation
Pilot Plant Cost Technology watch
expenses
Annual wages and
salaries and all
associated costs or
fringe benefits, such as
bonus payments, holiday
pay, contributions to
pension funds and other
social security
payments, payroll taxes,
etc.
For PhD candidates,
students who are on the
payroll of universities or
R&D units (e.g. as
research assistants)
and/or receive external
funds for R&D (such as
research scholarships)
are included in the
statistics
Total costs of acquiring
equipment and
machinery that are used
exclusively for R&D
activities; elsethe
proportion of expenditure
accounted for by R&D
activities is estimated
according to use
This comprises land
acquired for R&D (e.g.
testing grounds, sites for
laboratories and pilot
plants) and buildings
constructed or
purchased, including
major improvements,
modifications and
repairs.
This covers major
instruments and
equipment acquired for
use in the performance
of R&D including
embodied software
Fees for patent filing,
patent maintenance and
plant variety protection
certificates
Utilities, such as telephone,
telex, electricity, water, and
gas
Cost of computer software
used in R&D activities
Expenses incurred for the
protection of patents and
plant variety protection
certificates
The R&D share of the
expenditures for new
buildings is often difficult
to quantify, and many
countries ignore this
element of R&D
expenditure (in the
higher education sector)
or at best estimate it on
the basis of scheduled
use.
There are certain border line items, as listed below that are treated
differently in OECD countries, as compared to other countries.
Item Treatment Remarks
Industrial design and drawing Divided Design during R&D is
included and design during
production is excluded.
Trial production Divided Included if testing involves full
time testing and subsequent
further design and engineering
Industrial engineering and tooling up Divided Include feedback R&D and
subsequent improvements in
processes of production
Patent and license work Excluded
After sales service and troubleshooting Excluded Except feedback R&D
Routine tests and data collection Excluded
Public inspection, control, enforcements of standards Excluded
17
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o
f

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d

D
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v
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o
p
m
e
n
t

i
n

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n
d
i
a
In India, such clear-cut provisions do not exist. Tax deductions exist for
contribution to educational institutions but they are not to be linked
with industry's main R&D needs.
2.4.5 Treatment of failure predominantly revolves around 'Loan
Guarantee Schemes
Countries Scheme Features Guarantor
USA State Small Enable small businesses to The state provides collateral
Business obtain loans and lines of credit and accepts burden of
Credit Businesses of all types - repayment to the financial
Initiative corporations, partnerships and institution
(SSBCI) proprietorships - eligible for loans Reserve fund is established
Loans of size $5 million to $20 to pay loans
million
Guarantees loans from private
institutions to businesses
UK National Loan Helps businesses access cheaper Guarantor does not
Guarantee finance by reducing the cost guarantee loans to
Scheme of bank loans businesses
(NLGS) Specific banks participate in Individual is liable for
the scheme repayment of NLGS loans,
Businesses are eligible by: the government holds no
vHaving less than 50 million in collateral
revenue
vA business contributing to the
UK economy
vIs not in financial difficulty
Businesses in NLGS receive a
discount of 1% on their loan
compared to the interest rate they
would normally have
Individual banks determine max/min
amounts that can be borrowed
NLGS qualifies as state aid to
businesses as per European
Commission regulations
Germany German United Improves collateral situation and Government provides
Loan financial credibility financial guarantees for
Guarantees Provides lower interest rates loans should the firm
Help banks lower credit risk be unable to repay
l l
l
l
l
l
l l
l l
l
l
l
l
l l

l
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E

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O
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a
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o
n

o
f

I
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v
e
s
t
m
e
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t

o
f

P
r
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v
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e

S
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h

a
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d

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t

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n

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d
i
a
16
In India the qualified expenditure is mostly around R&D personnel,
material & equipment, cost of computer software and utilities & services
used for R&D. Prototypes / pilot plants and items listed in other
categories in Table 2.4.3 are rarely included as items for computing R&D
expenditure.
2.4.4 Certain incentive schemes are specifically directed towards
human resource development, which are a set of both direct and
indirect incentives
Countries Incentives
Finland Allowable expenses related to costs incurred for maintenance of
professional or vocational skills
Study loan allowances
France Income tax credits for educational expenses in higher education and in
secondary education
Tax credit on interest burden of loans incurred by students in higher
education to finance their studies
Income tax exemption on wages earned by apprentices
Income tax exemption on wages earned by pupils and students working
during school or university holidays
Germany Deduction of education/training costs as income related expense
Deduction of education/training costs as a special expense
Deduction of tuition fees for own children in private schools
USA Loans up to $30000 given by various state universities for doctoral
students with a payment period of up to 15 years
Waiver up to 20 per centon loans if the candidate joins the same
university
Tuition deduction of up to $4000 for expenses on higher education of
children, spouse or any other dependant
Interest deduction on student loans or payment of loans by the
government during college.
Japan Full or partial remission of tuition fees is granted on meritocracy and
need basis in both national and private universities
Japan Student Services Organization (JASSO) gives loans (interest free
and low interest) to students with outstanding academic achievements in
post graduate programs.
South Korea Talent development program supporting and mentoring students.
International scholarship policy forum which collaborates with world
bodies and institutions for donation.
Separate national scholarship for science and engineering
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
17
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l
a
t
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n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
In India, such clear-cut provisions do not exist. Tax deductions exist for
contribution to educational institutions but they are not to be linked
with industry's main R&D needs.
2.4.5 Treatment of failure predominantly revolves around 'Loan
Guarantee Schemes
Countries Scheme Features Guarantor
USA State Small Enable small businesses to The state provides collateral
Business obtain loans and lines of credit and accepts burden of
Credit Businesses of all types - repayment to the financial
Initiative corporations, partnerships and institution
(SSBCI) proprietorships - eligible for loans Reserve fund is established
Loans of size $5 million to $20 to pay loans
million
Guarantees loans from private
institutions to businesses
UK National Loan Helps businesses access cheaper Guarantor does not
Guarantee finance by reducing the cost guarantee loans to
Scheme of bank loans businesses
(NLGS) Specific banks participate in Individual is liable for
the scheme repayment of NLGS loans,
Businesses are eligible by: the government holds no
vHaving less than 50 million in collateral
revenue
vA business contributing to the
UK economy
vIs not in financial difficulty
Businesses in NLGS receive a
discount of 1% on their loan
compared to the interest rate they
would normally have
Individual banks determine max/min
amounts that can be borrowed
NLGS qualifies as state aid to
businesses as per European
Commission regulations
Germany German United Improves collateral situation and Government provides
Loan financial credibility financial guarantees for
Guarantees Provides lower interest rates loans should the firm
Help banks lower credit risk be unable to repay
l l
l
l
l
l
l l
l l
l
l
l
l
l l

l
l
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
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v
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t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
16
In India the qualified expenditure is mostly around R&D personnel,
material & equipment, cost of computer software and utilities & services
used for R&D. Prototypes / pilot plants and items listed in other
categories in Table 2.4.3 are rarely included as items for computing R&D
expenditure.
2.4.4 Certain incentive schemes are specifically directed towards
human resource development, which are a set of both direct and
indirect incentives
Countries Incentives
Finland Allowable expenses related to costs incurred for maintenance of
professional or vocational skills
Study loan allowances
France Income tax credits for educational expenses in higher education and in
secondary education
Tax credit on interest burden of loans incurred by students in higher
education to finance their studies
Income tax exemption on wages earned by apprentices
Income tax exemption on wages earned by pupils and students working
during school or university holidays
Germany Deduction of education/training costs as income related expense
Deduction of education/training costs as a special expense
Deduction of tuition fees for own children in private schools
USA Loans up to $30000 given by various state universities for doctoral
students with a payment period of up to 15 years
Waiver up to 20 per centon loans if the candidate joins the same
university
Tuition deduction of up to $4000 for expenses on higher education of
children, spouse or any other dependant
Interest deduction on student loans or payment of loans by the
government during college.
Japan Full or partial remission of tuition fees is granted on meritocracy and
need basis in both national and private universities
Japan Student Services Organization (JASSO) gives loans (interest free
and low interest) to students with outstanding academic achievements in
post graduate programs.
South Korea Talent development program supporting and mentoring students.
International scholarship policy forum which collaborates with world
bodies and institutions for donation.
Separate national scholarship for science and engineering
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
l
19
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a
South Korea Credit Public finance institution By guaranteeing the
Korea Guarantee providing support specifically loans, KODIT agrees to
Fund (KODIT) for SMEs in the form of accept the burden of
vGuarantee for Bank Loans payment should the
vCommercial bills guarantee company be unable to
vGuarantee for bidding, repay debts
contract Capital fund of $3.2
vTax payment guarantee billion for Credit
Guarantees for SMEs
vP-CBO guarantee
KODIT guarantees loans from
private banks
Has helped SMEs out of oil crises
and the recent financial crisis
l l
l
l
l
In India, direct funding is rare. For instance, funding is through the
Technology Development Board and some schemes of the Ministry of S&T. In
such cases each failure is treated as a separate case and goes through
complex procedures and legal processes, even when the genuineness of
failure is evident.
Countries Scheme Features Guarantor
W
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18
Countries Scheme Features Guarantor
Germany German Criteria
United Loan vYoung industries without history
Guarantees vDynamic companies in difficult
industries
vCrisis situation requiring
venture/equity capital
vProjects must contribute to
economic development of
Germany
vManaged by PwC with a
local partnership
Israel Israeli R&D The main OCS program (the The state automatically
policy R&D Fund) supports R&D becomes the guarantor in
projects of Israeli companies this case.
by offering conditional grants
of up to 50% of the approved
R&D expenditure. If the project
is commercially successful, the
company shall be under the
obligation to repay the grant by
royalty payments.
If not successful, the company
is not obligated to return the
funding and it becomes a grant.
Japan Japan Bank for Provide investment loans, Government organization
International financing overseas investment guarantees and accepts
Cooperation and resource development by burden
Loan Japanese firms
Guarantee Credit guarantee enables CGC
scheme to guarantee financial institution
against risk associated with
loans to SMEs
Credit insurance funded by
public money reinsures credit
guarantees
CGC's guarantee loans, provide
deposit
Scheme provides
vFund for credit insurance
vSubsidies for CGC funds
vDeposits
vCompensation for loss
l
l l
l
l l
l
l
l
l
19
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p
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t

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I
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a
South Korea Credit Public finance institution By guaranteeing the
Korea Guarantee providing support specifically loans, KODIT agrees to
Fund (KODIT) for SMEs in the form of accept the burden of
vGuarantee for Bank Loans payment should the
vCommercial bills guarantee company be unable to
vGuarantee for bidding, repay debts
contract Capital fund of $3.2
vTax payment guarantee billion for Credit
Guarantees for SMEs
vP-CBO guarantee
KODIT guarantees loans from
private banks
Has helped SMEs out of oil crises
and the recent financial crisis
l l
l
l
l
In India, direct funding is rare. For instance, funding is through the
Technology Development Board and some schemes of the Ministry of S&T. In
such cases each failure is treated as a separate case and goes through
complex procedures and legal processes, even when the genuineness of
failure is evident.
Countries Scheme Features Guarantor
W
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P
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R

O
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t
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18
Countries Scheme Features Guarantor
Germany German Criteria
United Loan vYoung industries without history
Guarantees vDynamic companies in difficult
industries
vCrisis situation requiring
venture/equity capital
vProjects must contribute to
economic development of
Germany
vManaged by PwC with a
local partnership
Israel Israeli R&D The main OCS program (the The state automatically
policy R&D Fund) supports R&D becomes the guarantor in
projects of Israeli companies this case.
by offering conditional grants
of up to 50% of the approved
R&D expenditure. If the project
is commercially successful, the
company shall be under the
obligation to repay the grant by
royalty payments.
If not successful, the company
is not obligated to return the
funding and it becomes a grant.
Japan Japan Bank for Provide investment loans, Government organization
International financing overseas investment guarantees and accepts
Cooperation and resource development by burden
Loan Japanese firms
Guarantee Credit guarantee enables CGC
scheme to guarantee financial institution
against risk associated with
loans to SMEs
Credit insurance funded by
public money reinsures credit
guarantees
CGC's guarantee loans, provide
deposit
Scheme provides
vFund for credit insurance
vSubsidies for CGC funds
vDeposits
vCompensation for loss
l
l l
l
l l
l
l
l
l
21
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p
m
e
n
t

i
n

I
n
d
i
a
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
(estimate)
Tax foregone under 2000 2526 2416 4685 5745 6335
current policy regime
for supporting R&D
(Rs. in Crores)
Computed investments 6060 7654 7321 14196 17409 19197
of Private Sector into
R&D based on tax
foregone estimates
(Rs. in Crores)
Tax foregone in R&D
Source : Ministry of Finance, Govt of India website
The computed investments are gross estimates and would not
include the direct investments of private sectors which are not
covered by Section 35 (2AA) and Section 35 (2AB). R&D
investments are meant for 100% write-off in the first year. Reliable
estimates of investment which are actually eligible for 100% write-
off in the first year are not known. Current CAGR of tax foregone
since 2 years is 16.3%. Based on CAGR it is estimated that private
sector investment into R&D, eligible for being considered under
Section 35 (2AA) and Section 35 (2AB) are estimated to be Rs.
40,844 Crores by 2017.
1
However, published report of a team of Administrative Staff
College of India as observed from Prowess database reveals
interesting trends and changes. The study reveals that for a group
of companies with turnover of about 70% of India's manufacturing
base, there has been doubling of turn over between the annual
figures of 2010 relative to 2005 while the reported R&D
investments by them have undergone a change of 2.5 times. In
other words, the published study of ASCI reports an R&D
investment of Rs. 17,500 crores in 2010 by the private sector units
studied, registering an increase of over Rs. 10,000 crores relative to
2005.
1
Published research by Dr. Bagchi, ASCI, Hyderabad
W
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20
3.0
Suggestions
Stakeholder Aspirations and
JCIG deliberated in depth on all the parameters that impact industrial
R&D and analyzed the global best practices. CII had reached out to
many industry captains and received their recommendations for
stimulation of private sector investment into R&D. A special
interactive session with the then MoS was also organized in Mumbai
by CII.
This section captures the deliberations, analysis and the
recommendations received from many stakeholders on various
aspects. The final key recommendations of this white paper are of high
priority demanding early actions. However, all inputs received from
stakeholders are listed here. They are of equal importance and merit
consideration for implementation in mid and long term periods.
Estimates of current data on private sector investments into
R&D in India originate from the R&D statistics brought out
periodically by the National Science and Technology
Management Information System (NSTMIS) of the Department
of Science and Technology. The methodology adopted by
NSTMIS involves generation of primary data from industrial
houses through survey mode. In this mode of data compilation, a
lower bound value is feasible and the lag time involved in
gathering and reporting is too long for effective policy building.
During the last few years, fiscal incentives for private sector
investments into R&D have been announced by the Government
of India. Changes in response to such alterations in policy
environment in the country are not well defined.
3.1 Data validation of private sector's investment in
R&D in India
21
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H
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E

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d
i
a
2007-08 2008-09 2009-10 2010-11 2011-12 2012-13
(estimate)
Tax foregone under 2000 2526 2416 4685 5745 6335
current policy regime
for supporting R&D
(Rs. in Crores)
Computed investments 6060 7654 7321 14196 17409 19197
of Private Sector into
R&D based on tax
foregone estimates
(Rs. in Crores)
Tax foregone in R&D
Source : Ministry of Finance, Govt of India website
The computed investments are gross estimates and would not
include the direct investments of private sectors which are not
covered by Section 35 (2AA) and Section 35 (2AB). R&D
investments are meant for 100% write-off in the first year. Reliable
estimates of investment which are actually eligible for 100% write-
off in the first year are not known. Current CAGR of tax foregone
since 2 years is 16.3%. Based on CAGR it is estimated that private
sector investment into R&D, eligible for being considered under
Section 35 (2AA) and Section 35 (2AB) are estimated to be Rs.
40,844 Crores by 2017.
1
However, published report of a team of Administrative Staff
College of India as observed from Prowess database reveals
interesting trends and changes. The study reveals that for a group
of companies with turnover of about 70% of India's manufacturing
base, there has been doubling of turn over between the annual
figures of 2010 relative to 2005 while the reported R&D
investments by them have undergone a change of 2.5 times. In
other words, the published study of ASCI reports an R&D
investment of Rs. 17,500 crores in 2010 by the private sector units
studied, registering an increase of over Rs. 10,000 crores relative to
2005.
1
Published research by Dr. Bagchi, ASCI, Hyderabad
W
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a
20
3.0
Suggestions
Stakeholder Aspirations and
JCIG deliberated in depth on all the parameters that impact industrial
R&D and analyzed the global best practices. CII had reached out to
many industry captains and received their recommendations for
stimulation of private sector investment into R&D. A special
interactive session with the then MoS was also organized in Mumbai
by CII.
This section captures the deliberations, analysis and the
recommendations received from many stakeholders on various
aspects. The final key recommendations of this white paper are of high
priority demanding early actions. However, all inputs received from
stakeholders are listed here. They are of equal importance and merit
consideration for implementation in mid and long term periods.
Estimates of current data on private sector investments into
R&D in India originate from the R&D statistics brought out
periodically by the National Science and Technology
Management Information System (NSTMIS) of the Department
of Science and Technology. The methodology adopted by
NSTMIS involves generation of primary data from industrial
houses through survey mode. In this mode of data compilation, a
lower bound value is feasible and the lag time involved in
gathering and reporting is too long for effective policy building.
During the last few years, fiscal incentives for private sector
investments into R&D have been announced by the Government
of India. Changes in response to such alterations in policy
environment in the country are not well defined.
3.1 Data validation of private sector's investment in
R&D in India
23
W
H
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E

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3.2 What expenditure of private sector should be
considered as R&D expenditure
Inputs / Suggestions received from stakeholders
Currently, the following expenditures incurred at the designated
in-house R&D units of private sectors are considered as R&D
expenditure for the purpose of Tax benefits.
a) Plant & Machinery
b) Materials & Consumables
c) Utilities & Services
d) Human Resources
Apart from the current practice of consideration of R&D expenditure,
the following expenditure of private sector may be considered as "R&D
expenditure" for the purpose of availing tax and/or other benefits from
2013-14.
Infrastructure
3.2.1 Cost of land and building for setting up R&D laboratories
3.2.2 Cost of using R&D infrastructure of public institutions
Human Resource
3.2.3 Fees / Remuneration for National and overseas experts / expert
organizations
3.2.4 Fund provided by industry to PhD scholars in institutions for
industrial research
3.2.5 Cost of human resource development for R&D
Technology adoption
3.2.6 Cost of Intellectual Property purchased as sub-components of final
R&D output
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22
Multiple mechanisms are being explored for revalidating the data
on investments of private sector into R&D in India. There are three
major groups of private investors into R&D, who need to be
considered. They are
a) Multinational companies investing into R&D
b) National investments of private sector into in-house R&D
c) National investments of private sector into public funded R&D
entities
A study of annual reports of various companies in the country
empl oyi ng Prowess database as source reveal s that
transportation, electronics, non-electronics, drugs and pharma
and mineral sectors are major investors into R&D in the country. It
is not clear from the available data as to whether companies
invested into resident research or funded some foreign entities
abroad.
It might be useful to assess private sector investments into R&D by
th
the end of the 12 plan if business-as-usual approaches under the
present policy regimes of the country were adopted. CII has also
initiated a parallel study of their member units for assessing their
th
R&D investment plans for the 12 plan period. Data validation
within the structure of classification of what constitutes R&D
investments is currently in progress.
3.1.1 Current initiative of Technology Development Board to
capture investment by private sector through CII and other
industry associations should be concluded at the earliest and
the efforts to continue regularly
3.1.2 Reporting by companies in the annual report / balance sheet
indicating their expenditure in R&D from Financial Year 2013-
14 onwards may be mandated.
3.1.3 Global Innovation & Technology Alliance may capture the data
and publish Annual Reports on Private Sector's investment
into R&D
Inputs / Suggestions received from stakeholders
23
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3.2 What expenditure of private sector should be
considered as R&D expenditure
Inputs / Suggestions received from stakeholders
Currently, the following expenditures incurred at the designated
in-house R&D units of private sectors are considered as R&D
expenditure for the purpose of Tax benefits.
a) Plant & Machinery
b) Materials & Consumables
c) Utilities & Services
d) Human Resources
Apart from the current practice of consideration of R&D expenditure,
the following expenditure of private sector may be considered as "R&D
expenditure" for the purpose of availing tax and/or other benefits from
2013-14.
Infrastructure
3.2.1 Cost of land and building for setting up R&D laboratories
3.2.2 Cost of using R&D infrastructure of public institutions
Human Resource
3.2.3 Fees / Remuneration for National and overseas experts / expert
organizations
3.2.4 Fund provided by industry to PhD scholars in institutions for
industrial research
3.2.5 Cost of human resource development for R&D
Technology adoption
3.2.6 Cost of Intellectual Property purchased as sub-components of final
R&D output
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d
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22
Multiple mechanisms are being explored for revalidating the data
on investments of private sector into R&D in India. There are three
major groups of private investors into R&D, who need to be
considered. They are
a) Multinational companies investing into R&D
b) National investments of private sector into in-house R&D
c) National investments of private sector into public funded R&D
entities
A study of annual reports of various companies in the country
empl oyi ng Prowess database as source reveal s that
transportation, electronics, non-electronics, drugs and pharma
and mineral sectors are major investors into R&D in the country. It
is not clear from the available data as to whether companies
invested into resident research or funded some foreign entities
abroad.
It might be useful to assess private sector investments into R&D by
th
the end of the 12 plan if business-as-usual approaches under the
present policy regimes of the country were adopted. CII has also
initiated a parallel study of their member units for assessing their
th
R&D investment plans for the 12 plan period. Data validation
within the structure of classification of what constitutes R&D
investments is currently in progress.
3.1.1 Current initiative of Technology Development Board to
capture investment by private sector through CII and other
industry associations should be concluded at the earliest and
the efforts to continue regularly
3.1.2 Reporting by companies in the annual report / balance sheet
indicating their expenditure in R&D from Financial Year 2013-
14 onwards may be mandated.
3.1.3 Global Innovation & Technology Alliance may capture the data
and publish Annual Reports on Private Sector's investment
into R&D
Inputs / Suggestions received from stakeholders
25
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100% write off of revenue expenditure on R&D; (Section 35(1) (i) of
Income Tax Act).
100% write off of capital expenditure on R&D in the year the
expenditure is incurred; (Sec.35(1)(iv) of Income Tax Act).
Weighted tax deduction @200% for sponsored research programs in
approved national laboratories, Universities and IITs, available to the
sponsor. (Section 35 (2AA) of Income Tax Act).
Weighted tax deduction @200% on in-house R&D expenditure to
companies engaged in the business of bio-technology or in the
business of manufacture or production of any article or thing not
being an article or thing specified in the list of the eleventh schedule.
(Section 35(2AB) of the Income Tax Act).
Income-tax exemption @175% to donations made to approved non-
commercial Scientific and Industrial Research Organizations (Section
35(1)(ii) and 35(1)(iii) of the Income Tax Act).
Accelerated depreciation allowance for investment on plant and
machinery, made on the basis of indigenous technology (Rule 5(2) of
Income Tax Rules, 1962).
Customs duty exemption to R&D institutions and scientific &
industrial research organizations, both for capital equipment and
consumables needed for R&D. (Notification No.51/96-Customs,
dated 23 July 1996).
Central Excise duty exemption to R&D institutions and scientific &
industrial research organizations, both for capital equipment and
consumables needed for R&D. (Notification No. 10/97-Central Excise,
dated 1st March 1997).
Central Excise duty waiver for 3 years on goods designed and
developed by a wholly owned Indian company and patented in any
two countries out of: India, USA, Japan and any one country of the
European Union (Notification No.15/96-CE dated July 23, 1996,
amended vide Notification No.13/99-CE dated 28 February, 1999).
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24
IP Protection and management
3.2.7 Cost of Patent filing / maintaining and license work (in-house & out-
sourced)
Pre Commercialization activities
3.2.8 Cost of Prototyping, Industrial design and drawing (in-house & out-
sourced)
3.2.9 Cost of Trial production from R&D / Test Beds (in-house & out-
sourced)
3.2.10 Cost of Clinical drug trials and/or bio equivalence studies (in-house &
in other locations)
3.2.11 Cost of Quality Control & Certification Expenses (in-house & out-
sourced)
3.2.12 Cost of Industrial engineering and tooling (in-house & out-sourced)
3.2.13 Cost of Tests and data collection for Quality standardization (in-
house & out-sourced)
3.2.14 Cost of Public inspection, control, enforcements of standards (in-
house & out-sourced)
3.2.15 Cost of first marketing of R&D outputs
Investment by Venture Capitalist and non-manufacturing organizations
3.2.16 Investment (by Venture Capital industry) of VC funds in
technology ventures
3.2.17 Investment (by non-manufacturing Design firms) in design
activities
3.2.18 Investment (by non-manufacturing R&D firms) in R&D activities
by re-introducing Section 80 -IB (8A) of the Income tax 1961
Currently following indirect incentives are provided to private
sector for R&D.
3.3 Indirect Incentives to private sector
25
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100% write off of revenue expenditure on R&D; (Section 35(1) (i) of
Income Tax Act).
100% write off of capital expenditure on R&D in the year the
expenditure is incurred; (Sec.35(1)(iv) of Income Tax Act).
Weighted tax deduction @200% for sponsored research programs in
approved national laboratories, Universities and IITs, available to the
sponsor. (Section 35 (2AA) of Income Tax Act).
Weighted tax deduction @200% on in-house R&D expenditure to
companies engaged in the business of bio-technology or in the
business of manufacture or production of any article or thing not
being an article or thing specified in the list of the eleventh schedule.
(Section 35(2AB) of the Income Tax Act).
Income-tax exemption @175% to donations made to approved non-
commercial Scientific and Industrial Research Organizations (Section
35(1)(ii) and 35(1)(iii) of the Income Tax Act).
Accelerated depreciation allowance for investment on plant and
machinery, made on the basis of indigenous technology (Rule 5(2) of
Income Tax Rules, 1962).
Customs duty exemption to R&D institutions and scientific &
industrial research organizations, both for capital equipment and
consumables needed for R&D. (Notification No.51/96-Customs,
dated 23 July 1996).
Central Excise duty exemption to R&D institutions and scientific &
industrial research organizations, both for capital equipment and
consumables needed for R&D. (Notification No. 10/97-Central Excise,
dated 1st March 1997).
Central Excise duty waiver for 3 years on goods designed and
developed by a wholly owned Indian company and patented in any
two countries out of: India, USA, Japan and any one country of the
European Union (Notification No.15/96-CE dated July 23, 1996,
amended vide Notification No.13/99-CE dated 28 February, 1999).
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24
IP Protection and management
3.2.7 Cost of Patent filing / maintaining and license work (in-house & out-
sourced)
Pre Commercialization activities
3.2.8 Cost of Prototyping, Industrial design and drawing (in-house & out-
sourced)
3.2.9 Cost of Trial production from R&D / Test Beds (in-house & out-
sourced)
3.2.10 Cost of Clinical drug trials and/or bio equivalence studies (in-house &
in other locations)
3.2.11 Cost of Quality Control & Certification Expenses (in-house & out-
sourced)
3.2.12 Cost of Industrial engineering and tooling (in-house & out-sourced)
3.2.13 Cost of Tests and data collection for Quality standardization (in-
house & out-sourced)
3.2.14 Cost of Public inspection, control, enforcements of standards (in-
house & out-sourced)
3.2.15 Cost of first marketing of R&D outputs
Investment by Venture Capitalist and non-manufacturing organizations
3.2.16 Investment (by Venture Capital industry) of VC funds in
technology ventures
3.2.17 Investment (by non-manufacturing Design firms) in design
activities
3.2.18 Investment (by non-manufacturing R&D firms) in R&D activities
by re-introducing Section 80 -IB (8A) of the Income tax 1961
Currently following indirect incentives are provided to private
sector for R&D.
3.3 Indirect Incentives to private sector
27
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Special Incentives
3.3.1 Special incentives of additional 50% weighted tax deduction on the
R&D expenditure for products and services developed through R&D
and are exported.
3.3.2 A provision may be made where the profit generated from the
revenues of new products from IPR acquired from Public Funded
Institutions would be tax exempt for 1-2 years.
Public Procurement and standards
3.3.3 20% public procurement from Indian MSMEs on the products and
services commercialized from public funded R&D.
3.3.4 L1 Criteria and insistence on Past Track Record (PTR) discourages
innovations. Weightage by way of price preference or otherwise
may be given for indigenously developed products and technology.
Incentivize industry to use indigenous products and technology to
help create PTR.
3.3.5 Standards and their compliance should be used effectively to give
advantage to indigenous products and technology. This practice is
followed by most of the developed countries.
Incentivize Public funded Institutions
3.3.6 Provide Government grants to public funded R&D entities equal to
twice the sum of investments of private sector into joint research
into those entities
3.3.7 Balance roles of public funded research between autonomous
institutes and higher education system and improve the vibrancy of
the public research system in general.
3.3.8 A robust confidentiality structure needs to be built in the
institutions for doing joint industrial and contract research to avoid
pilferage of knowhow.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
26
Exemption from customs duty on imports made for R&D projects
funded by the Government in industry. (Notification No.50/96-
Customs dated 23 July 1996).
Pharmaceutical reference standards allowed to be imported duty
free {notification No. 26/2003-Customs dated 1 March 2003 (entry
substituted at S.No 138 of the table in the said notification)}.
Goods specified in List-28 (comprising of analytical and specialty
equipment) for use in the pharmaceutical and biotechnology sector
allowed to be imported duty free {notification No. 26/2003-Customs
dated 1 March 2003 (entry substituted at S.No 248 of the table in the
said notification)} provided:
o The goods are imported for research & development purposed by
an importer registered with DSIR for installation in the R&D wing
of the importer within six months of the date of importation on
submission of a certificate from the jurisdictional assistant
commissioner of central excise or the Deputy commissioner of
central excise to the assistant commissioner of customs or the
Deputy commissioner of customs at the port of importation. The
goods imported should not be transferred or sold for a period of
seven years from the date of installation.
o The goods are imported for use in the manufacture of
commodities and the total value of goods imported does not
exceed 25% of the FOB value of exports made during the
preceding financial year and installation in the factory of the
importer within six months of the date of importation on
submission of a certificate from the jurisdictional assistant
commissioner of central excise or the Deputy commissioner of
central excise to the assistant commissioner of customs or the
Deputy commissioner of customs at the port of importation. The
goods imported should not be transferred or sold for a period of
seven years from the date of installation.
Apart from the current indirect incentives to private sectors for R&D
expenditure, the following indirect incentives may be provided to the
private sector from 2013-14:
l
l
l
Inputs / Suggestions received from stakeholders
27
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
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i
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t
o
R
e
s
e
a
r
c
h

a
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d

D
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o
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t

i
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d
i
a
Special Incentives
3.3.1 Special incentives of additional 50% weighted tax deduction on the
R&D expenditure for products and services developed through R&D
and are exported.
3.3.2 A provision may be made where the profit generated from the
revenues of new products from IPR acquired from Public Funded
Institutions would be tax exempt for 1-2 years.
Public Procurement and standards
3.3.3 20% public procurement from Indian MSMEs on the products and
services commercialized from public funded R&D.
3.3.4 L1 Criteria and insistence on Past Track Record (PTR) discourages
innovations. Weightage by way of price preference or otherwise
may be given for indigenously developed products and technology.
Incentivize industry to use indigenous products and technology to
help create PTR.
3.3.5 Standards and their compliance should be used effectively to give
advantage to indigenous products and technology. This practice is
followed by most of the developed countries.
Incentivize Public funded Institutions
3.3.6 Provide Government grants to public funded R&D entities equal to
twice the sum of investments of private sector into joint research
into those entities
3.3.7 Balance roles of public funded research between autonomous
institutes and higher education system and improve the vibrancy of
the public research system in general.
3.3.8 A robust confidentiality structure needs to be built in the
institutions for doing joint industrial and contract research to avoid
pilferage of knowhow.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
26
Exemption from customs duty on imports made for R&D projects
funded by the Government in industry. (Notification No.50/96-
Customs dated 23 July 1996).
Pharmaceutical reference standards allowed to be imported duty
free {notification No. 26/2003-Customs dated 1 March 2003 (entry
substituted at S.No 138 of the table in the said notification)}.
Goods specified in List-28 (comprising of analytical and specialty
equipment) for use in the pharmaceutical and biotechnology sector
allowed to be imported duty free {notification No. 26/2003-Customs
dated 1 March 2003 (entry substituted at S.No 248 of the table in the
said notification)} provided:
o The goods are imported for research & development purposed by
an importer registered with DSIR for installation in the R&D wing
of the importer within six months of the date of importation on
submission of a certificate from the jurisdictional assistant
commissioner of central excise or the Deputy commissioner of
central excise to the assistant commissioner of customs or the
Deputy commissioner of customs at the port of importation. The
goods imported should not be transferred or sold for a period of
seven years from the date of installation.
o The goods are imported for use in the manufacture of
commodities and the total value of goods imported does not
exceed 25% of the FOB value of exports made during the
preceding financial year and installation in the factory of the
importer within six months of the date of importation on
submission of a certificate from the jurisdictional assistant
commissioner of central excise or the Deputy commissioner of
central excise to the assistant commissioner of customs or the
Deputy commissioner of customs at the port of importation. The
goods imported should not be transferred or sold for a period of
seven years from the date of installation.
Apart from the current indirect incentives to private sectors for R&D
expenditure, the following indirect incentives may be provided to the
private sector from 2013-14:
l
l
l
Inputs / Suggestions received from stakeholders
29
W
H
I
T
E

P
A
P
E
R

O
N
S
t
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m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
l
l
l
l
l
l
Inputs / received from stakeholders
Loan/Equity by the Technology Development Board (TDB), under
the Department of Science & Technology, DST, for manufacturing
and commercializing of all technology-based products.
Loan/Grant by the Department of Science & Technology (DST) as a
R&D support fund for undertaking Special Projects on:
Development of Drugs and Pharmaceutical products
Loan/Grant by the Technology Information, Forecasting,
Assessment Council (TIFAC), as a R&D support fund for undertaking
Special Projects on: Technology missions' projects for Sugar, Fly-
ash, Advanced Composites and Bamboo.
Financial support by the Indian Renewable Energy Development
Agency (IREDA), under the Ministry of New and Renewable Energy
(MNRE), for the development of non-conventional sources of
energy, besides energy efficiency and conservation strategies.
Financial support by the Department of Biotechnology (DBT),
under SBIRI and BIPP programmes for the development of bio-
tech related products, etc.
Financial support by the Council of Scientific and Industrial
Research (CSIR), for the development and production of products
and processes in new and emerging fields, under the New
Millennium India Technology Leadership Initiatives (NMITLI).
Apart from the current direct incentives to the private sector for R&D,
the following direct incentives will be provided from 2013-14:
Budget Allocation of Public fund for private sector's R&D
3.4.1 A proper budget allocation with certain proportion of public funds
earmarked for R&D by private sector may be done on a grant basis.
Some percentages (progressively in the 12th five year plan period to
reach 25% in 2016-17) of public spending can be allocated for investing
in private sector R&D and PPP R&D with matching investment from
private sectors.
Suggestions
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
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d

D
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d
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28
Establish Incubation Centres
3.3.9 Incubation centres should be created where there is a high
concentration of educational institutions as these centres will
create new companies and jobs. A performance based incentive
approach for promotion of Technology Business Incubators (TBIs)
under PPP model is the next best step for service economy based
growth model of India.
Incentivize R&D professionals
3.3.10 Special income tax incentives to Indian professionals who work in
R&D both in private and public sectors
3.3.11 Special Income tax incentives to Indian Diaspora (Scientists/
Technologists) who come back to work with private sector R&D in
India
IP as mortgage-able asset
3.3.12 At present knowhow is treated as an intangible asset by banks and
financial institutions, making it difficult for the companies,
especially SMEs, to get loans against their Intellectual Property.
Credit guarantee by government to Financial Institutions to
consider Industry's Intellectual Property as a mortgage-able asset
would encourage industry.
Currently, the following direct incentives are provided to private sector
for R&D and commercialization of technologies.
Grant by the Department of Scientific and Industrial Research
(DSIR), Govt. of India, for up-scaling technologies, under its TePP
and TDDP schemes
3.4 Direct Incentives to private sector
l
29
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E

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A
P
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O
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n

o
f

I
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v
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s
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m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
l
l
l
l
l
l
Inputs / received from stakeholders
Loan/Equity by the Technology Development Board (TDB), under
the Department of Science & Technology, DST, for manufacturing
and commercializing of all technology-based products.
Loan/Grant by the Department of Science & Technology (DST) as a
R&D support fund for undertaking Special Projects on:
Development of Drugs and Pharmaceutical products
Loan/Grant by the Technology Information, Forecasting,
Assessment Council (TIFAC), as a R&D support fund for undertaking
Special Projects on: Technology missions' projects for Sugar, Fly-
ash, Advanced Composites and Bamboo.
Financial support by the Indian Renewable Energy Development
Agency (IREDA), under the Ministry of New and Renewable Energy
(MNRE), for the development of non-conventional sources of
energy, besides energy efficiency and conservation strategies.
Financial support by the Department of Biotechnology (DBT),
under SBIRI and BIPP programmes for the development of bio-
tech related products, etc.
Financial support by the Council of Scientific and Industrial
Research (CSIR), for the development and production of products
and processes in new and emerging fields, under the New
Millennium India Technology Leadership Initiatives (NMITLI).
Apart from the current direct incentives to the private sector for R&D,
the following direct incentives will be provided from 2013-14:
Budget Allocation of Public fund for private sector's R&D
3.4.1 A proper budget allocation with certain proportion of public funds
earmarked for R&D by private sector may be done on a grant basis.
Some percentages (progressively in the 12th five year plan period to
reach 25% in 2016-17) of public spending can be allocated for investing
in private sector R&D and PPP R&D with matching investment from
private sectors.
Suggestions
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
28
Establish Incubation Centres
3.3.9 Incubation centres should be created where there is a high
concentration of educational institutions as these centres will
create new companies and jobs. A performance based incentive
approach for promotion of Technology Business Incubators (TBIs)
under PPP model is the next best step for service economy based
growth model of India.
Incentivize R&D professionals
3.3.10 Special income tax incentives to Indian professionals who work in
R&D both in private and public sectors
3.3.11 Special Income tax incentives to Indian Diaspora (Scientists/
Technologists) who come back to work with private sector R&D in
India
IP as mortgage-able asset
3.3.12 At present knowhow is treated as an intangible asset by banks and
financial institutions, making it difficult for the companies,
especially SMEs, to get loans against their Intellectual Property.
Credit guarantee by government to Financial Institutions to
consider Industry's Intellectual Property as a mortgage-able asset
would encourage industry.
Currently, the following direct incentives are provided to private sector
for R&D and commercialization of technologies.
Grant by the Department of Scientific and Industrial Research
(DSIR), Govt. of India, for up-scaling technologies, under its TePP
and TDDP schemes
3.4 Direct Incentives to private sector
l
31
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H
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f

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o
f

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a
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S
e
c
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o
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i
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o
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e
s
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a
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c
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a
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D
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v
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o
p
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t

i
n

I
n
d
i
a
Support Pre-commercialization phase
3.4.7 Investments into pilot plants and semi-commercial level plant
infrastructures into public funded institutions do not often provide
adequate returns. Therefore, schemes for joint investments into test
beds could be considered instead.
3.4.8 IPR assets owned by public funded entities could be valorized using
modern management practices. Private sector could be encouraged
to invest into test beds for evaluating the commercialization
potentials of such IPR assets which are not exploited for periods
longer than 5 years. A sweat equity mechanism for the public entity
with commercialization rights for the private sector could be
considered.
3.4.9 Private sector investments into in-house R&D enjoy fiscal benefits.
Expertise manpower required for carrying out translatable R&D is
special and not easily available in the country. Especially in areas such
as drug discovery, a pool of such expertise needs to be developed.
International expertise also seems necessary. Sector specific
schemes for part supporting expert manpower for R&D through
public funds may be considered.
Support Human Resource
3.4.10 Government grant up to 50% of the salary of (a) PhD scholars from
Indian institutions appointed by industry and (b) PhD scholars of
Indian origin from overseas appointed by industry.
3.4.11 Mobility scheme for Scientists/Engineers from public funded bodies
to industry may be worked out with a provision of a 3 year pay-
protection for doing R&D in industry.
3.4.12 Mobility of R&D professionals from Industry to public funded R&D
institutions with a 3 year pay-protection needs to be met from the
Government or part of it. Industry needs to top up the salary of the
R&D professionals.
3.4.13 Doctoral fellowships in Public Private Partnerships may be
considered for greater Industry-Academia interaction.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
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n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
r

i
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t
o
R
e
s
e
a
r
c
h

a
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d

D
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t

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30
3.4.2 A 50:50 PPP fund may be created to provide 75% support to private
sector for R&D and deployment/commercialization of technologies
with public institutions (public or private universities/colleges) in the
sectors/areas of social welfare such as affordable healthcare,
renewable energy, water treatment/purification, waste treatment/
processing etc.
3.4.3 A special fund (generated from R&D Cess received by Government) on
Global Partnerships may be launched where the Indian industry will
partner with global partners for R&D, technology acquisitions,
deployment/commercialization of technologies and, capacity
building of human resources. This fund may be administered by
Global Innovation & Technology Alliance on a 50:50 funding
mechanism on a case to case basis.
Priority sectors for PPP R&D
3.4.4 Prioritize about 5 sectors/areas based on social relevance and global
competitiveness for PPP R&D. Currently, sectors that seem to invest
are a) transportation, b) electronics, c) non-electronics, d) drugs and
pharma, e) minerals f) metallurgy. Sector specific road maps for
stimulating investments into these sectors complete with
monitoring systems may be positioned soon, for implementation.
3.4.5 PPP model for R&D as infrastructure projects needs to be worked out.
Renewable and clean energy is a nationally important sector. PPP for
such sectors for R&D may need new instruments of partnerships.
Public procurement from R&D based manufacturing is a globally
accepted policy for consideration.
Incentivize Joint R&D
3.4.6 Investment by private sector for R&D with public institutions in any
sector/area may be matched on a 50:50 basis or more by public funds.
The proportion of public fund may go up to 75% in case of MSMEs.
31
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n

o
f

I
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v
e
s
t
m
e
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t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
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i
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o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
Support Pre-commercialization phase
3.4.7 Investments into pilot plants and semi-commercial level plant
infrastructures into public funded institutions do not often provide
adequate returns. Therefore, schemes for joint investments into test
beds could be considered instead.
3.4.8 IPR assets owned by public funded entities could be valorized using
modern management practices. Private sector could be encouraged
to invest into test beds for evaluating the commercialization
potentials of such IPR assets which are not exploited for periods
longer than 5 years. A sweat equity mechanism for the public entity
with commercialization rights for the private sector could be
considered.
3.4.9 Private sector investments into in-house R&D enjoy fiscal benefits.
Expertise manpower required for carrying out translatable R&D is
special and not easily available in the country. Especially in areas such
as drug discovery, a pool of such expertise needs to be developed.
International expertise also seems necessary. Sector specific
schemes for part supporting expert manpower for R&D through
public funds may be considered.
Support Human Resource
3.4.10 Government grant up to 50% of the salary of (a) PhD scholars from
Indian institutions appointed by industry and (b) PhD scholars of
Indian origin from overseas appointed by industry.
3.4.11 Mobility scheme for Scientists/Engineers from public funded bodies
to industry may be worked out with a provision of a 3 year pay-
protection for doing R&D in industry.
3.4.12 Mobility of R&D professionals from Industry to public funded R&D
institutions with a 3 year pay-protection needs to be met from the
Government or part of it. Industry needs to top up the salary of the
R&D professionals.
3.4.13 Doctoral fellowships in Public Private Partnerships may be
considered for greater Industry-Academia interaction.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
i
v
a
t
e

S
e
c
t
o
r

i
n
t
o
R
e
s
e
a
r
c
h

a
n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
30
3.4.2 A 50:50 PPP fund may be created to provide 75% support to private
sector for R&D and deployment/commercialization of technologies
with public institutions (public or private universities/colleges) in the
sectors/areas of social welfare such as affordable healthcare,
renewable energy, water treatment/purification, waste treatment/
processing etc.
3.4.3 A special fund (generated from R&D Cess received by Government) on
Global Partnerships may be launched where the Indian industry will
partner with global partners for R&D, technology acquisitions,
deployment/commercialization of technologies and, capacity
building of human resources. This fund may be administered by
Global Innovation & Technology Alliance on a 50:50 funding
mechanism on a case to case basis.
Priority sectors for PPP R&D
3.4.4 Prioritize about 5 sectors/areas based on social relevance and global
competitiveness for PPP R&D. Currently, sectors that seem to invest
are a) transportation, b) electronics, c) non-electronics, d) drugs and
pharma, e) minerals f) metallurgy. Sector specific road maps for
stimulating investments into these sectors complete with
monitoring systems may be positioned soon, for implementation.
3.4.5 PPP model for R&D as infrastructure projects needs to be worked out.
Renewable and clean energy is a nationally important sector. PPP for
such sectors for R&D may need new instruments of partnerships.
Public procurement from R&D based manufacturing is a globally
accepted policy for consideration.
Incentivize Joint R&D
3.4.6 Investment by private sector for R&D with public institutions in any
sector/area may be matched on a 50:50 basis or more by public funds.
The proportion of public fund may go up to 75% in case of MSMEs.
33
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f

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v
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m
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t

o
f

P
r
i
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a
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e

S
e
c
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i
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o
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a
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a
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d

D
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t

i
n

I
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d
i
a
Safes, strong boxes, cash and deed boxes and strong room
doors.
Latex foam sponge and polyurethane foam.
Crown corks, or other fittings of cork, rubber, polyethylene or
any other material.
Pilfer-proof caps for packaging or other fittings of cork, rubber,
polyethylene or any other material.
3.5.1 The items listed in the "restricted items" are no longer "low-
technology" items. Most of the items are either imported in India
or Indian companies are paying a heavy royalty to foreign
suppliers. Hence, all sectors and areas of industry except for (1)
Beer, wine and other alcoholic spirits and (2) Tobacco and tobacco
preparations, such as, cigars and cheroots, cigarettes, biris,
smoking mixtures for pipes and cigarettes, chewing tobacco and
snuff, should be eligible for availing both direct and indirect R&D
incentives.
3.5.2 Multinational companies operating from India in other areas may
be treated at par with Indian companies for availing R&D
incentives provided that (1) R&D and manufacturing are done in
India and (2) they have R&D partnership and further production &
marketing arrangement with Indian companies with a target of
minimum of 50% exports from such products.
Currently, the following procedures exist for the industry to avail tax
benefits.
a) The R&D centres should hold valid recognition by DSIR.
b) The company should have well defined R&D programs.;
c) The company maintains proper documentation for the R&D
programs taken up.;
l
l
l
l
Inputs / Suggestions received from stakeholders
3.6 Procedure to avail Tax incentives
W
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T
E

P
A
P
E
R

O
N
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t
i
m
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l
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o
f

I
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v
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m
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n
t

o
f

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32
Support Infrastructure
3.4.14 Government grant up to 50% of the R&D infrastructure cost incurred
by the industry.
Support Start-ups
3.4.15 A special end to end package for Technology driven Startups may be
developed to fuel technology-driven entrepreneurship in the
country.
Currently, the following sectors/products, manufactured by the
Indian industry are not permitted to avail the R&D incentives.
Beer, wine and other alcoholic spirits.
Tobacco and tobacco preparations, such as, cigars and
cheroots, cigarettes, biris, smoking mixtures for pipes and
cigarettes, chewing tobacco and snuff.
Cosmetics and toilet preparations.
Tooth paste, dental cream, tooth powder and soap.
Aerated waters in the manufacture of which blended flavouring
concentrates in any form are used.
Confectionery and chocolates.
Gramophones, including record-players and gramophone
records.
Projectors.
Photographic apparatus and goods.
Office machines and apparatus such as typewriters, calculating
machines, cash registering machines, cheque writing machines,
intercom machines and Tele-printers.
Steel furniture, whether made partly or wholly of steel.
3.5 Industry Sectors that can avail R&D Incentives
l
l
l
l
l
l
l
l
l
l
l
33
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o
f

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Safes, strong boxes, cash and deed boxes and strong room
doors.
Latex foam sponge and polyurethane foam.
Crown corks, or other fittings of cork, rubber, polyethylene or
any other material.
Pilfer-proof caps for packaging or other fittings of cork, rubber,
polyethylene or any other material.
3.5.1 The items listed in the "restricted items" are no longer "low-
technology" items. Most of the items are either imported in India
or Indian companies are paying a heavy royalty to foreign
suppliers. Hence, all sectors and areas of industry except for (1)
Beer, wine and other alcoholic spirits and (2) Tobacco and tobacco
preparations, such as, cigars and cheroots, cigarettes, biris,
smoking mixtures for pipes and cigarettes, chewing tobacco and
snuff, should be eligible for availing both direct and indirect R&D
incentives.
3.5.2 Multinational companies operating from India in other areas may
be treated at par with Indian companies for availing R&D
incentives provided that (1) R&D and manufacturing are done in
India and (2) they have R&D partnership and further production &
marketing arrangement with Indian companies with a target of
minimum of 50% exports from such products.
Currently, the following procedures exist for the industry to avail tax
benefits.
a) The R&D centres should hold valid recognition by DSIR.
b) The company should have well defined R&D programs.;
c) The company maintains proper documentation for the R&D
programs taken up.;
l
l
l
l
Inputs / Suggestions received from stakeholders
3.6 Procedure to avail Tax incentives
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
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o
n

o
f

I
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v
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s
t
m
e
n
t

o
f

P
r
i
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a
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e

S
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c
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o
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R
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a
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c
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d

D
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v
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l
o
p
m
e
n
t

i
n

I
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32
Support Infrastructure
3.4.14 Government grant up to 50% of the R&D infrastructure cost incurred
by the industry.
Support Start-ups
3.4.15 A special end to end package for Technology driven Startups may be
developed to fuel technology-driven entrepreneurship in the
country.
Currently, the following sectors/products, manufactured by the
Indian industry are not permitted to avail the R&D incentives.
Beer, wine and other alcoholic spirits.
Tobacco and tobacco preparations, such as, cigars and
cheroots, cigarettes, biris, smoking mixtures for pipes and
cigarettes, chewing tobacco and snuff.
Cosmetics and toilet preparations.
Tooth paste, dental cream, tooth powder and soap.
Aerated waters in the manufacture of which blended flavouring
concentrates in any form are used.
Confectionery and chocolates.
Gramophones, including record-players and gramophone
records.
Projectors.
Photographic apparatus and goods.
Office machines and apparatus such as typewriters, calculating
machines, cash registering machines, cheque writing machines,
intercom machines and Tele-printers.
Steel furniture, whether made partly or wholly of steel.
3.5 Industry Sectors that can avail R&D Incentives
l
l
l
l
l
l
l
l
l
l
l
35
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xi. A commitment that the company shall submit the desired
information as per DSIR Guidelines every year for the approved
period while filing the Income Tax returns.
h) Documents required to be submitted for extension of approval in
Form 3CM (2 sets): -
i. Income Tax prescribed Form 3CK giving address of each in-house
R&D centre recognized by DSIR and duly signed by the Managing
Director and a witness.
ii. Copy of the renewal of recognition letter issued by DSIR.
i) Documents required to be submitted by 31st October of each
succeeding year of approved period to facilitate submission of
Report in Form 3CL (2 sets):
i. Complete details as per DSIR guidelines.
3.6.1 Procedure to avail Tax incentives needs complete overhaul.
3.6.2 As an immediate and interim step, the procedures may be extremely
simplified and hassle-free.
3.6.3 As step 2, a professional expert group may be constituted for
studying the existing procedures and recommend for rationalization
towards accreditation of private sector's R&D activities by
professional accrediting agencies and this being used for tax claims
directly from the tax authorities. This is crucial to provide a hassle
free environment for private sector to invest in R&D and create
innovative products from India for domestic and global markets.
Current financial audit procedures are risk averse and prohibit risky
ventures. In the deployment of public funds and loans from banks
especially, R&D led innovations do not receive adequate support.
Inputs / Suggestions received from stakeholders
3.7 R&D Risks and Failure Management
W
H
I
T
E

P
A
P
E
R

O
N
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t
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m
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o
f

P
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34
d) The in-house R&D centre is located in a separate earmarked
area/building and has exclusive R&D manpower of its own.;
e) The R&D centres are exclusively engaged in research and
development for the production of any article or thing not being an
article or thing specified in the list of the eleventh schedule of the
Income Tax Act.
f) All applications need to be sent to the Secretary, DSIR (each set of
applications should be tagged on the left corner and should not be
spiral bound).
g) Documents required to be submitted for initial approval in Form 3CM
(3 sets):-
i. Application in Income Tax prescribed Form 3CK giving address of
each in-house R&D Centre recognized by DSIR duly signed by the
Managing Director and a witness.
ii. Copy of DSIR recognition letter for each in-house R&D Centre.
iii. Clearly defined objectives of R&D not exceeding 6 lines.
iv. Latest audited financial statement along with the annual report.
v. Additional information as per annexure - III of the guidelines
vi. Additional information for seed companies.
vii.One page write-up clearly summarizing the R&D activities taken
up separately at each of the R&D Centre/s recognized by DSIR.
viii. Confirmation that the company does not manufacture any
product listed in Schedule 11 of IT Act.
ix. Total capital cost of in-house research facility, giving break-up of
the expenditure of the complete research facility including cost
of equipment, land & building as on 31st March of the last
completed financial year.
x. An undertaking that the company shall reflect the capital and
revenue expenditure on R&D in the audited financial statement
of the company prepared for the purpose of published annual
report as well as for the purpose of Income Tax returns.
35
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S
e
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o
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R
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D
e
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p
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n
t

i
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I
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d
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a
xi. A commitment that the company shall submit the desired
information as per DSIR Guidelines every year for the approved
period while filing the Income Tax returns.
h) Documents required to be submitted for extension of approval in
Form 3CM (2 sets): -
i. Income Tax prescribed Form 3CK giving address of each in-house
R&D centre recognized by DSIR and duly signed by the Managing
Director and a witness.
ii. Copy of the renewal of recognition letter issued by DSIR.
i) Documents required to be submitted by 31st October of each
succeeding year of approved period to facilitate submission of
Report in Form 3CL (2 sets):
i. Complete details as per DSIR guidelines.
3.6.1 Procedure to avail Tax incentives needs complete overhaul.
3.6.2 As an immediate and interim step, the procedures may be extremely
simplified and hassle-free.
3.6.3 As step 2, a professional expert group may be constituted for
studying the existing procedures and recommend for rationalization
towards accreditation of private sector's R&D activities by
professional accrediting agencies and this being used for tax claims
directly from the tax authorities. This is crucial to provide a hassle
free environment for private sector to invest in R&D and create
innovative products from India for domestic and global markets.
Current financial audit procedures are risk averse and prohibit risky
ventures. In the deployment of public funds and loans from banks
especially, R&D led innovations do not receive adequate support.
Inputs / Suggestions received from stakeholders
3.7 R&D Risks and Failure Management
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
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o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
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a
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e

S
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c
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o
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i
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D
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34
d) The in-house R&D centre is located in a separate earmarked
area/building and has exclusive R&D manpower of its own.;
e) The R&D centres are exclusively engaged in research and
development for the production of any article or thing not being an
article or thing specified in the list of the eleventh schedule of the
Income Tax Act.
f) All applications need to be sent to the Secretary, DSIR (each set of
applications should be tagged on the left corner and should not be
spiral bound).
g) Documents required to be submitted for initial approval in Form 3CM
(3 sets):-
i. Application in Income Tax prescribed Form 3CK giving address of
each in-house R&D Centre recognized by DSIR duly signed by the
Managing Director and a witness.
ii. Copy of DSIR recognition letter for each in-house R&D Centre.
iii. Clearly defined objectives of R&D not exceeding 6 lines.
iv. Latest audited financial statement along with the annual report.
v. Additional information as per annexure - III of the guidelines
vi. Additional information for seed companies.
vii.One page write-up clearly summarizing the R&D activities taken
up separately at each of the R&D Centre/s recognized by DSIR.
viii. Confirmation that the company does not manufacture any
product listed in Schedule 11 of IT Act.
ix. Total capital cost of in-house research facility, giving break-up of
the expenditure of the complete research facility including cost
of equipment, land & building as on 31st March of the last
completed financial year.
x. An undertaking that the company shall reflect the capital and
revenue expenditure on R&D in the audited financial statement
of the company prepared for the purpose of published annual
report as well as for the purpose of Income Tax returns.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
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a
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n

o
f

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m
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t

o
f

P
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36
Inputs / Suggestions received from stakeholders
3.7.1 Work out provisions for writing off government loans/grants for
private sector R&D failures. Caps may be defined for small, medium
and large firms.
3.7.2 Institute a simple and one-window apex system in the Ministries to
clear such items expeditiously.
3.7.3 A professional expert group involving financial experts may be
commissioned to study the Israel and Singapore models for
adaptation to suit the national innovation eco system.
37
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4.0Six Key Recommendations of JCIG
The Joint Committee on Industry and Government (JCIG) has received
several inputs from various stakeholders. They have been compiled in
the previous chapters. The major observation emanating from various
inputs from stakeholders is that the current estimate of private sector's
investment into R&D may be generally under-estimated. Global
practices for computing private sector investment into R&D may seem
to extend beyond those heads of accounts relating to direct research or
R&D costs. Translation and pre-commercialization activities which
receive considerable investment from the private sector seem to be
included as R&D investment in many other countries. The current
Indian practice may, therefore, need to be reviewed.
The JCIG has grouped various recommendations with inputs received
for computing R&D investment into three verticals, namely, i) direct
R&D cost currently qualified for tax deduction under section 35
(2AA)and 35 (2AB); ii) Translation of R&D and pre-commercialization
trials and iii) human resource development which could qualify under
Corporate Social Responsibility also. Current policies make provisions
for 100% write-off of indirect costs associated with R&D as indicated in
the report. After due deliberation, the JCIG has grouped various
recommendations and inputs from stakeholders, as given in figures
below:
Direct R&D
l
lMaterials & consumables
lUtilities & services
lHuman Resource
Plant & Machinery
Trial Production of finite
numbers of bulk
IPR Acquisition / Protection
Design
Scholarships
to PhD Scholars
For Appropriate Accounting For Fiscal Benefits
Skills Development
Employment Generation
Technology Business/
Incubation of Start-ups
Training / Education of
Industry Personnel
Education
Under CSR
R&D Expenditure by Industry
Land & Building
Prototyping
Test Beds
Clinical drug trials and
Bioequivalence studies
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
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o
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o
f

I
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v
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s
t
m
e
n
t

o
f

P
r
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a
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e

S
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c
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o
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i
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t
o
R
e
s
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a
r
c
h

a
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v
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l
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p
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t

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36
Inputs / Suggestions received from stakeholders
3.7.1 Work out provisions for writing off government loans/grants for
private sector R&D failures. Caps may be defined for small, medium
and large firms.
3.7.2 Institute a simple and one-window apex system in the Ministries to
clear such items expeditiously.
3.7.3 A professional expert group involving financial experts may be
commissioned to study the Israel and Singapore models for
adaptation to suit the national innovation eco system.
37
W
H
I
T
E

P
A
P
E
R

O
N
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t
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m
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l
a
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n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

P
r
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v
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e

S
e
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t
o
r

i
n
t
o
R
e
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e
a
r
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h

a
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D
e
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o
p
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n
t

i
n

I
n
d
i
a
4.0Six Key Recommendations of JCIG
The Joint Committee on Industry and Government (JCIG) has received
several inputs from various stakeholders. They have been compiled in
the previous chapters. The major observation emanating from various
inputs from stakeholders is that the current estimate of private sector's
investment into R&D may be generally under-estimated. Global
practices for computing private sector investment into R&D may seem
to extend beyond those heads of accounts relating to direct research or
R&D costs. Translation and pre-commercialization activities which
receive considerable investment from the private sector seem to be
included as R&D investment in many other countries. The current
Indian practice may, therefore, need to be reviewed.
The JCIG has grouped various recommendations with inputs received
for computing R&D investment into three verticals, namely, i) direct
R&D cost currently qualified for tax deduction under section 35
(2AA)and 35 (2AB); ii) Translation of R&D and pre-commercialization
trials and iii) human resource development which could qualify under
Corporate Social Responsibility also. Current policies make provisions
for 100% write-off of indirect costs associated with R&D as indicated in
the report. After due deliberation, the JCIG has grouped various
recommendations and inputs from stakeholders, as given in figures
below:
Direct R&D
l
lMaterials & consumables
lUtilities & services
lHuman Resource
Plant & Machinery
Trial Production of finite
numbers of bulk
IPR Acquisition / Protection
Design
Scholarships
to PhD Scholars
For Appropriate Accounting For Fiscal Benefits
Skills Development
Employment Generation
Technology Business/
Incubation of Start-ups
Training / Education of
Industry Personnel
Education
Under CSR
R&D Expenditure by Industry
Land & Building
Prototyping
Test Beds
Clinical drug trials and
Bioequivalence studies
39
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H
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O
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t

o
f

P
r
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e

S
e
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o
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R
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4. 3. Consti tuti on of an Expert Commi ttee for
rationalization of Heads of R&D investment for direct
and indirect facilitation
4.4.Valuing IPR assets and Provide for demand pool for
R&D outputs through provisions for public
procurement:
JCIG has grouped various heads of accounts for computing R&D
investment including those incurred for translation, pre-
commercialization trials. A suitable Expert Committee may be
constituted by the Government to study the recommendations
emanating from the stakeholders, provide inputs to JCIG and
examine the possibilities of inclusion of some of the heads of
accounts grouped by the JCIG for extending the provisions of 100%
write-off for inclusion in the section 35 (2AA) and 35 (2AB). The
professional expert group may also study the existing procedures
and recommend rationalization towards accreditation of private
sector R&D activity by an accredited agency or self-declaration of
companies for availing benefits.
To encourage Micro, Small and Medium Enterprises for participation
in R&D and generation of IP, a special Credit Guarantee Scheme may
be provided by the Government to banks and financial institutions to
consider IP as a mortgage-able asset.
All investments made in procurement of IPR through a formal
mechanism of private sector enterprises from either public funded
institutions in India or abroad may be considered as R&D investment
as included for consideration for tax benefits under section 35 (2AA)
and 35 (2AB).
Public procurement system may be rationalized including a
relaxation of past track records for MSME when the products are
developed through indigenous R&D or technology developed from
public funded institutions are commercialized.
In order to cover the risk failures of IP in commercialization, provide
two year income-tax holiday on the sales proceeds of products and
services emanating from new IPRs.
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The JCIG, after studying various factors, has made six key recommendations
for consideration of the Government for creating a policy environment which
could stimulate higher investments by private sector into R&D consistent
with the goal of Science, Technology and Innovation Policy, 2013, released in
January 2013. One of the goals of the 12thFive Year Plan is to trigger and
stimulate private sector investments for matching those by the Government
by the end of 2017. In order to achieve such targets, JCIG considers that the
recommendations made below may be of value:
Current estimates of private sector investment into R&D are
generally limited to those incurred for direct research in a laboratory
in the form of plant and machinery, manpower, consumables and
utilities. They do not cover costs relating to translation of R&D like
test-bed, design and development, standardization, field costs, etc.,
as well as pre-commercialization trial production. These pre-
commercialization trails and field trials could be performed either in-
house or in any other organization in India. These are not currently
considered as R&D investment. JCIG recommends that the
translation expenditure incurred on translation and pre-
commercialization trials could be included as apart of R&D costs.
Inclusion of such costs could be notified by the Government after
examination. Industry could submit a specific proposal for
consideration.
Currently companies are not mandated to disclose expenditure
incurred on R&D in their balance sheets and Annual Reports. Some
voluntary disclosures provide access to information. Since current
mechanism does not enable a realistic estimation of investment of
private sector into R&D, the Government may mandate disclosure of
R&D investment in public domain as an obligation. This would help in
proper quantification of investment of private sector into R&D.
4.1. Redefine private sector R&D investment as per global
norms and practices
4.2.Mandatory disclosure of R&D investment by Private
Sector
39
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4. 3. Consti tuti on of an Expert Commi ttee for
rationalization of Heads of R&D investment for direct
and indirect facilitation
4.4.Valuing IPR assets and Provide for demand pool for
R&D outputs through provisions for public
procurement:
JCIG has grouped various heads of accounts for computing R&D
investment including those incurred for translation, pre-
commercialization trials. A suitable Expert Committee may be
constituted by the Government to study the recommendations
emanating from the stakeholders, provide inputs to JCIG and
examine the possibilities of inclusion of some of the heads of
accounts grouped by the JCIG for extending the provisions of 100%
write-off for inclusion in the section 35 (2AA) and 35 (2AB). The
professional expert group may also study the existing procedures
and recommend rationalization towards accreditation of private
sector R&D activity by an accredited agency or self-declaration of
companies for availing benefits.
To encourage Micro, Small and Medium Enterprises for participation
in R&D and generation of IP, a special Credit Guarantee Scheme may
be provided by the Government to banks and financial institutions to
consider IP as a mortgage-able asset.
All investments made in procurement of IPR through a formal
mechanism of private sector enterprises from either public funded
institutions in India or abroad may be considered as R&D investment
as included for consideration for tax benefits under section 35 (2AA)
and 35 (2AB).
Public procurement system may be rationalized including a
relaxation of past track records for MSME when the products are
developed through indigenous R&D or technology developed from
public funded institutions are commercialized.
In order to cover the risk failures of IP in commercialization, provide
two year income-tax holiday on the sales proceeds of products and
services emanating from new IPRs.
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The JCIG, after studying various factors, has made six key recommendations
for consideration of the Government for creating a policy environment which
could stimulate higher investments by private sector into R&D consistent
with the goal of Science, Technology and Innovation Policy, 2013, released in
January 2013. One of the goals of the 12thFive Year Plan is to trigger and
stimulate private sector investments for matching those by the Government
by the end of 2017. In order to achieve such targets, JCIG considers that the
recommendations made below may be of value:
Current estimates of private sector investment into R&D are
generally limited to those incurred for direct research in a laboratory
in the form of plant and machinery, manpower, consumables and
utilities. They do not cover costs relating to translation of R&D like
test-bed, design and development, standardization, field costs, etc.,
as well as pre-commercialization trial production. These pre-
commercialization trails and field trials could be performed either in-
house or in any other organization in India. These are not currently
considered as R&D investment. JCIG recommends that the
translation expenditure incurred on translation and pre-
commercialization trials could be included as apart of R&D costs.
Inclusion of such costs could be notified by the Government after
examination. Industry could submit a specific proposal for
consideration.
Currently companies are not mandated to disclose expenditure
incurred on R&D in their balance sheets and Annual Reports. Some
voluntary disclosures provide access to information. Since current
mechanism does not enable a realistic estimation of investment of
private sector into R&D, the Government may mandate disclosure of
R&D investment in public domain as an obligation. This would help in
proper quantification of investment of private sector into R&D.
4.1. Redefine private sector R&D investment as per global
norms and practices
4.2.Mandatory disclosure of R&D investment by Private
Sector
41
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Note: It may be noted that many suggestions and recommendations mentioned in the Chapter 3
of this report, could not find place in the final six key recommendations. While all the suggestions
have been found important and necessary, the JCIG felt that immediate actions should start with
a few items to be implemented in 2013-14. However, the JCIG will look at all other suggestions;
those are important and will take appropriate recommendations to the Government for
consideration in later years.
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Dedicated sector-specific funds may be allocated from the
Government's budget for building technology depth in 5 priority
sectors: a) transportation b) electronics c) Pharmaceutical and
Biotechnology d) minerals, materials & metallurgy e) Next
generation manufacturing technologies f) Heavy industries.
Similarly, dedicated area-specific funds may be allocated from the
Government's budget for investments into PPP for developing and
deploying technology solutions in 5 national priority sectors: a)
affordabl e heal thcare b) renewabl e energy c) water
treatment/purification d) sanitation & waste management e)
homeland & cyber security f) Business of data. The fund will be used
as grants from the government to match (50:50) the industry's
investment on flagship projects. The projects under the priority
sectors will cover all the Capex and Opex for doing research or
adopting state-of-the-art technologies developed by others across
the globe, development activities during pre-commercialization
phase and finally setting up and producing products on a commercial
scale. Early establishment of the fund is recommended.
The recently incorporated PPP Section 25 Company, Global
Innovation & Technology Alliance (GITA) may be entrusted with the
responsibility of managing this initiative under duly constituted Joint
Apex Council. A professional expert group involving financial experts
may be commissioned to come out with a recommendation at the
earliest, on the provisions for writing off government loans/grants
for private sector R&D failures by instituting a simple and one-
window apex system in the Ministries to clear such items
expeditiously.
4.5.Build Technology Depth of Industry in Priority
Sectors and usher an era of PPP R&D and Technology
Deployments for providing technology solutions to
National Priority Areas
The JCIG recommends an incentive system for stimulating individual
inventors, public funded institutions and private sector for
commercialization on R&D outputs. The Committee recommends
positioning of an internal system as presented in the table below:
4.6.Incentives for commercialization on R&D:
For Individual Inventors For Public Funded R&D For Private Sector R&D
Institutions
A percentage of payments Increase commercialization of Introduce a scheme for
received from the industry R&D outputs from public conditional grant to industry
to be shared with individual funded R&D through for commercialization of IPs
inventors in the line of existing performance related incentive from public funded R&D by
guidelines of IITs, IISc and system the private sector
CSIR
Link R&D grants released to Link R&D plan grant to the Introduce a Small Business
individual inventors with institution with the value of Innovation Research
commercialization of their payments received through Scheme similar to that of
outputs royalty, know-how etc. contract SBIR of USA
research grants and other
direct payments received for
commercialization of
intellectual property generated
from public funded R&D
Encourage inventors to spin Link Incentive to R&D plan Encourage private sector to
off companies grant for basic research, share equity and long term
matching the receipt equivalent differed royalty with R&D
to the external funding from institutions against
non-budgetary sources technology transfer in
lieu of cash payment
Provide additional R&D Introduce a Research Award Introduce a cash subsidy
incentive grant to inventors Scheme for institutions for scheme similar to that of
matching the value of commercialization of public Germany and Israel
payments received from the funded R&D with values of the
industry for commercialization order of Rs. 5, 3, 1 crores
41
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Note: It may be noted that many suggestions and recommendations mentioned in the Chapter 3
of this report, could not find place in the final six key recommendations. While all the suggestions
have been found important and necessary, the JCIG felt that immediate actions should start with
a few items to be implemented in 2013-14. However, the JCIG will look at all other suggestions;
those are important and will take appropriate recommendations to the Government for
consideration in later years.
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40
Dedicated sector-specific funds may be allocated from the
Government's budget for building technology depth in 5 priority
sectors: a) transportation b) electronics c) Pharmaceutical and
Biotechnology d) minerals, materials & metallurgy e) Next
generation manufacturing technologies f) Heavy industries.
Similarly, dedicated area-specific funds may be allocated from the
Government's budget for investments into PPP for developing and
deploying technology solutions in 5 national priority sectors: a)
affordabl e heal thcare b) renewabl e energy c) water
treatment/purification d) sanitation & waste management e)
homeland & cyber security f) Business of data. The fund will be used
as grants from the government to match (50:50) the industry's
investment on flagship projects. The projects under the priority
sectors will cover all the Capex and Opex for doing research or
adopting state-of-the-art technologies developed by others across
the globe, development activities during pre-commercialization
phase and finally setting up and producing products on a commercial
scale. Early establishment of the fund is recommended.
The recently incorporated PPP Section 25 Company, Global
Innovation & Technology Alliance (GITA) may be entrusted with the
responsibility of managing this initiative under duly constituted Joint
Apex Council. A professional expert group involving financial experts
may be commissioned to come out with a recommendation at the
earliest, on the provisions for writing off government loans/grants
for private sector R&D failures by instituting a simple and one-
window apex system in the Ministries to clear such items
expeditiously.
4.5.Build Technology Depth of Industry in Priority
Sectors and usher an era of PPP R&D and Technology
Deployments for providing technology solutions to
National Priority Areas
The JCIG recommends an incentive system for stimulating individual
inventors, public funded institutions and private sector for
commercialization on R&D outputs. The Committee recommends
positioning of an internal system as presented in the table below:
4.6.Incentives for commercialization on R&D:
For Individual Inventors For Public Funded R&D For Private Sector R&D
Institutions
A percentage of payments Increase commercialization of Introduce a scheme for
received from the industry R&D outputs from public conditional grant to industry
to be shared with individual funded R&D through for commercialization of IPs
inventors in the line of existing performance related incentive from public funded R&D by
guidelines of IITs, IISc and system the private sector
CSIR
Link R&D grants released to Link R&D plan grant to the Introduce a Small Business
individual inventors with institution with the value of Innovation Research
commercialization of their payments received through Scheme similar to that of
outputs royalty, know-how etc. contract SBIR of USA
research grants and other
direct payments received for
commercialization of
intellectual property generated
from public funded R&D
Encourage inventors to spin Link Incentive to R&D plan Encourage private sector to
off companies grant for basic research, share equity and long term
matching the receipt equivalent differed royalty with R&D
to the external funding from institutions against
non-budgetary sources technology transfer in
lieu of cash payment
Provide additional R&D Introduce a Research Award Introduce a cash subsidy
incentive grant to inventors Scheme for institutions for scheme similar to that of
matching the value of commercialization of public Germany and Israel
payments received from the funded R&D with values of the
industry for commercialization order of Rs. 5, 3, 1 crores
4. Secretary or his representative Member
Deptt. of Scientific & Industrial Research
New Delhi
5. Mr.Hari S Bhartia Member
Co-Chairman & MD
Jubilant Life Sciences Ltd, Noida
6. Secretary or his representative Member
Deptt. of Biotechnology
New Delhi
7. Dr.Naushad Forbes Member
Director Forbes Marshall Pvt. Ltd., Pune
8. Secretary or his representative Member
Ministry of Earth Sciences
New Delhi
9. Mr. Anjan Das Co-Member Secretary
Executive Director
Confederation of Indian Industry
10. Dr. B. K. Shukla Co-Member Secretary
Scientist G
Department of Science & Technology
2. The terms of reference and tenure of the joint committee is as
follows:-
(i) Prepare a white paper for stimulating private sector investment
into R&D.
(ii) Select appropriate institutions/agencies/consultants for
commissioning studies which would facilitate preparation of the
white paper.
(iii) Suggest policy initiatives to the Government from time to time
th
during the 12 Plan Period.
Sub: Constitution of "Joint Committee of Industry and Government for
stimulating private sector investment into R&D".
Pursuant to the decision taken during the interactive session with Hon'ble
th
MOS (S&T) with private sector CEOs on 12 November 2011 in Mumbai, the
Department of Science & Technology has decided to constitute a "Joint
Committee of Industry and Government for stimulating private sector
investment into R&D". The composition of the Joint Committee is as under:
1. Dr. T Ramasami Co-chairman
Secretary
Department of Science & Technology
New Delhi
2. Mr. B Muthuraman Co-Chairman
President, CII
Vice Chairman, Tata Steel Limited
Chairman, Tata International Limited
3. Mr. S Gopalakrishnan Member
Vice President, CII
Executive Chairman,
Infosys Technologies Limited
No. l6/1/2011-NEB
Government of India
Ministry of Science & Technology
Department of Science & Technology
Annexure - 1
Technology Bhawan
New Mehrauli Road
New Delhi-II 00 16
Dated: 30th November 2011
OFFICE ORDER
4. Secretary or his representative Member
Deptt. of Scientific & Industrial Research
New Delhi
5. Mr.Hari S Bhartia Member
Co-Chairman & MD
Jubilant Life Sciences Ltd, Noida
6. Secretary or his representative Member
Deptt. of Biotechnology
New Delhi
7. Dr.Naushad Forbes Member
Director Forbes Marshall Pvt. Ltd., Pune
8. Secretary or his representative Member
Ministry of Earth Sciences
New Delhi
9. Mr. Anjan Das Co-Member Secretary
Executive Director
Confederation of Indian Industry
10. Dr. B. K. Shukla Co-Member Secretary
Scientist G
Department of Science & Technology
2. The terms of reference and tenure of the joint committee is as
follows:-
(i) Prepare a white paper for stimulating private sector investment
into R&D.
(ii) Select appropriate institutions/agencies/consultants for
commissioning studies which would facilitate preparation of the
white paper.
(iii) Suggest policy initiatives to the Government from time to time
th
during the 12 Plan Period.
Sub: Constitution of "Joint Committee of Industry and Government for
stimulating private sector investment into R&D".
Pursuant to the decision taken during the interactive session with Hon'ble
th
MOS (S&T) with private sector CEOs on 12 November 2011 in Mumbai, the
Department of Science & Technology has decided to constitute a "Joint
Committee of Industry and Government for stimulating private sector
investment into R&D". The composition of the Joint Committee is as under:
1. Dr. T Ramasami Co-chairman
Secretary
Department of Science & Technology
New Delhi
2. Mr. B Muthuraman Co-Chairman
President, CII
Vice Chairman, Tata Steel Limited
Chairman, Tata International Limited
3. Mr. S Gopalakrishnan Member
Vice President, CII
Executive Chairman,
Infosys Technologies Limited
No. l6/1/2011-NEB
Government of India
Ministry of Science & Technology
Department of Science & Technology
Annexure - 1
Technology Bhawan
New Mehrauli Road
New Delhi-II 00 16
Dated: 30th November 2011
OFFICE ORDER
45
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The Nation's economic development (GDP per capita) and its journey
towards Innovation driven economies (currently 35 nations in this bracket
having GDP per capita of more than 17,000 USD) has been largely dictated by
the outputs of nations' robust Science, Technology & Innovation (STI)
ecosystem.
The key pillar of nation's competitiveness is technological innovation.
Although substantial gains can be obtained by improving institutions,
building infrastructure, reducing macroeconomic instability, or improving
human capital, all these factors eventually seem to run into diminishing
returns. The same is true for the efficiency of the labor, financial, and goods
markets. In the long run, standards of living can be enhanced only by
technological innovation. This is particularly important for economies as they
approach the frontiers of knowledge and the possibility of integrating and
adapting exogenous technologies tends to disappear. Although less-
advanced countries can still improve their productivity by adopting existing
technologies or making incremental improvements in other areas, for those
that have reached the innovation stage of development this is no longer
sufficient for increasing productivity. Firms in these countries must design
and develop cutting-edge products and processes to maintain a competitive
edge. This progression requires an environment that is conducive to
innovative activity, supported by both the public and the private sectors. In
particular, it means sufficient investment in research and development
(R&D), especially by the private sector; the presence of high-quality scientific
research institutions; extensive collaboration in research between
universities and industry; and the protection of intellectual property. In light
of the recent sluggish recovery and rising fiscal pressures faced by advanced
economies, it is important that public and private sectors resist pressures to
cut back on the R&D spending that will be so critical for sustainable growth
going into the future.
Annexure - II
2
Background - Global Trends
2
This paper is compiled from OECD Science, Technology & Industry Outlook 2010
(iv) Co-chairmen can co-opt additional Members from the
Industry/Government as special invitees depending on the specific
requirement.
(v) The tenure of the Joint Committee would be for 3 years from the
date of constitution.
3. Travel expenses and honorarium etc. would be paid to non-official
Members of the Committee as per norms by Technology Development
Board for holding Joint Committee Meetings.
(Dr. B K Shukla)
Scientist G
Copy to:-
1. Co-chairmen & all the Members of the Committee.
2. PPS to Secretary, DST,
3. Mr. H K Mittal, Secretary, Technology Development Board, New Delhi
4. Mr. Anjan Das, Executive Director, CII, New Delhi.
45
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i
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The Nation's economic development (GDP per capita) and its journey
towards Innovation driven economies (currently 35 nations in this bracket
having GDP per capita of more than 17,000 USD) has been largely dictated by
the outputs of nations' robust Science, Technology & Innovation (STI)
ecosystem.
The key pillar of nation's competitiveness is technological innovation.
Although substantial gains can be obtained by improving institutions,
building infrastructure, reducing macroeconomic instability, or improving
human capital, all these factors eventually seem to run into diminishing
returns. The same is true for the efficiency of the labor, financial, and goods
markets. In the long run, standards of living can be enhanced only by
technological innovation. This is particularly important for economies as they
approach the frontiers of knowledge and the possibility of integrating and
adapting exogenous technologies tends to disappear. Although less-
advanced countries can still improve their productivity by adopting existing
technologies or making incremental improvements in other areas, for those
that have reached the innovation stage of development this is no longer
sufficient for increasing productivity. Firms in these countries must design
and develop cutting-edge products and processes to maintain a competitive
edge. This progression requires an environment that is conducive to
innovative activity, supported by both the public and the private sectors. In
particular, it means sufficient investment in research and development
(R&D), especially by the private sector; the presence of high-quality scientific
research institutions; extensive collaboration in research between
universities and industry; and the protection of intellectual property. In light
of the recent sluggish recovery and rising fiscal pressures faced by advanced
economies, it is important that public and private sectors resist pressures to
cut back on the R&D spending that will be so critical for sustainable growth
going into the future.
Annexure - II
2
Background - Global Trends
2
This paper is compiled from OECD Science, Technology & Industry Outlook 2010
(iv) Co-chairmen can co-opt additional Members from the
Industry/Government as special invitees depending on the specific
requirement.
(v) The tenure of the Joint Committee would be for 3 years from the
date of constitution.
3. Travel expenses and honorarium etc. would be paid to non-official
Members of the Committee as per norms by Technology Development
Board for holding Joint Committee Meetings.
(Dr. B K Shukla)
Scientist G
Copy to:-
1. Co-chairmen & all the Members of the Committee.
2. PPS to Secretary, DST,
3. Mr. H K Mittal, Secretary, Technology Development Board, New Delhi
4. Mr. Anjan Das, Executive Director, CII, New Delhi.
47
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Recognizing that innovation is a source of long-term growth, many
governments have policies to improve infrastructure, support basic science,
R&D and innovation, strengthen human capital, and promote green
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
7%
77%
7%
28%
68%
4%
6%
65%
29%
45%
23%
32%
9%
52%
38%
68%
30%
2%
Japan Germany USA Uk France India
Others (% of Total Exp)
Private Expenditure in R&D (% of Total Exp)
Public Expenditure in R&D (% of Total Exp)
technology and innovation, and foster entrepreneurship. Israel spends more
than 4% of GDP in Research & Development (R&D) while. Japan, South Korea
and Scandinavian countries spend more than 3%. US, France, Germany spend
more than 2% and. China spends more than 1.50%. But the most important
point is, in all these countries, industry spends more than government in R&D
- in some countries 3 times more than Government spending. In India, while
total spending in R&D is around 1%, Government's spending is 2 to 3 times
more than that of Industry's. A number of specific measures have been taken
to stimulate the recovery from the recent economic crisis. The European
Union has urged member states to increase planned investments in R&D and
consider ways to increase private-sector R&D investments. As part of the
American Reinvestment and Recovery Act of 2009, the United States
government has increased its spending on R&D related to climate change by
USD 26.1 billion, and to energy by USD 6.36 billion. An additional USD 10
billion was allocated for biomedical research funded by the US National
Institutes of Health and an additional USD 2.3 billion was allocated to
research funded by the National Science Foundation. The response to the
crisis has also given a boost to efforts.
W
H
I
T
E

P
A
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R

O
N
S
t
i
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e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
46
The main trends in national science, technology and innovation policies,
introduced by many nations towards public-sector research, government
support for business R&D and innovation, collaboration and networking
among innovating organizations, globalizsation of R&D and open innovation,
human resources for S&T, and the evaluation of research and innovation
policies are as follows:
One of the key enablers of a country's strong STI ecosystem is improving the
industry's competencies and enhancing incentives for Business R&D.
Increasing public support to R&D: Despite the slowdown in economic
growth and the resulting fall in tax revenue, government investments in R&D
have outpaced outlays in other areas. Government investments or spending
and tax cuts, taken together, have represented on average more than 3% of
GDP in the OECD area and up to 5% of GDP in the United States and Korea.
47
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
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o
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Recognizing that innovation is a source of long-term growth, many
governments have policies to improve infrastructure, support basic science,
R&D and innovation, strengthen human capital, and promote green
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
7%
77%
7%
28%
68%
4%
6%
65%
29%
45%
23%
32%
9%
52%
38%
68%
30%
2%
Japan Germany USA Uk France India
Others (% of Total Exp)
Private Expenditure in R&D (% of Total Exp)
Public Expenditure in R&D (% of Total Exp)
technology and innovation, and foster entrepreneurship. Israel spends more
than 4% of GDP in Research & Development (R&D) while. Japan, South Korea
and Scandinavian countries spend more than 3%. US, France, Germany spend
more than 2% and. China spends more than 1.50%. But the most important
point is, in all these countries, industry spends more than government in R&D
- in some countries 3 times more than Government spending. In India, while
total spending in R&D is around 1%, Government's spending is 2 to 3 times
more than that of Industry's. A number of specific measures have been taken
to stimulate the recovery from the recent economic crisis. The European
Union has urged member states to increase planned investments in R&D and
consider ways to increase private-sector R&D investments. As part of the
American Reinvestment and Recovery Act of 2009, the United States
government has increased its spending on R&D related to climate change by
USD 26.1 billion, and to energy by USD 6.36 billion. An additional USD 10
billion was allocated for biomedical research funded by the US National
Institutes of Health and an additional USD 2.3 billion was allocated to
research funded by the National Science Foundation. The response to the
crisis has also given a boost to efforts.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
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n

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d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
46
The main trends in national science, technology and innovation policies,
introduced by many nations towards public-sector research, government
support for business R&D and innovation, collaboration and networking
among innovating organizations, globalizsation of R&D and open innovation,
human resources for S&T, and the evaluation of research and innovation
policies are as follows:
One of the key enablers of a country's strong STI ecosystem is improving the
industry's competencies and enhancing incentives for Business R&D.
Increasing public support to R&D: Despite the slowdown in economic
growth and the resulting fall in tax revenue, government investments in R&D
have outpaced outlays in other areas. Government investments or spending
and tax cuts, taken together, have represented on average more than 3% of
GDP in the OECD area and up to 5% of GDP in the United States and Korea.
49
W
H
I
T
E

P
A
P
E
R

O
N
S
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a
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considerably according to factors such as industrial structure, existence of
large R&D-intensive firms, R&D intensity and specialization.
U
n
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t
e
d

S
t
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K
o
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K
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a
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d
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w
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r
l
a
n
d
J
a
p
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n
C
a
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a
d
a
Indirect Govt support thru R&D Tax incentives (% of GDP)
Direct Government Funding of BERD (% of GDP)
N
e
t
h
e
r
l
a
n
d
s
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
Direct & Indirect Government funding (% of GDP) of
Business Expenditure on R&D (BERD) and tax incentives for R&D
Stimulate private investments in R&D and innovation: As mentioned above,
direct public funding through grants, subsidies and loans remains the most
frequent form of support to business R&D, with competitive and merit based
grant programmes having gained ground. However tax relief for R&D
continues to complement more direct measures in many countries. Tax
credits on social charges for researchers engaged in R&D have recently been
introduced as a subsidy for highly skilled human capital, especially in small
research intensive firms. There are broadly three major forms of R&D tax
incentives: i) R&D tax credits that allow a deduction from the tax payable; ii)
R&D allowances that represent an additional deduction from taxable
income; and iii) depreciation allowances. Depending on the country, tax
concessions are calculated either on a volume share of R&D expenditure, an
incremental share (marginal R&D performed above a certain threshold of
qualified expenditures), or a mix of both. Moreover, differences in country
practices (e.g. eligible R&D activities, expenses base, rolling base versus
W
H
I
T
E

P
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R

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l
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p
m
e
n
t

i
n

I
n
d
i
a
48
Fostering business R&D and innovation: Business enterprises are the main
source of innovation. They play a primary role in funding and performing R&D
in most countries and, more than ever, governments seek to increase
business investment in R&D and innovation. Global competition has led
countries to seek to boost the innovative capacity of the business sector. In
the EU, another catalyst has been the EU's 3% R&D spending target, which is
to be achieved primarily by increasing business expenditures on R&D (BERD)
to 2% of GDP. The intensity of BERD indicates the financial effort devoted by
the business sector to advance research. Japan and Sweden, for example,
have high BERD and patenting intensities. The shares of the services sector
and SMEs in BERD tend to mirror the structure of business R&D systems and
the relative contribution of non-manufacturing and SMEs to R&D
performance. Triadic patenting is an indicator of the ability of innovation
systems to generate new inventions that may be exploited globally. In
addition to framework conditions such as competition policy and access to
capital markets, a broad range of direct policy instruments, such as block
grants or competition based schemes, are used to stimulate business R&D
and innovation. Increasingly, many direct support R&D schemes are being
oriented or targeted to strategic sectors/technologies in order to foster
competitiveness but also to help firms in their specialization strategies. Soft
support, such as assistance in firm creation, counselling and
entrepreneurship measures, is also being used to complement direct R&D
support and to encourage risk-taking attitudes. While the general tax system
is used to foster investment in innovation by firms, specific R&D tax
incentives remain important in many economies, even if their design and
scope continues to evolve. Finally, many governments increasingly look to
use public procurement as a way to accelerate the diffusion of innovative
products or services in the business sector while meeting public demand for
goods and services. It is clear that direct support to business innovation, in
the form of competitive grants or subsidiszed and guaranteed loans, remains
important and has increased in some countries, especially for key industrial
sectors such as renewable energy, advanced manufacturing, ICTs and health.
However, the balance between merit-based and block instruments varies
49
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H
I
T
E

P
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P
E
R

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l
a
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f

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a
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a
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d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
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considerably according to factors such as industrial structure, existence of
large R&D-intensive firms, R&D intensity and specialization.
U
n
i
t
e
d

S
t
a
t
e
s
K
o
r
e
a
F
r
a
n
c
e
S
w
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d
e
n
G
e
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m
a
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e
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K
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m
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w
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r
l
a
n
d
J
a
p
a
n
C
a
n
a
d
a
Indirect Govt support thru R&D Tax incentives (% of GDP)
Direct Government Funding of BERD (% of GDP)
N
e
t
h
e
r
l
a
n
d
s
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
Direct & Indirect Government funding (% of GDP) of
Business Expenditure on R&D (BERD) and tax incentives for R&D
Stimulate private investments in R&D and innovation: As mentioned above,
direct public funding through grants, subsidies and loans remains the most
frequent form of support to business R&D, with competitive and merit based
grant programmes having gained ground. However tax relief for R&D
continues to complement more direct measures in many countries. Tax
credits on social charges for researchers engaged in R&D have recently been
introduced as a subsidy for highly skilled human capital, especially in small
research intensive firms. There are broadly three major forms of R&D tax
incentives: i) R&D tax credits that allow a deduction from the tax payable; ii)
R&D allowances that represent an additional deduction from taxable
income; and iii) depreciation allowances. Depending on the country, tax
concessions are calculated either on a volume share of R&D expenditure, an
incremental share (marginal R&D performed above a certain threshold of
qualified expenditures), or a mix of both. Moreover, differences in country
practices (e.g. eligible R&D activities, expenses base, rolling base versus
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

o
f

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v
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d

D
e
v
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l
o
p
m
e
n
t

i
n

I
n
d
i
a
48
Fostering business R&D and innovation: Business enterprises are the main
source of innovation. They play a primary role in funding and performing R&D
in most countries and, more than ever, governments seek to increase
business investment in R&D and innovation. Global competition has led
countries to seek to boost the innovative capacity of the business sector. In
the EU, another catalyst has been the EU's 3% R&D spending target, which is
to be achieved primarily by increasing business expenditures on R&D (BERD)
to 2% of GDP. The intensity of BERD indicates the financial effort devoted by
the business sector to advance research. Japan and Sweden, for example,
have high BERD and patenting intensities. The shares of the services sector
and SMEs in BERD tend to mirror the structure of business R&D systems and
the relative contribution of non-manufacturing and SMEs to R&D
performance. Triadic patenting is an indicator of the ability of innovation
systems to generate new inventions that may be exploited globally. In
addition to framework conditions such as competition policy and access to
capital markets, a broad range of direct policy instruments, such as block
grants or competition based schemes, are used to stimulate business R&D
and innovation. Increasingly, many direct support R&D schemes are being
oriented or targeted to strategic sectors/technologies in order to foster
competitiveness but also to help firms in their specialization strategies. Soft
support, such as assistance in firm creation, counselling and
entrepreneurship measures, is also being used to complement direct R&D
support and to encourage risk-taking attitudes. While the general tax system
is used to foster investment in innovation by firms, specific R&D tax
incentives remain important in many economies, even if their design and
scope continues to evolve. Finally, many governments increasingly look to
use public procurement as a way to accelerate the diffusion of innovative
products or services in the business sector while meeting public demand for
goods and services. It is clear that direct support to business innovation, in
the form of competitive grants or subsidiszed and guaranteed loans, remains
important and has increased in some countries, especially for key industrial
sectors such as renewable energy, advanced manufacturing, ICTs and health.
However, the balance between merit-based and block instruments varies
51
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
n
v
e
s
t
m
e
n
t

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f

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research more relevant. Innovation vouchers have already been
implemented in many countries and policy makers have tended to simplify
their use and to extend their scope. Venture capital (VC) plays a crucial role in
promoting innovation and is a key determinant of entrepreneurship. But
venture capital is highly sensitive to economic downturns and the appetite in
markets for new technology-based firms. Most private venture capital
funding concerns expansionary capital in higher-technology industries.
Consequently, governments have tended to provide funds for early-stage
and seed financing, often along a "fund of funds" model in which
government invests along with private actors and the fund is privately
managed.
Support for R&D and innovation in specific industries and technological
areas: The Government has a key role to play in sustaining industrial
competitiveness and promoting cutting-edge research in advanced
technology areas. Canada has maintained individual programmes, such as
the Strategic Aerospace and Defence Initiative (SADI), which offers
repayable investments for industrial research and pre-competitive
development in aerospace, defence, security and space industries (up to CAD
225 million a year). In 2009, France implemented the Pacte Automobile, a
national plan for the automobile industry which involves EUR 6.5 billion in
participative loans for car manufacturers, an upto-90% guarantee fund
managed by OSEO, a EUR 600 million sectoral fund, higher partial
unemployment compensation, and support schemes to innovation. To
address its lag in expanding fields, such as nanotechnology and
biotechnology, France has boosted funding for nanotechnology research by
EUR 70 million. Japan has allocated funds to research on advanced and
innovative technologies such as regenerative biology. More broadly, the
Japanese New Growth Strategy aims to address the issues of an ageing
society and long life expectancy by promoting innovative pharmaceuticals
and medical and nursing care technologies and fostering drug development
ventures. Korea announced a Green New Deal and government investment
in green technology R&D for a total of USD 4.7 billion over four years.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
u
l
a
t
i
o
n

o
f

I
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s
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m
e
n
t

o
f

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e

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d
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50
fixed base for incremental credits, carry forward of unused R&D tax credits,
tax credit refund mechanisms) add to the great variety of fiscal schemes. In
addition to the three major types of schemes, the Belgian and Dutch systems
represent a fourth category, as tax incentives in those countries aim at
lowering the cost of researchers either by diminishing wage tax and social
contributions or just the taxes on wages. While tax credits for R&D are
particularly widespread in many countries, where over 80% of public support
to business R&D is provided in the form of fiscal incentives, in countries like
the United States (through competitive R&D contracts), direct support
remains the main vehicle for public funding of business R&D. The wider issue
of how many firms take part in public support schemes for innovation (as
opposed to R&D) is not well documented. It is estimated that between one-
tenth and one-third of innovating firms participate in public support
programmes for innovation, with large firms receiving support more
frequently than SMEs. Although some countries do not offer any tax
incentives for R&D or innovation, R&D tax subsidies have become more
generous over the decade to 2008 in many countries.
Support for R&D and innovation in SMEs and start-ups: Although large firms
tend to introduce more "novel" innovations than SMEs, which tend instead
to be adopters, SMEs form the bulk of businesses and play a key role in
knowledge diffusion. Their contribution is more significant in marketing or
organizational innovation than in technological innovation. SMEs typically
have more limited access to finance than large firms and fewer resources for
generating and stocking knowledge. The credit crunch caused by the crisis
has raised serious concerns about their capacity to remain innovative.
Consequently, many countries have developed specific policy instruments to
foster innovation among SMEs. Direct financial support to small firms is used
to subsidize R&D, finance technology investments, and help them develop
human capital or access knowledge-intensive services. Innovation vouchers
aim to encourage and help SMEs to access and use knowledge from the
higher education and research sectors. At the same time, innovation
vouchers help firms to formalize their knowledge needs and allow
knowledge institutions to identify business demand and make public
51
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H
I
T
E

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P
E
R

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N
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t
i
m
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l
a
t
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o
n

o
f

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s
t
m
e
n
t

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f

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e

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t
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r

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n
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e
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r
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n
d

D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
research more relevant. Innovation vouchers have already been
implemented in many countries and policy makers have tended to simplify
their use and to extend their scope. Venture capital (VC) plays a crucial role in
promoting innovation and is a key determinant of entrepreneurship. But
venture capital is highly sensitive to economic downturns and the appetite in
markets for new technology-based firms. Most private venture capital
funding concerns expansionary capital in higher-technology industries.
Consequently, governments have tended to provide funds for early-stage
and seed financing, often along a "fund of funds" model in which
government invests along with private actors and the fund is privately
managed.
Support for R&D and innovation in specific industries and technological
areas: The Government has a key role to play in sustaining industrial
competitiveness and promoting cutting-edge research in advanced
technology areas. Canada has maintained individual programmes, such as
the Strategic Aerospace and Defence Initiative (SADI), which offers
repayable investments for industrial research and pre-competitive
development in aerospace, defence, security and space industries (up to CAD
225 million a year). In 2009, France implemented the Pacte Automobile, a
national plan for the automobile industry which involves EUR 6.5 billion in
participative loans for car manufacturers, an upto-90% guarantee fund
managed by OSEO, a EUR 600 million sectoral fund, higher partial
unemployment compensation, and support schemes to innovation. To
address its lag in expanding fields, such as nanotechnology and
biotechnology, France has boosted funding for nanotechnology research by
EUR 70 million. Japan has allocated funds to research on advanced and
innovative technologies such as regenerative biology. More broadly, the
Japanese New Growth Strategy aims to address the issues of an ageing
society and long life expectancy by promoting innovative pharmaceuticals
and medical and nursing care technologies and fostering drug development
ventures. Korea announced a Green New Deal and government investment
in green technology R&D for a total of USD 4.7 billion over four years.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
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l
a
t
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l
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p
m
e
n
t

i
n

I
n
d
i
a
50
fixed base for incremental credits, carry forward of unused R&D tax credits,
tax credit refund mechanisms) add to the great variety of fiscal schemes. In
addition to the three major types of schemes, the Belgian and Dutch systems
represent a fourth category, as tax incentives in those countries aim at
lowering the cost of researchers either by diminishing wage tax and social
contributions or just the taxes on wages. While tax credits for R&D are
particularly widespread in many countries, where over 80% of public support
to business R&D is provided in the form of fiscal incentives, in countries like
the United States (through competitive R&D contracts), direct support
remains the main vehicle for public funding of business R&D. The wider issue
of how many firms take part in public support schemes for innovation (as
opposed to R&D) is not well documented. It is estimated that between one-
tenth and one-third of innovating firms participate in public support
programmes for innovation, with large firms receiving support more
frequently than SMEs. Although some countries do not offer any tax
incentives for R&D or innovation, R&D tax subsidies have become more
generous over the decade to 2008 in many countries.
Support for R&D and innovation in SMEs and start-ups: Although large firms
tend to introduce more "novel" innovations than SMEs, which tend instead
to be adopters, SMEs form the bulk of businesses and play a key role in
knowledge diffusion. Their contribution is more significant in marketing or
organizational innovation than in technological innovation. SMEs typically
have more limited access to finance than large firms and fewer resources for
generating and stocking knowledge. The credit crunch caused by the crisis
has raised serious concerns about their capacity to remain innovative.
Consequently, many countries have developed specific policy instruments to
foster innovation among SMEs. Direct financial support to small firms is used
to subsidize R&D, finance technology investments, and help them develop
human capital or access knowledge-intensive services. Innovation vouchers
aim to encourage and help SMEs to access and use knowledge from the
higher education and research sectors. At the same time, innovation
vouchers help firms to formalize their knowledge needs and allow
knowledge institutions to identify business demand and make public
53
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i
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d
i
a
research hubs that host public labs, leading research universities and
innovative firms. The broadband penetration rate reflects how widespread
are high-speed networks that serve as a platform supporting innovation.
Broadband has become the leading delivery system for a wide range of
content and has dramatically changed personal and business practices. The
share of innovative firms engaged in collaboration and the degree of
collaboration on research publications provide direct measures of
collaboration in industry and in science. Virtually all countries give high
priority to policies aiming to improve the physical STI infrastructure and to
link public research to industry and society. In fact, the development of STI
platforms and infrastructures ranks as a top priority for Canada and Japan,
where collaboration in industry for the former and in both industry and
science for the latter, are weaker than in many other countries. Finland and
Sweden seem to show the best performance in terms of STI infrastructure.
Nurture world-class nodes and bridge industry and science: Reinforcing
industry-science linkages continues to be a major thrust of innovation
policies. Linkages between public research institutes and industry occur in
many ways, from the most direct - joint research projects or joint ventures
(spin-offs) - to the more indirect - training, consultancy, staff mobility - to
informal co-operation. Public-Private Partnerships have been encouraged at
different levels and by different levers. Reforms in general policy, regulation
or changes in organizational structures have created new areas of co-
operation. Governments have increased financial support to collaborative
schemes and research projects involving public and private partners.
Clusters: Strengthening existing or developing clusters has become a pillar of
national innovation policy. Clusters group together enterprises, higher
education institutions and public research institutes that collaborate in a
certain area. In many countries, innovation is geographically concentrated
owing to the existence of local clusters and the dynamics of regional
economies. Since the early 1990s many countries have promoted a cluster-
based approach to innovation in parallel with a traditional sectoral R&D
programmes policy. More recently, health, energy, natural resources and
food production have been particularly targeted.
W
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n

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f

I
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v
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e
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t

o
f

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e

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52
R&D and innovation in services and non-technological innovation: While
many economies are services-based, services still contribute a much smaller
share of R&D activity. It represents less than 10% of total business R&D
expenditures in France, Germany, Japan or Korea. Services firms contribute
substantially to non-technological innovation. In some countries, more than
half of the firms in the services sector introduced organizational or marketing
innovations and appear to be even more innovative than the manufacturing
sector leading to more services than manufacturing firms have introduced
non-technological innovation. Policy makers have paid increasing attention
to promoting innovation in the services sector. Health services have
particularly benefitted from the increased policy focus.
Demand-side innovation policies: Demand-oriented innovation policies have
recently attracted much attention from policy makers, partly in response to
interest in increasing market demand and uptake of innovation that can
address certain societal needs while improving economic performance. The
existence of market or system failures which stunt market demand for
innovation (e.g. information asymmetries, spillovers, externalities or
appropriability of public goods) may justify policy action, especially in areas
for which the public sector is a provider of goods and services. Targeted
demand-oriented innovation policies include public procurement, lead
markets, regulations and standards, pricing schemes and consumer policies.
Encourage the development of STI platforms and open infrastructures: It is
widely recognized that the effectiveness and efficiency of innovation
systems are determined to a considerable extent by the degree and quality of
linkages and interactions among various actors, including firms, universities,
research institutes and government agencies. Four indicators can be used to
measure the connectivity of innovation infrastructures: i) the regional
concentration of patenting as a percentage of Patent Cooperation Treaty
(PCT) patent applications; ii) the number of broadband subscribers per 100
inhabitants; iii) the share of innovative firms engaged in collaboration on
innovation and iv) the degree of collaboration on scientific publications (per
capita). The regional concentration of patents indicates the presence of
53
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a
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o
f

I
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v
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m
e
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o
f

P
r
i
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a
t
e

S
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c
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o
r

i
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o
R
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s
e
a
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a
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d

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e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
research hubs that host public labs, leading research universities and
innovative firms. The broadband penetration rate reflects how widespread
are high-speed networks that serve as a platform supporting innovation.
Broadband has become the leading delivery system for a wide range of
content and has dramatically changed personal and business practices. The
share of innovative firms engaged in collaboration and the degree of
collaboration on research publications provide direct measures of
collaboration in industry and in science. Virtually all countries give high
priority to policies aiming to improve the physical STI infrastructure and to
link public research to industry and society. In fact, the development of STI
platforms and infrastructures ranks as a top priority for Canada and Japan,
where collaboration in industry for the former and in both industry and
science for the latter, are weaker than in many other countries. Finland and
Sweden seem to show the best performance in terms of STI infrastructure.
Nurture world-class nodes and bridge industry and science: Reinforcing
industry-science linkages continues to be a major thrust of innovation
policies. Linkages between public research institutes and industry occur in
many ways, from the most direct - joint research projects or joint ventures
(spin-offs) - to the more indirect - training, consultancy, staff mobility - to
informal co-operation. Public-Private Partnerships have been encouraged at
different levels and by different levers. Reforms in general policy, regulation
or changes in organizational structures have created new areas of co-
operation. Governments have increased financial support to collaborative
schemes and research projects involving public and private partners.
Clusters: Strengthening existing or developing clusters has become a pillar of
national innovation policy. Clusters group together enterprises, higher
education institutions and public research institutes that collaborate in a
certain area. In many countries, innovation is geographically concentrated
owing to the existence of local clusters and the dynamics of regional
economies. Since the early 1990s many countries have promoted a cluster-
based approach to innovation in parallel with a traditional sectoral R&D
programmes policy. More recently, health, energy, natural resources and
food production have been particularly targeted.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
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u
l
a
t
i
o
n

o
f

I
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v
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m
e
n
t

o
f

P
r
i
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e

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a
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52
R&D and innovation in services and non-technological innovation: While
many economies are services-based, services still contribute a much smaller
share of R&D activity. It represents less than 10% of total business R&D
expenditures in France, Germany, Japan or Korea. Services firms contribute
substantially to non-technological innovation. In some countries, more than
half of the firms in the services sector introduced organizational or marketing
innovations and appear to be even more innovative than the manufacturing
sector leading to more services than manufacturing firms have introduced
non-technological innovation. Policy makers have paid increasing attention
to promoting innovation in the services sector. Health services have
particularly benefitted from the increased policy focus.
Demand-side innovation policies: Demand-oriented innovation policies have
recently attracted much attention from policy makers, partly in response to
interest in increasing market demand and uptake of innovation that can
address certain societal needs while improving economic performance. The
existence of market or system failures which stunt market demand for
innovation (e.g. information asymmetries, spillovers, externalities or
appropriability of public goods) may justify policy action, especially in areas
for which the public sector is a provider of goods and services. Targeted
demand-oriented innovation policies include public procurement, lead
markets, regulations and standards, pricing schemes and consumer policies.
Encourage the development of STI platforms and open infrastructures: It is
widely recognized that the effectiveness and efficiency of innovation
systems are determined to a considerable extent by the degree and quality of
linkages and interactions among various actors, including firms, universities,
research institutes and government agencies. Four indicators can be used to
measure the connectivity of innovation infrastructures: i) the regional
concentration of patenting as a percentage of Patent Cooperation Treaty
(PCT) patent applications; ii) the number of broadband subscribers per 100
inhabitants; iii) the share of innovative firms engaged in collaboration on
innovation and iv) the degree of collaboration on scientific publications (per
capita). The regional concentration of patents indicates the presence of
55
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t

i
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d
i
a
average share of patents filed by public research institutes in a specific time
span; ii) the country share in total exports of royalties and license fees,
compared to the country share in total services exports; and iii) the growth
index of triadic patent families over a specific time frame. The share of
patents filed by public research institutes shows the degree to which
inventions resulting from public research are marketable. A country's relative
share in exports of royalties and license fees highlights its capacity to market
internationally inventions that are developed locally (inventions as codified
in patents). The rise in patenting is a direct measure of the expansion of
patenting activities.
Reforms to IPR: In the Netherlands, reforms of patent legislation came into
force in 2009 with a change in the fee structure that meant lower entrance
costs, the abolition of the so-called six-year (non-examined) patent and the
introduction of the possibility of filing (national) patent applications in
English. In 2009, France adopted a new decree relative to IPRs and
implemented the specialization of IP jurisdictions that would enforce
guarantees offered to claimants. In Germany, since 2008 SIGNO has been
supporting higher education institutions, SMEs, start-up entrepreneurs and
inventors for legally protecting and commercializing their innovative ideas. In
addition IPRs have been enforced by law with the Act on Better Enforcement
of Intellectual Property Rights that came into force in 2008. Israel has
recently undertaken to enhance and strengthen its IPR mechanisms. Steps
were taken to streamline the patent registration process and shorten the
examination period. A new Exposure Bill requires the publication of patent
applications promptly after the expiration of an 18-month period from the
filing date at Israel's Patents Authority. Furthermore, a draft is under
preparation to amend the Patent Law to reduce the number of reference
countries (from 21 to the five major EU countries and the United States).
Israel is also about to extend the term of protection of pharmaceuticals tests
after marketing approval. In the context of the economic crisis, the European
Union urged its member states to reduce fees for patent applications and
maintenance by up to 75%. Furthermore. the European Commission adopted
in 2009 a recommendation to the Council that would provide the Commission
W
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A
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E
R

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54
Strengthen physical infrastructures for STI: Sound physical infrastructure,
especially high-speed broadband access and powerful IT equipment, are
essential to support knowledge advancement, communication and
cooperation. As part of their stimulus packages many countries have made
large investments in ICT infrastructure and applications. These investments
will have lasting effects on STI infrastructures by closing the broadband gap
and extending access to remote areas without connectivity, on the one hand,
and by upgrading the existing network and accelerating the adoption of high-
speed technologies, on the other. Several countries are reinforcing their IT
systems to permit faster communication and wider information
dissemination among public and private agents.
Encouraging innovation diffusion and enhancing access to scientific
information: Governments foster diffusion of public research results to
enhance firms' productivity. In the Netherlands, the Act of Higher Education
entrusts Dutch universities with the task of ensuring the transfer of
knowledge transfer, in addition to their mission of research and education.
Many countries have promoted wider dissemination of public data in
centralizing public research output and developing ICT-based information
systems that enhance access to information. Improving the access to public
information ensures that public research has a broader impact in the
economy.
IPRs and knowledge diffusion: Appropriate IPR regimes and practices are
necessary to secure returns on investments in innovation and to encourage
knowledge sharing. A key issue for policy is finding a balance between rights
to control use of an invention via IPR and the diffusion of knowledge about
the invention (through licensing, publication, open networks, etc.). Getting
the balance "right" is the key goal of the knowledge networks and markets
that are emerging as a means to trade and exchange knowledge within more
open networked systems of innovation. Although few internationally
comparable data are available at this stage, three indicators may reflect the
emergence and spread of knowledge networks and markets, or at least the
parts of these that focus on patent development and exchange: i) the
55
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v
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l
o
p
m
e
n
t

i
n

I
n
d
i
a
average share of patents filed by public research institutes in a specific time
span; ii) the country share in total exports of royalties and license fees,
compared to the country share in total services exports; and iii) the growth
index of triadic patent families over a specific time frame. The share of
patents filed by public research institutes shows the degree to which
inventions resulting from public research are marketable. A country's relative
share in exports of royalties and license fees highlights its capacity to market
internationally inventions that are developed locally (inventions as codified
in patents). The rise in patenting is a direct measure of the expansion of
patenting activities.
Reforms to IPR: In the Netherlands, reforms of patent legislation came into
force in 2009 with a change in the fee structure that meant lower entrance
costs, the abolition of the so-called six-year (non-examined) patent and the
introduction of the possibility of filing (national) patent applications in
English. In 2009, France adopted a new decree relative to IPRs and
implemented the specialization of IP jurisdictions that would enforce
guarantees offered to claimants. In Germany, since 2008 SIGNO has been
supporting higher education institutions, SMEs, start-up entrepreneurs and
inventors for legally protecting and commercializing their innovative ideas. In
addition IPRs have been enforced by law with the Act on Better Enforcement
of Intellectual Property Rights that came into force in 2008. Israel has
recently undertaken to enhance and strengthen its IPR mechanisms. Steps
were taken to streamline the patent registration process and shorten the
examination period. A new Exposure Bill requires the publication of patent
applications promptly after the expiration of an 18-month period from the
filing date at Israel's Patents Authority. Furthermore, a draft is under
preparation to amend the Patent Law to reduce the number of reference
countries (from 21 to the five major EU countries and the United States).
Israel is also about to extend the term of protection of pharmaceuticals tests
after marketing approval. In the context of the economic crisis, the European
Union urged its member states to reduce fees for patent applications and
maintenance by up to 75%. Furthermore. the European Commission adopted
in 2009 a recommendation to the Council that would provide the Commission
W
H
I
T
E

P
A
P
E
R

O
N
S
t
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54
Strengthen physical infrastructures for STI: Sound physical infrastructure,
especially high-speed broadband access and powerful IT equipment, are
essential to support knowledge advancement, communication and
cooperation. As part of their stimulus packages many countries have made
large investments in ICT infrastructure and applications. These investments
will have lasting effects on STI infrastructures by closing the broadband gap
and extending access to remote areas without connectivity, on the one hand,
and by upgrading the existing network and accelerating the adoption of high-
speed technologies, on the other. Several countries are reinforcing their IT
systems to permit faster communication and wider information
dissemination among public and private agents.
Encouraging innovation diffusion and enhancing access to scientific
information: Governments foster diffusion of public research results to
enhance firms' productivity. In the Netherlands, the Act of Higher Education
entrusts Dutch universities with the task of ensuring the transfer of
knowledge transfer, in addition to their mission of research and education.
Many countries have promoted wider dissemination of public data in
centralizing public research output and developing ICT-based information
systems that enhance access to information. Improving the access to public
information ensures that public research has a broader impact in the
economy.
IPRs and knowledge diffusion: Appropriate IPR regimes and practices are
necessary to secure returns on investments in innovation and to encourage
knowledge sharing. A key issue for policy is finding a balance between rights
to control use of an invention via IPR and the diffusion of knowledge about
the invention (through licensing, publication, open networks, etc.). Getting
the balance "right" is the key goal of the knowledge networks and markets
that are emerging as a means to trade and exchange knowledge within more
open networked systems of innovation. Although few internationally
comparable data are available at this stage, three indicators may reflect the
emergence and spread of knowledge networks and markets, or at least the
parts of these that focus on patent development and exchange: i) the
57
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i
a
ranks high among STI policy priorities; it ranks lower in Austria, the
Netherlands and the United States, countries that at the same time are open
and internationalized. Three indicators reflect the internationalization of STI
and the extent to which a country may access international knowledge: i)
foreign direct investment as a percentage of GDP, ii) the share of
international students in tertiary enrolment; and iii) the percentage of patent
applications filed under the Patent Cooperation Treaty (PCT) with co-
inventors located abroad. The intensity of FDI inflows reflects the degree to
which a country may benefit from knowledge spillovers and additional R&D
investment from multinationals. The presence of many international
students suggests the contribution of foreign talent to research and the
building of connections with international university networks. The share of
PCT patents with foreign co-inventors is a direct measure of international
cooperation in research. Linking domestic firms to foreign sources of
knowledge, attracting knowledge intensive businesses and foreign highly
skilled workers, providing opportunities for inward and outward
international mobility are key aims of policies to adjust to and benefit from
globalization.
Encouraging the internationalization of innovation actors: With the
continuing internationalization of science and innovation, tapping into
foreign sources of knowledge becomes more important. This has led to a
range of policy initiatives in various countries. Regional, cultural and
historical dynamics are efficient drivers of R&D internationalization and
international co-operation. Enhancing the internationalization of the
national innovation system requires governments to reinforce their own
capacities. Direct funding, fiscal incentives and provision of infrastructures
are also used to promote the involvement of national firms in international
co-operation. Countries are also seeking to improve their attractiveness to
foreign firms. In Finland, registered foreign-owned companies are also
eligible for public funding, and foreign entities, firms or research institutions
are treated on equal terms with Finnish ones. Finland has also created the Fin
Node Innovation Centre Network as a gateway for international enterprises
looking for business contacts, cutting-edge research or R&D resources to link
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56
with negotiating directives for the conclusion of an agreement creating a
Unified Patent Litigation System (UPLS). This European and EU Patents Court
(EEUPC) would lead to significant savings compared to the costs of
piecemeal litigation. Such reductions in legal costs could permit many SMEs
to enforce their patent rights in all EU and European Patent Convention (EPC)
countries. Japan has tested the Super Accelerated Examination System on a
pilot basis since 2008. Green-technology-related patent applications have
been eligible for treatment under the conventional accelerated examination
system on a pilot basis since 2009. In addition, examination guidelines have
been revised in order to expand the patentable subject in advanced medical
technologies and the Patent Law was amended in spring 2009 to revise the
registration system for non-exclusive licenses and to expand the claim period
during which one may request an appeal against a refusal. Encouraging SMEs
to patent innovations and build IP capacity is another goal of policies. The
Japan Patent Office (JPO) provides aid to SMEs for overseas development
through the SME support centres of prefectural governments. Sweden has
implemented a pilot action to fund SMEs for professional IP consultancy. The
Netherlands allows the use of innovation vouchers to cover (part of) the
costs involved in an SME's first patent application.
Faci l i tati ng the commerci al i zati on of publ i c research: The
commercialization of the results of public R&D, through patenting or spin-
offs, is an important channel for transferring knowledge. Recent initiatives in
this area include some countries that have added funding schemes to
support technology transfer and commercialization in academia. Countries
have also provided public research institutes with infrastructure and
nonfinancial support.
Adjusting to the globalization of R&D and innovation: The globalization of
R&D and innovation also affects the scope for national policy intervention.
Consequently, more economies increasingly take into account recent trends
in the globalization of R&D when formulating their national strategies. Levels
of policy priority given to the internationalization of national STI vary
markedly from one country to another. In Finland, Japan and Norway, this
57
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t

i
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n
d
i
a
ranks high among STI policy priorities; it ranks lower in Austria, the
Netherlands and the United States, countries that at the same time are open
and internationalized. Three indicators reflect the internationalization of STI
and the extent to which a country may access international knowledge: i)
foreign direct investment as a percentage of GDP, ii) the share of
international students in tertiary enrolment; and iii) the percentage of patent
applications filed under the Patent Cooperation Treaty (PCT) with co-
inventors located abroad. The intensity of FDI inflows reflects the degree to
which a country may benefit from knowledge spillovers and additional R&D
investment from multinationals. The presence of many international
students suggests the contribution of foreign talent to research and the
building of connections with international university networks. The share of
PCT patents with foreign co-inventors is a direct measure of international
cooperation in research. Linking domestic firms to foreign sources of
knowledge, attracting knowledge intensive businesses and foreign highly
skilled workers, providing opportunities for inward and outward
international mobility are key aims of policies to adjust to and benefit from
globalization.
Encouraging the internationalization of innovation actors: With the
continuing internationalization of science and innovation, tapping into
foreign sources of knowledge becomes more important. This has led to a
range of policy initiatives in various countries. Regional, cultural and
historical dynamics are efficient drivers of R&D internationalization and
international co-operation. Enhancing the internationalization of the
national innovation system requires governments to reinforce their own
capacities. Direct funding, fiscal incentives and provision of infrastructures
are also used to promote the involvement of national firms in international
co-operation. Countries are also seeking to improve their attractiveness to
foreign firms. In Finland, registered foreign-owned companies are also
eligible for public funding, and foreign entities, firms or research institutions
are treated on equal terms with Finnish ones. Finland has also created the Fin
Node Innovation Centre Network as a gateway for international enterprises
looking for business contacts, cutting-edge research or R&D resources to link
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with negotiating directives for the conclusion of an agreement creating a
Unified Patent Litigation System (UPLS). This European and EU Patents Court
(EEUPC) would lead to significant savings compared to the costs of
piecemeal litigation. Such reductions in legal costs could permit many SMEs
to enforce their patent rights in all EU and European Patent Convention (EPC)
countries. Japan has tested the Super Accelerated Examination System on a
pilot basis since 2008. Green-technology-related patent applications have
been eligible for treatment under the conventional accelerated examination
system on a pilot basis since 2009. In addition, examination guidelines have
been revised in order to expand the patentable subject in advanced medical
technologies and the Patent Law was amended in spring 2009 to revise the
registration system for non-exclusive licenses and to expand the claim period
during which one may request an appeal against a refusal. Encouraging SMEs
to patent innovations and build IP capacity is another goal of policies. The
Japan Patent Office (JPO) provides aid to SMEs for overseas development
through the SME support centres of prefectural governments. Sweden has
implemented a pilot action to fund SMEs for professional IP consultancy. The
Netherlands allows the use of innovation vouchers to cover (part of) the
costs involved in an SME's first patent application.
Faci l i tati ng the commerci al i zati on of publ i c research: The
commercialization of the results of public R&D, through patenting or spin-
offs, is an important channel for transferring knowledge. Recent initiatives in
this area include some countries that have added funding schemes to
support technology transfer and commercialization in academia. Countries
have also provided public research institutes with infrastructure and
nonfinancial support.
Adjusting to the globalization of R&D and innovation: The globalization of
R&D and innovation also affects the scope for national policy intervention.
Consequently, more economies increasingly take into account recent trends
in the globalization of R&D when formulating their national strategies. Levels
of policy priority given to the internationalization of national STI vary
markedly from one country to another. In Finland, Japan and Norway, this
59
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S&T fields; iii) improve employment conditions, especially in research
careers, and lifelong learning opportunities.
Improving the supply of skills for innovation: Higher education systems are
the main source of HRST, together with immigration and job-to-job mobility.
Accordingly, many countries give a high or medium high priority to improving
education for innovation. Four indicators can reflect the capacity of national
education systems to supply skills for innovation: i) total public and private
expenditures on education, as a percentage of GDP; ii) the percentage of new
university graduates in science and engineering; iii) the graduation rate at the
doctoral level and iv) female participation in doctoral studies. The intensity of
education expenditures measures the proportion of a nation's wealth that is
invested in educational institutions and shows the priority a country gives to
education in terms of its overall resource allocation. The percentage of
university graduates in science and engineering indicates the country's
potential to absorb, develop and diffuse knowledge, on the one hand, and to
supply the labour market with scientists and engineers, on the other. The
graduation rate at the doctoral level shows the country's capacity to provide
students with the highest education level and train them specifically to
conduct research and contribute to knowledge diffusion. Finally the female
participation rate in doctoral studies reflects the gender balance in doctoral
programmes and early research career paths.
Ensuring that education delivers the right mix of skills: Mathematics and
science proficiency used to be considered the foundation of a knowledge-
based and innovation-driven society. However, recent developments and the
growing importance given to non-technological innovation have stressed
the need for complementary skills, including entrepreneurial capacities and
"soft" skills. Some countries have emphasized reinforcing mathematics and
science education. Improving teaching has been a first axis of policy action.
The United States has introduced various programmes to improve teaching
in mathematics (e.g. Race to the Top), to build local communities of support
around teachers and develop civic participation in bringing discovery-based
science experiences to students in grades K-12 (e.g. National Lab Day), and to
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with partners in Finland. Fin Node is already operating in China, Japan, Russia
and the United States. Germany has implemented international advertising
campaigns (e.g. South Korea Pilot Measure) under the umbrella campaign
"Research in Germany" to facilitate the initiation of R&D co-operation with
new partners abroad. Canada is reforming its system of international
taxation to facilitate investment, cut red tape and streamline the compliance
process associated with the taxation of cross-border activity. Support for the
internationalization of SMEs is also emphasized in strategies to improve
attractiveness. Sweden has set up public cost support offices to help SMEs in
strategic sectors, such as biotechnology, forestry and transport. In 2009, The
Swedish government also launched a pilot programme, VINN EXPORT, to
support SMEs financially to develop their innovation capacity with partners
or customers on export markets.
Developing and strengthening human capital: Human resources in science
and technology are essential for advancing science and innovation and
generating productivity growth. Over the past decade, employment in HRST
occupations has grown faster than total employment, owing to the
increasing participation of women and the fast-growing demand for
professionals and technicians in the services sector. Some countries with low
HRST shares have been catching up too. At the same time, several countries
have expressed concerns that the supply of highly skilled workers is
diminishing and will not be able to meet demand. With an ageing population
in many countries, the current supply of new graduates may not be sufficient
to replace outgoing cohorts. Many countries have therefore sought to
increase the supply and quality of HRST. Policy actions take place at various
levels during general education, scientific university studies, advanced
research programmes and postdoc training or after workers have entered
the labour market. Policy actions target pupils, students, households,
employees and employers. In general, many countries give a high level of
priority to developing HRST in their national STI strategy. Consequently,
many have policies to increase HRST. Governments' intervention aim broadly
to: i) raise interest in science among youth and wider civil society and create a
culture of innovation; ii) improve formal education at all levels and beyond
59
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i
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S&T fields; iii) improve employment conditions, especially in research
careers, and lifelong learning opportunities.
Improving the supply of skills for innovation: Higher education systems are
the main source of HRST, together with immigration and job-to-job mobility.
Accordingly, many countries give a high or medium high priority to improving
education for innovation. Four indicators can reflect the capacity of national
education systems to supply skills for innovation: i) total public and private
expenditures on education, as a percentage of GDP; ii) the percentage of new
university graduates in science and engineering; iii) the graduation rate at the
doctoral level and iv) female participation in doctoral studies. The intensity of
education expenditures measures the proportion of a nation's wealth that is
invested in educational institutions and shows the priority a country gives to
education in terms of its overall resource allocation. The percentage of
university graduates in science and engineering indicates the country's
potential to absorb, develop and diffuse knowledge, on the one hand, and to
supply the labour market with scientists and engineers, on the other. The
graduation rate at the doctoral level shows the country's capacity to provide
students with the highest education level and train them specifically to
conduct research and contribute to knowledge diffusion. Finally the female
participation rate in doctoral studies reflects the gender balance in doctoral
programmes and early research career paths.
Ensuring that education delivers the right mix of skills: Mathematics and
science proficiency used to be considered the foundation of a knowledge-
based and innovation-driven society. However, recent developments and the
growing importance given to non-technological innovation have stressed
the need for complementary skills, including entrepreneurial capacities and
"soft" skills. Some countries have emphasized reinforcing mathematics and
science education. Improving teaching has been a first axis of policy action.
The United States has introduced various programmes to improve teaching
in mathematics (e.g. Race to the Top), to build local communities of support
around teachers and develop civic participation in bringing discovery-based
science experiences to students in grades K-12 (e.g. National Lab Day), and to
W
H
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P
A
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E
R

O
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58
with partners in Finland. Fin Node is already operating in China, Japan, Russia
and the United States. Germany has implemented international advertising
campaigns (e.g. South Korea Pilot Measure) under the umbrella campaign
"Research in Germany" to facilitate the initiation of R&D co-operation with
new partners abroad. Canada is reforming its system of international
taxation to facilitate investment, cut red tape and streamline the compliance
process associated with the taxation of cross-border activity. Support for the
internationalization of SMEs is also emphasized in strategies to improve
attractiveness. Sweden has set up public cost support offices to help SMEs in
strategic sectors, such as biotechnology, forestry and transport. In 2009, The
Swedish government also launched a pilot programme, VINN EXPORT, to
support SMEs financially to develop their innovation capacity with partners
or customers on export markets.
Developing and strengthening human capital: Human resources in science
and technology are essential for advancing science and innovation and
generating productivity growth. Over the past decade, employment in HRST
occupations has grown faster than total employment, owing to the
increasing participation of women and the fast-growing demand for
professionals and technicians in the services sector. Some countries with low
HRST shares have been catching up too. At the same time, several countries
have expressed concerns that the supply of highly skilled workers is
diminishing and will not be able to meet demand. With an ageing population
in many countries, the current supply of new graduates may not be sufficient
to replace outgoing cohorts. Many countries have therefore sought to
increase the supply and quality of HRST. Policy actions take place at various
levels during general education, scientific university studies, advanced
research programmes and postdoc training or after workers have entered
the labour market. Policy actions target pupils, students, households,
employees and employers. In general, many countries give a high level of
priority to developing HRST in their national STI strategy. Consequently,
many have policies to increase HRST. Governments' intervention aim broadly
to: i) raise interest in science among youth and wider civil society and create a
culture of innovation; ii) improve formal education at all levels and beyond
61
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H
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Attractiveness of careers in research and innovation: Changes in the
international labour market for researchers have deeply affected
employment conditions and the career paths of researchers, even in the
public sector. The polarization of legal status and the growing number of
temporary contracts in universities and public research institutes have led to
the emergence of a "secondary" labour market where lack of clear rules on
recruitment, employment and promotion may lead to job insecurity and
inequity. Consequently, many countries are addressing issues of career
development in research more broadly. Mobility of human resources is a key
component of knowledge diffusion among firms and from academia to
industry. Governments can encourage the employment and mobility of the
highly skilled, first as employers themselves, then by providing incentives to
firms. Several countries are addressing the issue of researcher mobility.
Future challenges: The contribution of innovation to productivity growth
and competitiveness remains a key issue for many countries who continue to
reform their science, technology and innovation policies to improve the
efficiency of their national innovation systems. The increasing focus on STI to
address environmental sustainability, energy security and at the same time
to foster new growth industries and services illustrates the convergence of
competitiveness goals with efforts to mobilize STI to address social
challenges. Indeed, these challenges are increasingly driving countries'
research and innovation agendas. Public support to the "supply side" of
research and innovation remains a key area for STI policies although
attention to the "demand side" of innovation, such as public procurement,
standards and involvement of users to "pull" innovation, continues to gain
ground. Changes in innovation processes, not least those driven by the
broadening of innovation, the rise of new global players and global value
chains, and technological convergence also affect how governments design,
develop and implement policies to support scientific and innovative
performance. This places pressures on governments to monitor and adjust
the effectiveness of national STI governance structures and policies to
ensure co-ordination and coherence at the regional, national and,
increasingly, international level. The near-term outlook for public and private
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foster private and philanthropic involvement in support of STEM teaching
and learning. Japan has developed initiatives to enhance teachers'
educational activities in science, mathematics and technology. Israel is
offering the three-year Guastella Fellowship to outstanding doctoral
students to promote research and development in the field of science
teaching. Revising the curriculum is another way to improve students'
participation and literacy in mathematics and science. Entrepreneurship
education is also part of the focus on innovation skills. In 2010, Denmark
launched a new Strategy for Education and Training in Entrepreneurship,
including education in management, start-up and interdisciplinary co-
operative skills. The idea is to develop pupils' and students' knowledge about
entrepreneurship, as well as their ability to act entre preneurially, by
stimulating their ability to think innovatively, to see opportunities and to turn
ideas into value. A new fund, the Foundation for entrepreneurship, has been
established to pool efforts in this area. The Netherlands also supports
entrepreneurial education and has introduced entrepreneurship education
from primary school up to university to help students acquire knowledge,
competences and positive attitudes to entrepreneurship. Germany's EXIST
start-up programme provides special training and support for future
entrepreneurs. Japan is also promoting vocational education to cultivate
students' entrepreneurial abilities. Meanwhile, South Africa, as part of the
2008 IPRs Act, is supporting entrepreneurial skills together with IP
management skills and industry training.
Industry post-docs: The Industry's involvement in the funding, design and
steering of PhD and postdoc training continues to be used to ensure that
public academic research responds better to business and societal needs.
The industry PhD programmes for instance, allow a PhD student to carry on
an industry-oriented research project and share time between a university
lab and a firm. Such programmes bring together academic research projects
and the business world and give PhD students the opportunity to experience
both working environments. The industry PhD programmes are also
effective ways to build organizational and personal networks that bridge the
gap between academia and the private sector.
61
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D
e
v
e
l
o
p
m
e
n
t

i
n

I
n
d
i
a
Attractiveness of careers in research and innovation: Changes in the
international labour market for researchers have deeply affected
employment conditions and the career paths of researchers, even in the
public sector. The polarization of legal status and the growing number of
temporary contracts in universities and public research institutes have led to
the emergence of a "secondary" labour market where lack of clear rules on
recruitment, employment and promotion may lead to job insecurity and
inequity. Consequently, many countries are addressing issues of career
development in research more broadly. Mobility of human resources is a key
component of knowledge diffusion among firms and from academia to
industry. Governments can encourage the employment and mobility of the
highly skilled, first as employers themselves, then by providing incentives to
firms. Several countries are addressing the issue of researcher mobility.
Future challenges: The contribution of innovation to productivity growth
and competitiveness remains a key issue for many countries who continue to
reform their science, technology and innovation policies to improve the
efficiency of their national innovation systems. The increasing focus on STI to
address environmental sustainability, energy security and at the same time
to foster new growth industries and services illustrates the convergence of
competitiveness goals with efforts to mobilize STI to address social
challenges. Indeed, these challenges are increasingly driving countries'
research and innovation agendas. Public support to the "supply side" of
research and innovation remains a key area for STI policies although
attention to the "demand side" of innovation, such as public procurement,
standards and involvement of users to "pull" innovation, continues to gain
ground. Changes in innovation processes, not least those driven by the
broadening of innovation, the rise of new global players and global value
chains, and technological convergence also affect how governments design,
develop and implement policies to support scientific and innovative
performance. This places pressures on governments to monitor and adjust
the effectiveness of national STI governance structures and policies to
ensure co-ordination and coherence at the regional, national and,
increasingly, international level. The near-term outlook for public and private
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
m
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l
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o
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60
foster private and philanthropic involvement in support of STEM teaching
and learning. Japan has developed initiatives to enhance teachers'
educational activities in science, mathematics and technology. Israel is
offering the three-year Guastella Fellowship to outstanding doctoral
students to promote research and development in the field of science
teaching. Revising the curriculum is another way to improve students'
participation and literacy in mathematics and science. Entrepreneurship
education is also part of the focus on innovation skills. In 2010, Denmark
launched a new Strategy for Education and Training in Entrepreneurship,
including education in management, start-up and interdisciplinary co-
operative skills. The idea is to develop pupils' and students' knowledge about
entrepreneurship, as well as their ability to act entre preneurially, by
stimulating their ability to think innovatively, to see opportunities and to turn
ideas into value. A new fund, the Foundation for entrepreneurship, has been
established to pool efforts in this area. The Netherlands also supports
entrepreneurial education and has introduced entrepreneurship education
from primary school up to university to help students acquire knowledge,
competences and positive attitudes to entrepreneurship. Germany's EXIST
start-up programme provides special training and support for future
entrepreneurs. Japan is also promoting vocational education to cultivate
students' entrepreneurial abilities. Meanwhile, South Africa, as part of the
2008 IPRs Act, is supporting entrepreneurial skills together with IP
management skills and industry training.
Industry post-docs: The Industry's involvement in the funding, design and
steering of PhD and postdoc training continues to be used to ensure that
public academic research responds better to business and societal needs.
The industry PhD programmes for instance, allow a PhD student to carry on
an industry-oriented research project and share time between a university
lab and a firm. Such programmes bring together academic research projects
and the business world and give PhD students the opportunity to experience
both working environments. The industry PhD programmes are also
effective ways to build organizational and personal networks that bridge the
gap between academia and the private sector.
W
H
I
T
E

P
A
P
E
R

O
N
S
t
i
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l
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o
f

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n
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62
investment in research and innovation remains positive as governments
continue to support investments in STI to foster longer term growth. But
fiscal pressures and continued slow growth in many countries will affect
business investment decisions as well as the scope for public support. One
implication is that there will arguably be greater pressure on governments to
set strategic as well as thematic priorities for research and to improve
effectiveness of innovation policies and instruments, given limits to public
investments in research and in novation. In the longer term, the participation
of emerging and developing economies in global R&D and innovation
networks will re-draw the global map for STI, even if developed nations will
continue to predominate in R&D. This reflects a change in the understanding
of the role of and interplay between the creation and diffusion of technology.
The notion in developmental theories that countries need to"exhaust" their
potential for catching up before embarking on their "own" innovation and
R&D activities is being challenged. This opens up avenues for mutual learning
and multilateral collaboration in science, technology and innovation
between developed and developing countries.
W
H
I
T
E

P
A
P
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R

O
N
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t
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o
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I
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m
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t

o
f

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t

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62
investment in research and innovation remains positive as governments
continue to support investments in STI to foster longer term growth. But
fiscal pressures and continued slow growth in many countries will affect
business investment decisions as well as the scope for public support. One
implication is that there will arguably be greater pressure on governments to
set strategic as well as thematic priorities for research and to improve
effectiveness of innovation policies and instruments, given limits to public
investments in research and in novation. In the longer term, the participation
of emerging and developing economies in global R&D and innovation
networks will re-draw the global map for STI, even if developed nations will
continue to predominate in R&D. This reflects a change in the understanding
of the role of and interplay between the creation and diffusion of technology.
The notion in developmental theories that countries need to"exhaust" their
potential for catching up before embarking on their "own" innovation and
R&D activities is being challenged. This opens up avenues for mutual learning
and multilateral collaboration in science, technology and innovation
between developed and developing countries.