NATIONAL INSTITUTE OF TECHNOLOGY

3
SCHOOL OF MANAGEMENT STUDIES

MANAGEMENT OF TECHNOLOGY
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA

PRESENTATION REPORT – OCTOBER 2010

SOMS
 PRESENTATION
REPORT

________________________________________________________________

RESOURCE INVESTMENTS FOR TECHNOLOGY

DEVELOPMENT IN INDIA DURING THE LAST 15 YEARS

KISHORE THOMAS JOHN

M090051MS
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA SOMS

INCLUDED IN THIS FULL TEXT

NITC-SOMS REPORT

1. Report Summary

The Report in Brief- The Core Idea

The Report in Practice- Putting the Idea to Work

2. Resource Investments For Technology

Development In India During The Last 15
Years

The Key to Sustaining Innovation in India

(From a Global Perspective)

3. Further Reading

A list of Related Material, to guide further

exploration of the articles idea and applications

Kishore Thomas John is a

Second Year MBA Student at the
School of Management Studies
at NIT- Calicut. He is a graduate
of Mechanical Engineering from
the Kerala University and is
currently specializing in
Marketing and Human
Resources. Kishore is passionate
about academics and research
and is keen on pursuing a career
as an academician.

1 PRESENTATION REPORT – OCTOBER 2010

RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
THE IDEA IN BRIEF
India is variously described as a
knowledge based economy in the
making, thanks essentially due to
her high economic growth and
the role played by knowledge-
intensive sectors such as
information technology in
spurring and maintaining this
growth performance. This report
looks at the empirical evidence in
the form of resource based
investments in Innovation to
determine whether this is indeed
the case since the reform process
began in 1991.
A variety of conventional
indicators are analysed and their
movements over the last 2
decades are charted to draw firm
conclusions. The results show
that instances of innovation are
restricted to a few sectors like the
pharmaceutical industry. Further,
increasingly most of the
innovations in industry are
contributed by foreign firms
operating in the country.
2 PRESENTATION REPORT – OCTOBER 2010
SOMS
THE IDEA IN PRACTICE
The entire budget for Innovation or R&D in India has
been always less that 1% of the GNP. This resource
in divided sectorially in the country‟s R&D
infrastructure in three broad categories.
1. Government: They constitute the primary source
of R&D innovations in India and take up more
than 60 % of the planned budget every year.
However, their share in the country‟s R&D has
been coming down.
2. Industry: It is fast emerging as the R&D pioneer
in this country with investments doubling in the
last 15 years. The industry based allocation of
resources is broadly divided into 14 main
categories.
3. Higher Education: virtually a non-existent entity
in R&D in India, its importance and contribution
is gradually being felt since the late 1990‟s. It still
constitutes an insignificant share of the country‟s
R&D spending.
This article seeks to explain the effect of how key
causes like budgetary allocation, demographics,
governmental policies and economic growth amongst
other things have on the R&D balance of payments in
the country.
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
RESOURCE INVESTMENTS FOR TECHNOLOGY
DEVELOPMENT IN INDIA DURING THE LAST 15 YEARS
By Kishore Thomas John
Notwithstanding the global financial crisis,
the growth performance of India has
attracted considerable attention among
analysts of all hues and shapes. One of the
issues that were highlighted in discussions is
the emergence and rise of a number of
knowledge-intensive manufacturing and
service industries and how these industries
together now account for a growing share of
the country‟s gross domestic product (GDP).
India has now become a growing destination
for innovative activities by multinational
companies (MNCs) and this manifest itself
in the form of a growing presence of foreign
research and development (R&D) centres in
the country.
Foreign direct investment (FDI) from India
has been steadily increasing and over 2007
and 2008 there were a number of high profile
takeovers of western technology-based
companies by Indian corporates. All these
indicators have prompted analysts to think
that India has become more innovative since
1991 and recent attempts at measuring the
contribution of technology to economic
growth essentially appear to indicate that
Indian industries, both in manufacturing and
services sectors, have become active from
the innovation point of view. In the context,
the purpose of the report is to inquire into the
direct evidence on whether innovative
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activities are on the rise in India as a
consequence of increased spending.
Yet despite all the attention from analysts,
Indian hubs of development like Bangalore
are a long way from becoming a Silicon
Valley. The success of its software and
service industries is still to make an impact
on the lives of the majority: 390 million
people in India live on less than $1 a day.1
Predictions that India will become a twenty-
first century knowledge superpower have to
accommodate these contradictions.
The Indian economy is booming. Economic
growth has averaged around 8 per cent since
2003. India has the potential to grow faster
than China in the long term. In just a few
years India has been transformed from an aid
recipient to a global competitor. „India
everywhere‟ was the slogan for the Davos
World Economic Forum in 2006.
But this macroeconomic trend, including a
threefold increase in R&D spending over the
past decade, does not convey the complex
dynamics behind the rise of Indian science
and innovation.
The impact of the R&D centres that have
been set up by multinational companies is
still unfolding, as is the contribution of the
thousands of Indians returning from abroad.
India does not conform to the state-led model
of economic development of the East Asian
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
tiger economies in the 1970s and 1980s.
Modernizers in the Indian government want
the state to become a catalyst for change. But
others doubt whether the so-called „license
state‟, encrusted with layers of bureaucracy
and regulation, is capable of playing such a
dynamic role.
Above all, India‟s rise as a source of
innovation reveals its intense and sometimes
troubled relationship with external ideas and
influences. For much of the postwar era,
India was a copier and adapter of technology
developed in Europe and the US: foreign
technology was a mark of prestige. That is
why even now the taxis in New Delhi made
by the Hindustan Motor Company are
modeled on the ancient British Oxford. After
independence in 1947, admiration for foreign
technology co-existed with a period of
science nationalism, in which the
government launched a string of programmes
to promote indigenous Indian science.
During the 1980s and 1990s,
Indian brainpower serviced the technology
needs of foreign companies, health and
education systems around the world, either
by migrating to places such as Silicon Valley
or directly from call centres in Bangalore.
The question now is how quickly India can
evolve from being a technology server to an
innovator and creator in its own right.
Science became a touchstone for national
development following independence in
1947. Jawaharlal Nehru, India‟s first prime
minister, declared that „science alone… can
solve the problems of hunger and poverty, of
insanitation and illiteracy, of superstition and
deadening customs‟. Science became „as
important as the national flag‟. For Nehru, it
was a route to self-sufficiency,
industrialisation and national security. One
of the legacies of Nehru‟s vision is the
Council for Scientific and Industrial
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Research (CSIR), a network of national
laboratories designed to transform India‟s
indigenous capacity for scientific excellence.
Nehru‟s vision of science modernising the
nation stood in contrast to Gandhi‟s more
diffuse, democratic and domesticated ideal
of „every man a scientist and every village a
science academy‟. This tension between
science for national prestige and science for
basic development remains acute today.
India‟s space programme, launched in 1963,
is a prime example of how science can serve
the needs of both modernisation and rural
development. India launched its first space
satellite in 1975. Its first home-grown rocket
was launched five years later. By 2008, India
sent its unmanned Chandrayan 1 rocket on a
mission to the moon. But Indian space
technology has also served rural
development. Vikram Sarabhai, the
programme‟s original architect, insisted it
should also serve „the common man‟, by
using satellites to provide communication,
meteorology and education across rural
India.
Nuclear energy was another important focus
of India‟s independent science. Only 11 days
after Indian independence in August 1947,
Dr Homi J Bhabha convinced the Atomic
Energy Research Committee to set up a
nuclear research programme. A year later,
the Atomic Energy Commission was formed
with Nehru‟s enthusiastic support.
The nuclear science that started in this period
is still critical to India‟s position in the
world. In 1998 India provoked international
outcry by testing nuclear devices in
Rajasthan, only 150km from the Pakistani
border. But in 2006, US President George
Bush signed an agreement on civil nuclear
technology with India, which symbolised
India‟s increasingly interdependent and
strategic relationship with the US.
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
It was also under Nehru that the Indian
Institutes of Technology (IITs), the icons of
India‟s technological prowess, were
inaugurated. The IITs were a symbol of
independence; they marked a break from the
universities of the British Raj. Yet they were
modelled on the Massachusetts Institute of
Technology and helped to sow the seeds for
India‟s relationship with the US and the
subsequent period of scientific and
technological interdependence.
Indian spending on R&D as a proportion of
GDP now stands at just above 0.8 per cent
GDP (figure 1 represents more conservative
estimates). This is well below the US and
Europe, and also South Korea and China.
But it is now starting to rise. At a speech in
October 2006, Prime Minister Manmohan
Singh announced plans to increase R&D
expenditure to 2 per cent of GDP in the next
five years. Seventy per cent of R&D
spending in India is publicly funded, rising
to 85 per cent if publicly owned enterprises
are included in the figure. Government
expenditure on science rose in 2005 by 24
per cent to reach $4.5 billion. Indian policy-
makers have high hopes that the creation of a
$230 million „National Science and
Engineering Foundation‟ for fundamental
research, modelled on America‟s National
Science Foundation, will inject more
dynamism into research.
The new system, however, will overlay
rather than replace the existing, complex
arrangements. There are, for example, six
bodies responsible for biotechnology
funding.
Institutions created in the aftermath of
independence still claim the lion‟s share of
public science funding, largely directed
towards projects in space, ocean
development, atomic energy and defence.
Defence absorbs around 60 per cent of
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government R&D spending, mostly for the
almost 50-strong network of labs run by the
Defence Research and Development
Organisation (DRDO). In other mature
innovation economies, notably the US,
defence spending plays a significant role in
funding research and innovation that
eventually spreads more widely across
society. But this diffusion depends on
ecology of institutional relationships that
India does not necessarily yet have in place.
In developed economies, universities are
vital sources of science, training the
researchers who then work in industry, and
forming hubs for clusters such as Silicon
Valley. Yet India‟s universities do not play
this role because education and research are
separated. Universities teach and government
laboratories do research.
The most notable exception, the postgraduate
Indian Institute of Science (IISc) Bangalore
(Bengalooru), is home to about 2000
postgraduate researchers. The IISc produces
more scientific publications than any other
Indian institute, as well as India‟s top-
ranking science journal Current Science.
There are 95 other „deemed universities‟, a
significant number of which fall under the
aegis of the Council for Scientific and
Industrial Research (CSIR). The rest of the
higher education infrastructure consists of
229 universities and 13 Institutions of
National Importance.
There are more than 400 government labs in
India. The 38 CSIR labs awarded 350 PhDs
and produced 2188 scientific papers in
2004/05, just fewer than 20 per cent of
India‟s total number of scientific
publications. Yet the quality of CSIR labs is
variable. Some, including the National
Chemical Laboratory, the Centre for Cellular
and Molecular Biology and the Institute of
Chemical Technology, are ranked as
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
excellent but others are regarded as „white
elephants‟ according to leading academics.
Distribution of R&D in Indian Cities
 New Delhi
New Delhi has a large concentration of top
educational institutions including 131
colleges (five medical colleges and eight
engineering colleges including IIT Delhi),
four universities; seven deemed universities
and five CSIR labs. New Delhi‟s satellites
towns, Gurgaon and Noida, have grown
rapidly through outsourced IT services and
call centres, and are now attracting corporate
R&D centres.
 Hyderabad
There‟s a buzz about the future of
Hyderabad, the capital of Andhra Pradesh,
which is widely regarded as one of the most
innovative states. Home to two federal, two
state and two deemed universities,
Hyderabad is home to a disproportionately
large number of IT training institutes as well
as top government institutes such as the
Centre for Cellular and Molecular Biology,
the Centre for DNA Fingerprinting and
Diagnostics and the Indian Institute of
Chemical Technology. Andhra Pradesh has
also started to win high-tech investment
away from Karnataka. Nicknamed
„Cyberabad‟ for its extensive IT population,
Hyderabad also hosts the „Genome Valley‟
biotech and pharmaceuticals cluster. A third
of investments made by the Technology
Development Board, the government fund,
have gone to Andhra Pradesh in recent years.
 Mumbai
Mumbai, the capital of the huge state of
Maharashtra, is India‟s most populous city,
with 13 million people, and its financial hub.
It is home to an IIT, the University of
Mumbai (one of the world‟s largest
universities with 354 affiliated colleges and
two postgraduate centres), and newly
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privatised dynamic institutions such as the
University Institute of Chemical Technology.
Mumbai‟s diverse industrial foci include IT,
pharmaceuticals and engineering. The
availability of capital is a big draw for
entrepreneurs..
 Chennai
Chennai, capital of Tamil Nadu, is home to a
large number of multinational R&D centres
in several software parks and two
biotechnology parks, as well as a large share
of India‟s automotive industry, an IIT and
several government labs. Behind these
established science centres a group of
ambitious „second-tier cities‟ is now
emerging as possible new players in science
and innovation.
 Ahmedabad
Ahmedabad is ranked fifth most attractive
destination for IT services in India, and has
benefited from pro-industry Gujarat state
policies, which are a big draw for NRI
investment. Ahmedabad is home to pharma
companies like Sun and Cadilla and the
Indian Institute of Management.
 Chandigargh
Chandigargh, known as the „Silicon Valley
of the North‟, is well connected to New
Delhi, and reputedly has the highest quality
of life in India and an 82 per cent literacy
rate (compared with a 64 per cent average).
Already home to infotech and software
parks, Chandigargh will soon be the site of a
prestigious centre for bio-nanotechnology.
 Pune
With a population of 3.4 million Pune is
India‟s seventh largest city and in 2006
earned third place in Forbes magazine‟s list
of the most promising locations for global
business. Pune University‟s vice chancellor,
Ashok Kolaskar, describes Pune as a „centre
of gravity for change‟, a base of
revolutionary movements from the time of
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
the Moghuls to the British. The forerunner of
Pune University, Fergusson College, was the
first in India to educate women. Today, Pune
is cosmopolitan and open: the university
hosts more than 6000 international students,
mainly from oil-rich and developing
countries, but also increasingly from the US
and Europe. Many of the students live with
local families, in a system uncommon
elsewhere in India.
Pune hosts a concentration of scientific
institutions: the National Chemical
Laboratory; the Indian Institute of Tropical
Meteorology; the Inter-University Centre for
Astronomy and Astrophysics; the National
Centre for Radio Astrophysics (which runs
the Giant Metrewave Radio Telescope); the
Centre for Development of Advanced
Computing; and the Institute of
Bioinformatics and Biotechnology. Pune has
also tried to dissolve the dividing line
between research and education: most of
these research institutes are clustered on the
university campus. It has recently been
chosen as the site for one of the
government‟s flagship Integrated Institutes
of Scientific Education and Research. Pune
also has access to engineering and finance,
and Mumbai, the financial capital, is only a
three-hour drive on the expressway. No
wonder Pune is frequently described as „the
Oxford of the East‟.
 Kolkata
Kolkata is India‟s third largest city after New
Delhi and Mumbai, and was the capital of
British India from 1772 to 1912. It remained
prosperous until 1947. West Bengal was
renowned as India‟s economic and
intellectual leader for centuries, until,
according to the Nobel Laureate VS Naipal,
„it discovered Marxism and like poor Russia
in 1917, committed suicide‟. The Left Front
coalition of Communist and Marxist parties
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has ruled West Bengal since 1977. Many
people credit the changes in West Bengal to
the current chief minister, Buddhadev
Bhattacharjee, who has welcomed foreign
investment.
India’s Innovative Performance
Over the last several years there has been
much discussion in about the rise of
innovations in India. This discussion has
been precipitated by a number of indicators
of innovations in India‟s economy. These
are: (a) Improvement in India‟s rank in the
Global Innovation Index; (b) many instances
of innovation in the services sector,
especially in the healthcare segment; (c)
increase in knowledge-intensity of India‟s
overall output; (d) growing FDI from India
including some high profile technology-
based acquisitions abroad by Indian
companies; and (e) competitiveness in high
technology areas.
According to the Economist Intelligence
Unit (2009), India‟s rank in its Global
Innovation Index1 increased from 58 in
2002-06 to 56 in 2004-08 and is predicted to
further increase to 54 by 2009-13. According
to the World Bank, India has emerged as the
fifth largest economy in terms of its level of
GDP in purchasing power parity (PPP)
terms. Currently, the service sector accounts
for over two-thirds of the economy and both
service and manufacturing sectors have been
performing very well. In fact, there is a fair
amount of belief in both policy and business
circles that the country is becoming more
innovative, at least certain specific industries
in both manufacturing and service sectors
have become important generators of
innovations. Within the manufacturing sector
itself a number of innovations have been
reported from the automobile and medical
devices industries.
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
Trends in R&D Investments
Both the nominal and real growth rates have
declined since 1991 and the overall research
intensity of the country has virtually
remained constant pre- and post-
liberalisation periods at about 0.78.4 Even
now the government accounts for over 63%
of the total R&D performed within the
country although the share of government
has tended to come down over time. This has
been accompanied by an increase in R&D
investments by business enterprises, which
now account for about 30% of the total – a
significant increase from just 14% in 1991.
The increase in the share of R&D performed
by business enterprises is generally
considered to be a desirable trend as business
enterprises tends to implement or
productionise the results of their research
rather more quickly than the government
sector where much of the research does not
fructify into products and process for the
country as a whole.
An interesting result thrown up by the above
analysis is that the higher education sector,
which includes the prestigious Indian
Institute of Science, the Indian Institutes of
Technology and a host of over 300
universities, constitutes only a very small
share of the total R&D performed within the
country. In other words, the higher education
sector in India is not a source of technology
for the industry. However, the sector is an
important source of human resource for the
other actors in India‟s national system of
innovation.
It is thus seen that the only actor of the
country‟s innovation system that has
increased its share in total R&D performance
has been the industrial sector. Within the
industrial sector much of the R&D is
performed by private sector enterprises
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Currently, Indian private sector enterprises
spend approximately four times their public
sector counterparts and nearly three times
when compared to GRIs. In other words in
terms of R&D performance, the private
sector enterprises in India are moving
towards the core of India‟s innovation
system.
This increase in the share of private sector in
the performance of R&D is sometimes
questioned on the grounds that the private
sector enterprises reporting expenditures in
this area to the DST would have exaggerated
their spending to gain tax incentives that are
available in India to any business enterprise
investing in R&D. These tax incentives are
linked to the volume of R&D performed.
However, this does not appear to be the case
and in order to verify this proposition a
comparison of the R&D investments as
reported by the DST with those available
from the Centre for Monitoring Indian
Economy‟s (CMIE). The comparison shows
that although the level of R&D as reported
by DST is higher over most of the years
under consideration, the differences in the
levels have tended to decrease over time.
Moreover, the direction of movement of both
the series is more or less exactly the same.
So the argument that the increase in R&D
expenditure by private sector enterprises is a
mere statistical artefact does not appear to be
true.
Within the industrial sector about four
industries account for a significant share of
R&D investments. The pharmaceutical and
the automotive industries are the two most
important spenders on R&D. In fact, it is
sometimes said that India‟s national system
of innovation is led by the sectoral system of
innovation of her pharmaceutical industry.
An interesting point to be noted is that the
R&D expenditure of the pharmaceutical
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
industry was expected to decrease after the
Indian Patent Act in 2005 was amended in
compliance with the Trade-related Aspects
of Intellectual Property Rights (TRIPS). This
reasoning was based on the belief that much
of the Indian R&D in pharmaceuticals was of
the “reverse engineering” type and this may
not be possible since the amended patents act
requires recognition of both product and
process patents, thus effectively reducing the
space that is available for executing R&D
projects of this type. However, in actuality,
the R&D investments of private sector
pharmaceuticals in India have been
registering an increase of almost 35% per
annum.
It can, therefore, be safely concluded that
although overall R&D investments may not
have increased, there have been tremendous
increases in R&D by the private industrial
sector enterprises led by the pharmaceutical
industry. So based on this one indicator, the
more correct statement to be made is that
there is not enough evidence to show that the
entire industrial sector in India is becoming
more innovative since 1991, but there is
some evidence to show that the India‟s
pharmaceutical industry certainly is
becoming more innovative.
Patenting: The Benchmark of R&D
The tables in the appendix indicate that there
has been a tremendous increase in the
number of patents applied for and awarded
since 1991. India accounts for approximately
a third of the patents applied for and awarded
by BRICS country innovators in the US.
An analysis of the distribution of ownership
of these patents shows that in 1991, domestic
inventors consisting of government research
institutes (read as CSIR), private sector
(enterprises and individuals) accounted for
about 71% of the innovations taking place
9 PRESENTATION REPORT – OCTOBER 2010
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within the country. This has since got
reduced to just 39%. The share vacated by
domestic inventors have been taken up by
foreign companies implying the fact that
many affiliates of MNCs have started doing
R&D – often enough through the
outsourcing mode – and have started taking
patents based on this research. This implies
that increasingly most of the US patents that
are assigned to India are actually owned by
MNCs.
The CSIR was one of the pioneer institutions
in patenting until 2003. However, since the
liberalization of the Indian economy, their
share in patenting has come down. It is
attributed to be a conditioned step down
procedure. It is the primary source of public
sector spending and breakthroughs in R&D.
The next important category among domestic
inventors is private sector enterprises. Trends
have shown us that almost all the 23 firms
excepting for one active in obtaining patents
abroad are pharmaceutical firms and the only
non-pharmaceutical firm is the largest IT
services firm in the country.
We can conclude from recent studies in
patenting trends that most of the innovations
in India are actually done by pharmaceutical
firms. Although IT services are an important
industry with significant exports, the firms
within the IT services industry in India do
not appear to be active in patenting. A
number of reasons have been put forward for
this. First of all, Indian IT companies are
much more services companies where they
do not have that much scope for patenting as
compared to the global IT companies which
are more product-oriented. Second, Indian IT
companies depend on other forms of
intellectual property right (IPR) mechanisms
such as trade secrets and reducing the time
spent to complete any typical project than
filing patents as forms of IPRs.
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
However, currently most of the Indian
patents in the US are held by MNC affiliates
operating from India. An examination of
these enterprises shows that almost all of
them are from the IT and IT-related
industries. Thus, it is clear that Indian private
sector enterprises are specialising in
pharmaceutical innovations while the foreign
enterprises are specialising in IT-related
patents. As a result, specialisation of Indian
patenting in the US has actually increased. In
1991, almost 65% of the Indian patents were
in a wide range of technologies although the
single largest patenting was in the area of
pharmaceuticals and chemicals. But by 2007
almost 72% of the patenting was in just two
broad areas of pharmaceuticals and IT-
related technologies.
India‟s CSIR is one of the most notable
performers from among the developing
world in terms of patenting. It shares the first
rank along with the Samsung Corporation of
South Korea in this regard. However, the
actual performance is just restricted to 5 labs
from among the possible 38. Also, most of
the patenting was in the fields of organic
chemistry and pharmaceuticals- showing that
India‟s innovative capabilities are largely
sectorial.
Trends in Patenting at the India patenting
office however shows more promise than
that of the USPTO. The growth rate of
Patents is much higher with mechanical
engineering and computer technologies
showing notable increases along with
pharmaceuticals and biotechnology.
Thus a conclusion of the Patenting patterns
in the country in the last 2 decades indicates
the following trends.
 There has been a significant surge in
patenting by Indian inventors abroad and
in India
10 PRESENTATION REPORT – OCTOBER 2010
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 The share of domestic inventors is still
much lower than those of foreign
inventors using India as a R&D location
 Most of the domestic patents are in
chemicals and pharmaceuticals; while the
foreign patents are in IT and computer
software-related areas
 Among the domestic inventors, CSIR is
an important entity although private
sector pharmaceutical enterprises too are
very important.
Technology Balance of Payments
The Technology Balance of Payments is the
third indicator of innovative performance
after R&D expenditure and Patents. TBoP
measures international transfers of
technology licences, patents, know-how and
research, and technical assistance. Although
the TBoP reflects a country‟s ability to sell
its technology abroad and its use of foreign
technologies, a deficit position may indicate
low competitiveness.
Only a handful of countries in the world are
net exporters of technology (the prominent
among them are the US, Japan and Sweden).
It is observed that India has been a net
importer of technology until 2004-05. Over
the last three years, the country has become a
net exporter of technology thanks to
increasing R&D and other technology-based
outsourcing activities. Much of R&D
sourcing is confined to pharmaceutical and
IT-related (including telecommunications)
industries.
In conclusion, analyzing India‟s innovative
performance over the period since 1991, the
following points emerge:
– Overall research intensity of the country as
judged by rates of growth in terms of
Percentage of GND has gone down.
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
– But the share of the industrial sector has
actually increased by a factor of two since
1991.
– Within the industrial sector over two-thirds
of the industry is performed by private
enterprises and most of these are
concentrated in the pharmaceutical industry.
– Analysis of various types of patent data
and notably the USPTO data shows that
much of it is actually done by MNCs
operating from India, although the domestic
private sector and enterprises and
government research institutes (CSIR) have
also increased their share of innovative
activity during the period since 1991.
– Once again, research shows that there is a
specialisation in pharmaceutical technologies
although MNCs operating from India tend to
specialise in IT-related activities.
–This prompts us to conclude that India‟s
national system of innovation is largely
dominated by the sectoral system of
innovation of her pharmaceutical and IT
industries. The former is largely in the hands
of domestic enterprises while the latter is in
the hands of MNCs.
Barriers to Innovation
 Financing of Innovation
India has two types of financial schemes for
financing innovations: first, research grants
and loans at concessional rates of interest
and second, tax incentives for committing
resources to R&D. A recent analysis showed
that much if not all of the small number of
research grants and loans available for
financing innovations (such as those by the
Technology Development Board, etc) are
directed largely at the public sector although,
as I have just demonstrated that, much of the
innovations actually emanate from private
sector enterprises. In short, there is a
11 PRESENTATION REPORT – OCTOBER 2010
SOMS
mismatch in the financing of innovations in
the sense that research grants and
concessional loans are not directed towards
those sectors which are active in innovations.
Second, the country has a tax incentive
scheme for encouraging more investments in
R&D. These incentives have been correctly
fine-tuned to encourage innovations in 10
high and medium technology-based
industries which are at the same time active
in innovative activity. An endeavoured
estimate was conducted to determine the
coefficient of elasticity of R&D with respect
to tax foregone as result of this incentive
scheme. The result was that the elasticity of
R&D expenditure with respect to tax
foregone as a result of the operation of the
R&D tax incentive is less than unity for all
the relevant industries, although it is
significant only in the case of the chemicals
industry. In two of the industries, namely in
automotive and electronic industries the
elasticity is even negative, although not
significant. From this the reasonable
interpretation that is possible is that tax
incentive does not have any influence on
R&D, excepting possibly in the chemicals
industry where it has some influence
although even in this case the change in
R&D as a result of tax incentive is less than
the amount of tax foregone. This lack of a
significant relationship between R&D and
tax foregone can be explained by the fact
that the tax subsidy covers only a very small
percentage share (on an average 6%) of
R&D undertaken by the enterprises in the
four broad industry groups. So one may
conclude that for tax incentive to be effective
in raising R&D expenditures it must form a
significant portion of R&D investments by
an enterprise. It is not thus a determinant of
R&D investments by enterprises for the
present.
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
 Availability and Quality of Science &
Engineering Personnel
The recent growth performance of
knowledge-intensive industries in India is
prompting many analysts to feel that India is
transforming itself into a knowledge-based
economy.
The copious supply of technically trained
human resource is considered to be one of
the most important reasons for this growth
performance. However, of late, the industry
has been complaining of serious shortages in
technically trained manpower.
For instance, a recent study (2007)
conducted by the Federation of Indian
Chambers of Commerce and Industry
(FICCI) has revealed that the rapid growth in
the globally integrated Indian economy has
led to a huge demand for skilled human
resources.
However, lack of quality in the higher
education sector has become a hindrance in
filling the gap. The survey, based on a study
conducted in 25 sectors, also showed that
currently there is a shortage of about 25%
skilled manpower in the engineering sector.
Budgetary allocation for technical education
has increased, although with some
fluctuations. Its share as a proportion of
expenditure on higher education has
increased.
In order to increase the quality of new
supply of science and engineering personnel,
the central government has established or is
in the process of establishing five new Indian
Institutes of Science Education and
Research, eight new Indian Institutes of
Technology, and 20 new Indian Institutes of
Information Technology. Further, 30 new
central universities of various sorts are going
to be established.
12 PRESENTATION REPORT – OCTOBER 2010
SOMS
Conclusion
There is evidence to show that innovative
activities in the industrial sector have shown
some significant increases during the post-
reform process. There is even some macro
evidence to show that the productivity of
R&D investments in India is higher than in
China. This rise in innovative activity is
largely contributed by the domestic private
sector if one takes into account all the
indicators. Within the domestic private
sector innovative performance is largely
confined to the pharmaceutical industry. In
short, India‟s national system of innovation
is to a large extent dominated by the sectoral
system of innovation of its pharmaceutical
industry and as such this trait is not
widespread.
Increasingly MNCs operating from India are
also contributing to enhancing the country‟s
innovative performance. This is very likely
the consequence of ever increasing FDI in
R&D. Most of the MNCs patents are in the
IT industry. In short, it may not be incorrect
to draw the conclusion that India‟s
pharmaceutical and IT industries are
becoming innovative, although domestic
enterprises are more active innovators only
in the former while it is the MNCs that are
active in the latter. Integration of India‟s
economy with rest of the world has opened
up a number of opportunities which seem to
have been capitalised by the private sector
industry. However, continued rise in
innovative activity is limited by the
availability of finance and of good quality
scientists and engineers. Although the
available supply appears to be very
productive, it is important that to sustain this
on a long-term basis and also to spread the
innovation culture to other areas of the
RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA
Industrial establishment concerted efforts
will have to be made to increase both the
quantity and quality of scientific manpower.
Fortunately, the government is aware of this
problem and has started initiating a number
SOMS
of steps towards easing the supply of
technically trained personnel.
The government still has to rethink its
financial support schemes by reducing as
much as possible the distortions present now.

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The size of the content of this article is 5478 words.

REFERENCES AND FURTHER READING

1. Kristen Bound (2007). India the Uneven Innovator. Demos Research Publications, U.K.
Retrieved 19‟th September from the Indian Institute of Management, Kozhikode Database.

2. Sunil Mani (2009). Is India Innovative Since 1991? Economic & Political Weekly,
November 14, 2009. E-article retrieved from the Indian Institute of Management Kozhikode,
Library Catalogue.

3. Ian E. Maxwell (2009), Managing Sustainable Innovation: The Driver for Global Growth,
Springer Science and Business Media, USA. E-Book retrieved from the World Wide Web
Site www.scribd.com

4. D. Murali & Sriram Lakshman (2007). Swot Analysis of Indian Innovation. Published
August 17, 2007 by The Hindu National Newspaper (in an Interview with Mr. Michael
Hugos, author of “The Greatest Innovation Since Assembly Line: Powerful Strategies for
Business Ability”)

5. The Economist (2007). Innovation: Transforming the Way a Business Creates. White
Paper Published by The Economist Intelligence Unit in Association with CISCO systems,
UK.

13 PRESENTATION REPORT – OCTOBER 2010

RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA SOMS

APPENDIX

Table 1 (a): India’s Scientific Indicators a Decade after Liberalization

INPUTS FIGURES SOURCE

Percentage of GDP in Department of Science & Technology,

0.8% of GDP
R&D Govt. of India

Department of Science & Technology,

Annual Science Budget US $ 4.5 Billion
Govt. of India

National Council For Applied

Percentage of Students 11.2% of 9.84 million
Economic Research (NCAER), India
Studying Engineering graduate level students
Science Report, 2005

National Council For Applied

Pool of Young University 14 million (1.5 times
Economic Research (NCAER), India
Graduates (<7 years) China and 2 times US)
Science Report, 2005

350,000, with
Engineering Graduates/
estimated 1.4 million Study of UGC Markets
Year
in 2015

Science PhDs per Year 5000-6715 ITPS & NSTMIS

R&D Staff in Science or 21 Researchers per

OECD, 2003
Industry 1000 employed
229 Universities
96 Deemed
Universities
13 institutes of
Size of R&D
National Importance Ministry of HRD, Govt. of India
Infrastructure
400 Govt. Research
Labs
1300 Industrial R&D
units
Growth Competitiveness
India at 50, China at 49 World Economic Forum (WEF), 2005
Index,2005

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Table 1 (b): India’s Research Outputs

-341 US Patents in 2003 US Patent &

US PATENTS -1154 US Patent Application compared Trademark Office
with 54 in 1993 (U S P T O)

INDIAN Nearly 23,000 Applications in 2005/06 Indian Patent

PATENTS Compared with 17,266 in 2004 Facilitation Centre

PEER- -12,500 Scientific Papers Were Published Science &

REVIEWED & Included in Thomson ISI Database in Development
ARTICLES 1999, became 15,000 in ’03 Network, 2005

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Figure 1: R&D Expenditures in India till 2005

Source: NSTMIS, R&D Indicators, Department of Science & Technology, Govt. of India

Figure 2: Sector-Wise Investment of R&D in India

Source: Department of Science & Technology (2006-2008), Govt. of India

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Figure 3: Distribution of R&D Institutions in Indian States

Souce: NSTMIS 2001, Department of Science & Technology, Govt. of India

Figure 4: Comparison of Compiled R&D Expenses between DST & CMIE in Crores in
Private Sector

Source: Compiled by Sunil Mani, Centre of Development Studies, Thiruvananthapuram, 2006

17 PRESENTATION REPORT – OCTOBER 2010

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Table 2: Resource Allocation to Technology Development in Industry

Source: Department of Science & Technology (2008)

Figure 5: Average R&D Expenditure Per Firm in India’s Pharmaceutical Industry- Pre
and Post TRIPS Compliance

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Table 3: Distribution of US Patents According to Ownership

GRI: Govt. Research Institute, IOP: Individually Owned Patents. Source: Compiled from
USTPO

Table 4: Specializing of Indian Patenting in the US

Source: USTPO

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RESOURCE ALLOCATION FOR TECHNOLOGY IN INDIA SOMS
Table 5: Technology-Wise Distribution of Patents in India

Source: Controller General of Patents, Designs & Trademarks

Figure 6: India’s Technology Balance of Payments Till 2008

Source: RBI

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Table 6: Nominal R&D Expenditures by Sectors in Crores

Source: Department of Science & Technology, 2008

Figure 7: Trends in US Patenting by MNCs, CSIR and Private Sector Enterprises

Source: Controller General of Patents and Trademarks

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