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Rd Policy

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India’s R&D policy and its influence on technology development and society Mohsin U. Khan
National Institute of Science Technology and Development Studies, New Delhi-110012

Technology import policy of India
Period of liberalization until mid sixties. Period of tight regulations from then until the end of seventies. Period of relaxation of regulations from then until the end of eighties. Regulations were then relaxed and the policy became once again liberal.

Why India gone for liberalization in 1991
India’s economy grew at the rate of about 5% during 1980s. Domestic inflation gone up to 17% in 1991. Foreign exchange reserves reduced to $ 1.2 billion barely sufficient to pay for two weeks imports. Central government fiscal deficit as a percentage of GDP touched the all time high of 8.4%. Current account deficit widened to $ 8 billion (2.6% of GDP)

Policy changes since 1991
Drastically reduced number of industries reserved for public sector. Abolished industrial licensing except for a short list of industries related to security and strategic concerns, hazardous chemicals. The restrictions imposed by MRTP Act on large firms expansion, merger, amalgamation and take over etc..have been abolished.

Cont.//
The protection provided to the small firms being reduced. Now TNCs are free to decide whether they will use imported or local raw material. Now TNCs are free to use their brand names. Now TNCs can increase the permissible extent for foreign equity from 40 to 51 percent

FUNDS POURING IN 2004
India China Brazil Russia 3.2 60.60 18.20 15.40

2005
5.5 72.40 15.10 14.60
Figures in $billion

2006
15.7 70.00 14.80 28.40

2007
24.57 82.70 37.40 27.80

FDI leaps 56% in 2008
FDI in 2007-08 will be $30 billion. Mauritius and Singapore are the two biggest investors in the country. The major sectors that attracted FDI are telcom, real estate, construction activities electrical equipments, software and hardware and banking sector. Lot of investment is expected to flow into petroleum, manufacturing and electronics hardware sector.

Science and Technology Policy Resolutions
Scientific Policy Resolution 1958 Technology Policy Statement 1983 Science and Technology Policy 2003

Technology policy statement of 1983, emphasized the need to plan collaboration agreements in ways that would ensure effective transfer of basic knowledge, know-why important inputs to the importing firms for subsequent absorption, adaptation and upgradation of the initially acquired knowledge.

Sector-wise percentage share of R&D expenditure
Central government State governments Public sector Private sector 64.9% 8.6% 10.1% 16.4%

Expenditure on R&D in India 1994-95 1995-96 2005-06 Rs. 6,820 crores Rs. 7,753 crores Rs 20,553 crores

R&D Organization
Organization CSIR ICAR ICMR DBT DRDO DAE ISRO Number 42 89 26 8 52 17 Strength Scientists 10,934 Scientists 6,281 Scientists 3732 Scientists 800 Scientists 6,500 Scientists 5,000 Scientists 10,000

Institutions of Higher Education
Higher Education Number Strength Universities 253 Faculty 4,11,628 Colleges 13,115 Students 83,99,433 IITs 7 Faculty 2, 500 Students 23,000 Engg. Colleges 3,500 Students 2,62,000

Internationalization trend in Globalization of R&D
R&D spending abroad by USA and other developed countries rising faster than domestic spending. IBM and Hewlett-Packard spending 30% on R&D outside USA. 1000 companies of Japan, Germany, UK, France, and South Korea have about 250 R&D facilities in USA. More than 150 R&D centers set up in India by MNCs.

India’s S&T Policy on Globalization of R&D
To promote international science and technology cooperation towards achieving the goals of national development and security and to make it a key element of international relations. Scientific research and technological development can benefit greatly by international cooperation and collaboration. Emphasis now shifting to external technology acquisition to complement internal efforts.

Cont.//
For success in global market the most important factor is technical skills to produce superior products at competitive rates. Convenient mechanism for technology transfer inside and across countries. Free and flexible movement of R&D personnel. Suitable/appropriate legal framework for facilitating collaborative R&D and dispute settlement.

India’s S&T Agreements
S&T agreements with more than 50 countries. S&T and IPR agreements with France, EU and Russian Federation. Joint R&D programs on material science; cellular and molecular biology, Laser and electro-optics. Information technology. Medical sciences and human genome research Geophysics

Why R&D Alliance with India?
US giant GE has a large R&D set up in India, Its CEO observed “India is a developing country. But it is developed country as regards its superb infrastructure. It is for this reason that we want to shift a part of GE’s development efforts to India”

Cont. //
Low cost R&D India is the second largest market, therefore, the companies through their products sale earn more than what is spent by them on R&D and their production center in India. India allow foreign investors 100% foreign ownership and full repatriation of capital and profits. India has also accepted the R&D programs under the chapter of trade in services of WTO

Cont. //
India has large pool of English speaking skilled manpower India’s telecom infrastructure is comparable to that in many countries. India’s geographical location enables 24x7 service offerings. Good regulatory framework.

Indian Pharma Policy-2002
100% foreign investment automatically permitted. Foreign technology agreements automatic approval through reserve bank of India. Abolition of industrial licensing for all bulk drugs, intermediates and formulations. Drug control restricted only to essential drugs to deal with diseases like malaria and diabetes (insulin) The only exceptions –the drugs based on DNA technology have been cleared for potential health and environmental risks.

Emerging Trends
Foreign Direct Investment (FDI) permitted up to 100% through automatic routes. India had agreed to implement a product patent regime with effect from 1st January 2005 as per WTO agreement. MNCs have started strengthening their business in India. They have increased their stakes in existing ventures of set up new wholly owned subsidiaries (e.g. Pfizer)

Cont.//
Increased focus by Indian Pharma companies on R&D. R&D can be performed in India at 15-20% of the cost in Europe and USA. In dollar terms the cost advantage is about 10-15 times. The Indian companies are pursuing contract manufacturing for supply of bulk drugs/ intermediates for MNCs.

Cont.//
With low cost of production India has become a base for outsourcing drugs. Indian companies are setting up subsidiaries abroad or seeking strategic alliances to explore tremendous opportunities in the generics market expected in the next 5-10 years.

India---A Global hub for testing and development of new drugs
Pharma industry today takes $300-700 million and 10-15 years to introduce a new drug in the market. A large pool of well qualified and skilled manpower available at low cost. Availability of large number of patients with all forms of diseases. Also patients available who have not received any other medical treatment.

Cont.//
Clinical trials cost half or one third of what a developed country does and also takes much less time to complete. Regulations permit testing of new drugs with necessary protective measures.

Software revenues
During 2006-07 the industry grew 28.2% to touch $ 25.9 billion (15.5 billion exports and $ 5.4 billion domestic market). Nasscom estimates software exports and ITES to grow at 30-32% in 2006-07. That would take the industry to $ 30 billion mark, of which export will amount to 25.3 billion.

The money makers, Nasscom ranking as per revenue
Rank Company Exports in 2006-07 Rs in crore _________________________________________________ 1 TCS 5,963 ($ 1 billion) 2 Wipro 5,881 ($ 1 billion) 3 Infosys 4,761 ($ 1 billion) 4 Satyam 2, 623 5 HCl 2,400

Cont.//
US continues to be major market for Indian software services with a share of 70% while Europe accounted for 23.5% in 2006-07. The number of 500 companies that have been outsourcing their requirements has also been steadily growing with as many as 254 outsourcing their requirements from India.

Cont.// The IT industry added over 100,000 jobs in 2006-07, taking total employees in the sector 15,00,000. Last fiscal, ITES-BPO added 165,000 jobs and software and allied services created 140,000 jobs.

Cont.//
One of the major reasons that Indian software exports is gaining recognition across the world is because of quality certification. Out of 23 SEI-CMM level 5 certified companies world over, 15 are from India. This number is expected to grow as there are several companies that have already reached to level 4. Another encouraging sign is that small office segment of the market has grown by 70% in 2005-06. Besides large corporate market like ERP segment grew by 23%,e-commerce solutions by 300% CAD/CAM market 41% and banking by 70%.

Cont.//
The number of software exporting companies has grown to a record. At present it is 2,250 and expected to grow to 2660 mark next year. Number of software companies logging exports to Rs 500 crore now stands at 37. The top 100 exporters accounted for 61% of the export resources in 2006-07

Projections for India’s IT industry
According to Nasscom-McKinsey report
Annual revenue for IT industry in 2008 will be around US $ 50 billion. Thus a number of opportunities to be created Potential for 2.2 million jobs in IT by 2008. IT will attract Foreign Direct Investment (FDI) of US $ 4-5 billion.

Benefits of S&T on Society
Science relieves pressure of ignorance; Science is universal; no patents; no IPR Technology changes our life style: Green Revolution White Revolution Blue Revolution Nuclear Energy Defense Drug Revolution ICT Revolution

CSIR’s Performance
Over 50,000 tractors valued over 200 crores have been manufactured based on CSIR know-how. Petroleum refining processes and novel catalyst developed by CSIR in association with consulting engineering design organizations and industry have enabled India to emerge as one of the few major technology licensors in the world in this high tech field A whole range of pesticides with low residual effects developed by the chemical groups of CSIR laboratories are being manufactured by a number of private sector units

Cont.//
The productivity in number of sugar mills has been significantly enhanced by the use of instrumentation system developed by CSIR Appropriate leather processing techniques developed and popularize by CSIR have enabled India to emerge as an exporter of value added finished goods. High level capabilities in CSIR for testing and design of aircraft have enabled safety evaluation and enhancement in operational life of aircraft.

Cont.//
Successes Our ancestors were compulsive observer They new how to draw inferences They learnt from trials and errors Failures Lack of tradition of reasoning and questioning Unable to remove urban poverty as well as rural

Work places in traditional sectors of developing economies
Work places should be created in areas where people now live, rather being concentrated in metropolitan cities. They should be cheap enough to be created in large numbers without requiring large capital investment or imports. The production involved as well as organizational methods must be relatively simple with only a moderate degree of skill required for their successful operation The production should be from local materials and intended from local use

Cont.//
What we should do: Strengthen scientific cooperation of Global scale. Enhance network between industry and research and industrial application.

China Vs India
Attribute China India _______________________________________________ Population (in billion) 1.3 1.03 literacy rate 82% 54% Area 9.6 bn sq km 3.3 bn sq km Total GDP $ 1 trillion 500 bn GDP growth (CAGR) 10% 6% Per capita GDP $ 735 $ 495 Total exports (in bn) $ 249 $47 Share in world trade 3.4% 0.8%

China Vs India
IT industry figures Calendar 2006 2006 _____________________________________________________ IT spending as % of GDP 1.10% 1.68% IT industry turnover $46.1 bn $ 12 bn Hardware exports $ 26.4 bn $ 0.4bn Software exports $ 1.2bn $25bn Installed PC base 22 million 7 million PC Penetration/1000 13.2 3.5 Internet user base 22.5 million 3.5 million International Bandwidth 7.5 Gbps 1 Gbps Telephone lines 175 million 34.5 million Telephone lines/100 8.6 3.4 Mobile phones 136 million 5.7 million

China’s economic policy reforms
China’s economic reforms started a full 25 years ago while in India they started a decade later in 1991. Deng Xioping kicked off economic reforms when he suggested that tens of thousands of small and medium enterprises be thrown in private waters to swim or sink For most of the last two decades China’s economy has grown double digit growth with an average CAGR (Compound Aggregate Growth Ratio) of 10% in the last decades. In the last decade China has paid special interest to high technology industries. From exporting toys and textiles, China has today grown to be major exporter of IT hardware, overtook Taiwan in 2000.

China’s software story
China’s software growth is currently hampered by number of factors:
China Media Intelligence (CMI) estimates that out of 5,000 software companies 55% of them have less than 50 people. Another 42% employ 50-100 people and there are only a handful of companies with an employee strength of 1000 people. CMI says Yongyou the largest domestic player in software development. The country’s largest company Oriental Software has a little over 1300 people compare that to 26,000 at Infosys and 24,000 at TCS.

Cont.//
Some of the top companies had obtained CMM certification, a large number of middle level companies had not even heard it. Lack of comfort with English language and the cultural confusion that comes with it made China’s software industry immature. India has at least five year lead in software outsourcing. India has surpassed Ireland as the prime outsourcing destination of the world. The Indian companies have won a reputation of low cost high quality software delivery.

Dynamic techno-management capabilities
Resource exploitation capabilities
Technological learning Outside technological sourcing Human resource exploitation Resource focusing for the target

Managerial integrating capabilities
Task force team integration between R&D and production Concurrent development system : Managing multifaceted activities Production technology management Interfaces and consensus building among functional department Top management leadership and involvement

Cont.//
Path navigating capability
Planned management Fitting into changes in environment Joint R&D activities

Korean electronics export growth
From meager of $ 89 million in 1971 to $ 20.638 billion in 1992 an increase by a factor of 232 Between 1988 and 1992 Korean market share increased : From 7.5% to 17.7% in US From 7.8% to 18.1% in Europe and From 23.6% to 33.7% in East Asia (Exclusive of Japan)

Cont.//
Semiconductor export is the largest item in electronics export From $ 7.8 billion in 1993 to $ 11 billion in1994 During the seventies electronics exports CAAGR was 43% while for other sectors CAAGR Was 35.6%

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