India’s technological prowess has been a driving force behind its economic surge over the last three decades. The Union Budget each year stands as a testament to the nation’s commitment to sustaining this growth trajectory and fostering innovation. With each budget the Union government seeks to firmly establish India’s role as global leader in science & technology innovation and research.
In India, R&D expenditure has witnessed an increase from Rs. 57,908 crore in 2015-16 to Rs. 73,720 crore in 2017-18. However, the percentage of GDP allocated to R&D has remained stagnant at around 0.6%. The discrepancy in data sources highlights the need for standardized and transparent reporting mechanisms. Notably, India exhibits positive trade balances in R&D, positioning itself as a net exporter of R&D services globally.
R&D is instrumental in generating Intellectual Property (IP), leading to revenue generation through royalties, copyright, and license fees. India’s export revenue from royalties, copyright, and license fees increased from USD 489 million in 2015-16 to USD 732 million in 2017-18, while imports grew from USD 4891 million to USD 6877 million. The trade imbalance indicates a substantial opportunity for growth in IP-related activities. R&D also plays a pivotal role in attracting Foreign Direct Investment (FDI). During 2015-2018, the annual average FDI inflow into R&D amounted to USD 142 million. This underscores the importance of R&D in creating an environment conducive to foreign investments.
Global evidence underscores the pivotal role of R&D in fostering economic growth. In Europe, two-thirds of economic growth from 1995 to 2007 was attributed to R&D, accounting for 15% of all productivity gains. A 10% increase in R&D investment correlates with productivity gains ranging from 1.1% to 1.4%. This correlation establishes R&D as a catalyst for economic advancement, emphasizing its conceptual contribution to capital formation, trade in services, Foreign Direct Investment (FDI), and overall economic expansion.
The development of systems approach is imperative in enhancing technological innovation within the country. Key budgetary allocations and initiatives that underscore the nation’s resolve to advance in the digital era is aimed at:
1.Promoting Digitization and 5G Technology Deployment
The budget recognizes the transformative potential of 5G services and underscores the importance of digitization. With a focus on capital expenditure-led growth, the government aims to embrace emerging technologies and bolster the AI ecosystem. The establishment of 5G labs and skill centers is slated to position India as an interdisciplinary research and development (R&D) hub. By promoting 5G mobile networks and setting up 100 labs for developing 5G-based applications, the nation aspires to revolutionize various sectors, including smart cities, precision farming, healthcare, and intelligent transportation systems.
2.Opening Centers for AI and Excellence
A pivotal aspect of the budget is the emphasis on making AI work for India. The allocation of resources to set up three centers of excellence for Artificial Intelligence in leading educational institutions signifies a strategic move towards cross-disciplinary research. Collaboration among major industry players seeks to address challenges in agriculture, healthcare, finance, defense, and sustainable urban development. The aim is to leverage innovative solutions from these centers of excellence, attracting substantial volumes of intellectual property and driving India’s leadership in cutting-edge technologies.
3.AI and Emerging Technology for Startups and Academia Partnerships
Recognizing the significance of skill development in emerging technologies, the budget, under the Pradhan Mantri Kaushal Vikas Yojana 4.0, announces tech-based training opportunities for the youth. By imparting skills in AI, coding, robotics, 3D printing, IoT, drones, and other soft skills, the government seeks to nurture innovative solutions to grassroots problems. Increased budgetary allocation for the Intellectual Property (IP) ecosystem, including copyright, designs, and trademarks, reflects a commitment to fostering an environment conducive to IP creation, protection, and enforcement. The budget also suggests the National Data Governance Policy 2023, facilitating innovation and research by start-ups and academia through access to anonymous data.
4.Growth in Agritech Industry
Agriculture-focused digital public infrastructure, as an open-source and easily operational platform, is a strategic move to provide farmer-friendly solutions. Leveraging information services for crop planning, access to farm inputs, credit, and insurance, the government aims to promote agritech startups. The establishment of an agriculture accelerator fund further supports innovations in the agriculture sector, emphasizing the integration of affordable and cutting-edge technology.
5.AI in Defense and Aerospace
Amid geopolitical tensions and the evolving threat landscape, the budget prioritizes defense sector allocations, witnessing a nearly 35% increase over 2022. This surge in funding aims to initiate more R&D projects focusing on transformative technologies. The projects include hypersonic flights, electric aircraft, space tourism, and reusable rockets, envisioning a paradigm shift in the aerospace sector. The ‘Drone Shakti’ program and the launch of select ITIs with requisite skilling courses underscore the commitment to promoting drone startups and building a skilled workforce.
Five Essential Factors which determine success achieving innovation and growth through systems approach would include:
1.Investment in Social and Human Capital:Continuous investment in social and human capital is crucial for generating and sustaining innovation.
2.Research Capacity Linked with Higher Education:The close interaction between research capacity and higher education is pivotal for a national innovation perspective.
3.Geographical Proximity Fostering Regional Clusters:Regional clustering based on geographical proximity facilitates dynamic organizational setups, allowing intensive information flows and mutual learning.
4.Absorptive Capacity and Demand Factors:Absorptive capacity, coupled with understanding demand factors, becomes essential for predicting the expected profitability of innovators.
5.R&D Subsidies:In the traditional market failure-based approach, R&D subsidies aim to address private-level incentives, aligning costs with benefits. The systems approach, however, broadens the scope of subsidies. Instead of solely reducing private costs, subsidies become versatile tools influencing knowledge within firms and enhancing absorption capacity. Co-operation policies, extending beyond market failures, now aim to internalize externalities, shape technical knowledge distribution, and foster coordination—elements crucial for sustained innovation.
Systems approach and a paradigm shift in innovation policies
The systems view challenges the deterministic role of markets in shaping innovation outcomes, recognizing the pivotal contribution of non-market institutions. Unlike the market failure-based perspective, which focuses narrowly on specific inefficiencies, the systems approach considers broader societal impacts. This shift highlights the interconnectedness of various elements within the innovation ecosystem, paving the way for a more inclusive policy framework.
The instruments for innovation system policies transcend traditional science and technology domains, encompassing educational, industrial, and regional policies. This comprehensive approach acknowledges the interplay between these diverse sectors, recognizing their collective impact on fostering innovation. The systems approach views these policies as interconnected components, each contributing to a thriving innovation ecosystem.
Within the systems approach, “technological congruence” and “social capability” emerge as critical policy notions. These concepts underscore the importance of investing in social and human capital, integrating research capacity with higher education, fostering regional clusters through geographical proximity, and considering absorptive capacity to gauge demand factors influencing innovation adoption. This approach emphasizes the complexity of interconnected nodes essential for a robust innovation system.
Conclusion
Systematic development of R&D is imperative for a nation’s sustained economic growth and innovation.Research and Development (R&D) stands as a linchpin for a nation’s productivity and economic growth, driving technological advancements and innovation. The integration of a systems approach is crucial to harness the full potential of R&D, ensuring comprehensive development. India, with its growing R&D expenditure, positive trade balances in R&D services, and potential for IP generation, must embrace a systems approach. The system’s approach to research and development offers a paradigm shift in innovation policies, providing a more comprehensive and interconnected framework for national development. By challenging the market failure-based perspective, embracing versatile R&D subsidies, utilizing diverse policy instruments, and prioritizing critical policy notions, India can systematically foster innovation ecosystems. The success or failure of such endeavors hinges on strategic investments in social and human capital, the integration of research with education, regional clustering, and adaptability to absorptive capacity and demand factors. As nations navigate this evolving landscape, the systems approach stands as a promising avenue for shaping a robust and sustainable future through innovation.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
