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

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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 ReddyUnion Minister of Science & Technology and Earth Sciences, Government of India

Foreword

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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 ReddyUnion Minister of Science & Technology and Earth Sciences, Government of India

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Acknowledgements

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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

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Nayak S

Shukla BK

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Acknowledgements

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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

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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

entire value chain of industrial R&D and technology

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.

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2.0The White PaperWork 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

entire value chain of industrial R&D and technology

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.

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2.0The White PaperWork 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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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 thon 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

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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

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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 thon 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

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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

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thR&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

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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 17,896including 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

thSource: 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.

thSource: Report of the Steering Committee on S&T for the formulation of 12 Five Year Plan

thThe 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

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thR&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

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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 17,896including 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

thSource: 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.

thSource: Report of the Steering Committee on S&T for the formulation of 12 Five Year Plan

thThe 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

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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

0.0830.15

0.06 0.0580.03

0.150.075

0.045

0.047

0.075

0.08 0.12

0.1850.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0USA UK France Germany Israel Japan South

KoreaFinland

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

Direct incent ives inc lude grants , credits and publ ic

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.

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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

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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

0.0830.15

0.06 0.0580.03

0.150.075

0.045

0.047

0.075

0.08 0.12

0.1850.4

0.35

0.3

0.25

0.2

0.15

0.1

0.05

0USA UK France Germany Israel Japan South

KoreaFinland

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

Direct incent ives inc lude grants , credits and publ ic

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.

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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.

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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 carrytax forward

Germany Cash subsidy Cash Yes Not applicable Yes Yes Yessubsidy

Israel Income tax Super Yes Refundable Yes Anywhere Yes& cash deduction (for taxsubsidy 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

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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 Standardiexpenses

zation

Pilot Plant Cost Technology watchexpenses

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 duringproduction 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 inprocesses 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

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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 carrytax forward

Germany Cash subsidy Cash Yes Not applicable Yes Yes Yessubsidy

Israel Income tax Super Yes Refundable Yes Anywhere Yes& cash deduction (for taxsubsidy 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

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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 Standardiexpenses

zation

Pilot Plant Cost Technology watchexpenses

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 duringproduction 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 inprocesses 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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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

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l

l l

l l

l

l

l

l

l l

l

l

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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

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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

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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

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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 SME’s

vP-CBO guarantee

KODIT guarantees loans from

private banks

Has helped SMEs out of oil crises

and the recent financial crisis

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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

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Countries Scheme Features Guarantor

Germany German CriteriaUnited 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 companyis 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 acceptsCooperation and resource development by burden Loan Japanese firmsGuarantee Credit guarantee enables CGCscheme to guarantee financial institution

against risk associated with loans to SMEsCredit insurance funded by public money reinsures credit guaranteesCGC's guarantee loans, provide depositScheme providesvFund for credit insurancevSubsidies for CGC fundsvDepositsvCompensation for loss

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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 SME’s

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

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18

Countries Scheme Features Guarantor

Germany German CriteriaUnited 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 companyis 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 acceptsCooperation and resource development by burden Loan Japanese firmsGuarantee Credit guarantee enables CGCscheme to guarantee financial institution

against risk associated with loans to SMEsCredit insurance funded by public money reinsures credit guaranteesCGC's guarantee loans, provide depositScheme providesvFund for credit insurancevSubsidies for CGC fundsvDepositsvCompensation for loss

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2007-08 2008-09 2009-10 2010-11 2011-12 2012-13(estimate)

Tax foregone under 2000 2526 2416 4685 5745 6335current policy regimefor supporting R&D (Rs. in Crores)

Computed investments 6060 7654 7321 14196 17409 19197of 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.

1However, 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

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3.0SuggestionsStakeholder 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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2007-08 2008-09 2009-10 2010-11 2011-12 2012-13(estimate)

Tax foregone under 2000 2526 2416 4685 5745 6335current policy regimefor supporting R&D (Rs. in Crores)

Computed investments 6060 7654 7321 14196 17409 19197of 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.

1However, 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

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20

3.0SuggestionsStakeholder 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

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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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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

employing Prowess database as source reveals 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 thR&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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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

employing Prowess database as source reveals 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 thR&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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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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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.

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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:

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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.

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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:

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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

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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

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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

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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

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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.

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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.

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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.

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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.

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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.;

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3.6 Procedure to avail Tax incentives

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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

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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.;

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3.6 Procedure to avail Tax incentives

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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

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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

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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.

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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

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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.

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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.

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4.0 Six 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&Dl

l Materials & consumablesl Utilities & servicesl Human Resource

Plant & Machinery

Trial Production of finitenumbers of bulk

IPR Acquisition / Protection

Design

Scholarshipsto PhD Scholars

For Appropriate Accounting For Fiscal Benefits

Skills Development

Employment Generation

Technology Business/Incubation of Start-ups

Training / Education ofIndustry Personnel

Education

Under CSR

R&D Expenditure by Industry

Land & Building

Prototyping

Test Beds

Clinical drug trials andBioequivalence studies

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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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4.0 Six 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&Dl

l Materials & consumablesl Utilities & servicesl Human Resource

Plant & Machinery

Trial Production of finitenumbers of bulk

IPR Acquisition / Protection

Design

Scholarshipsto PhD Scholars

For Appropriate Accounting For Fiscal Benefits

Skills Development

Employment Generation

Technology Business/Incubation of Start-ups

Training / Education ofIndustry Personnel

Education

Under CSR

R&D Expenditure by Industry

Land & Building

Prototyping

Test Beds

Clinical drug trials andBioequivalence studies

39

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4.3.Constitution of an Expert Committee 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

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4.3.Constitution of an Expert Committee 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.W

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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)

affordable healthcare b) renewable 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&DInstitutions

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 IPsinventors in the line of existing performance related incentive from public funded R&D byguidelines of IITs, IISc and system the private sectorCSIR

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 ofmatching the value of commercialization of public Germany and Israelpayments received from the funded R&D with values of theindustry 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.W

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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)

affordable healthcare b) renewable 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&DInstitutions

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 IPsinventors in the line of existing performance related incentive from public funded R&D byguidelines of IITs, IISc and system the private sectorCSIR

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 ofmatching the value of commercialization of public Germany and Israelpayments received from the funded R&D with values of theindustry 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 thduring 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 thduring 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

2Background - 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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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

2Background - 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.

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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

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t in

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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.

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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

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considerably according to factors such as industrial structure, existence of

large R&D-intensive firms, R&D intensity and specialization.

United

Stat

esKorea

France

Sweden

German

y

United

King

dom

Finlan

d

Denmark

Switzerl

and

Japa

n

Canad

a

Indirect Govt support thru R&D Tax incentives (% of GDP)

Direct Government Funding of BERD (% of GDP)

Nether

lands

0.40.350.3

0.250.2

0.150.1

0.050

Direct & Indirect Government funding (% of GDP) ofBusiness 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

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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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considerably according to factors such as industrial structure, existence of

large R&D-intensive firms, R&D intensity and specialization.

United

Stat

esKorea

France

Sweden

German

y

United

King

dom

Finlan

d

Denmark

Switzerl

and

Japa

n

Canad

aIndirect Govt support thru R&D Tax incentives (% of GDP)

Direct Government Funding of BERD (% of GDP)Neth

erlan

ds

0.40.350.3

0.250.2

0.150.1

0.050

Direct & Indirect Government funding (% of GDP) ofBusiness 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

WHI

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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

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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.

WHI

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APER

ON

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ion

of In

vest

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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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ON

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of In

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men

t in

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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.

WHI

TE P

APER

ON

Stim

ulat

ion

of In

vest

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t of P

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ctor

into

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and

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t in

Indi

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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

53

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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.

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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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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.

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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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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

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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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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

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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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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.

Facil itating the commercial ization of public 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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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.

Facil itating the commercial ization of public 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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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

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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

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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.

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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.

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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.

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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.