Dirigisme or Laissez Faire - Balancing strategic NEEDS for R&D

The overwhelming evidence of the positive impact of Research and Development (R&D) on economic growth has resulted in increasing R&D expenditure by almost every nation.
For representational purpose (Photo | Pexels)
For representational purpose (Photo | Pexels)

The overwhelming evidence of the positive impact of Research and Development (R&D) on economic growth (through technological catch-up and innovation) has resulted in increasing R&D expenditure by almost every nation. Over the years, it has been proven that government intervention in R&D has been invaluable to areas such as health, defence, space, and agriculture; areas where there existed and still exists a likelihood of private underinvestment.

Era of Dirigisme
However, the history of Science and Technology Policies (STP) shows that the objective of such policies was not always to achieve economic growth. For instance, Europe witnessed the evolution of STP with a marked shift from policy related to ‘guns’ in 16th century England to ‘butter’ in 19th century Denmark. While STP for ‘guns’ focused on enhancing canon manufacturing to fight the French the policy intervention in Denmark resulted in the development of enhanced technology for the production of butter after the agricultural crisis. 

It was from the advent of the cold war, that various countries began to focus on medical research. Further, the Soviet Union, China, and several Western economies started framing science policies that were motivated by national prestige and ideological competition between the East and West. Consequently, the goal of scientific research (both basic and applied) became societal welfare, economic growth, and national security.

Devleena Chakravarty
Devleena Chakravarty

Era of Laissez Faire – Advent of Innovation Systems
Nevertheless, with increasing government spending, a new phenomenon was observed in many countries. The return to R&D spending beyond a certain point was observed to be diminishing as Government R&D spending was found to be crowding out private R&D spending. 

Furthermore, from the 1980s developed economies started witnessing a paradigm shift wherein the share of private R&D in total R&D spending started dominating. The intent of commercialization was sensed in the public discourses on scientific research.

Interestingly, this change was also reflected in national science and technology policies. These policies focused on strengthening the linkages between universities, industries, and laboratories, backed by consistent capacity building and patent laws, to achieve industrial competitiveness.

STP in India
The history of science policy in India can be traced back to 1958 with the release of the Science Policy Resolution. This was followed by the Technology Policy statement in 1983 that aimed to achieve self-reliance on technology.

In India, a formal Science and Technology Policy saw the light of the day only in 2003 that aimed to increase R&D investments. After almost a decade, the Department of Science and Technology (DST), Government of India has released ‘Draft 5th Science, Technology and Innovation Policy (STIP)’ for public consultation. The National STIP which is still at the draft stage aims to achieve technological self-reliance, build and retain human capital and increase private R&D expenditure through a system approach and proposes various fiscal and non-fiscal measures to achieve its goals.  Along similar lines but with more tangible interventions, the Government of Tamil Nadu has launched the R&D Policy in 2022. The Tamil Nadu R&D policy 2022 offers capital subsidy, training subsidy, land cost incentives, quality certification, and intellectual property incentives to private R&D centres. One may observe that the governments at both national and subnational levels are increasingly adopting more of a supportive role, without directly getting involved in ‘performing’ the R&D. 

Way forward
Strengthening the regional R&D landscapes will require dedicated cooperation from the Central Government. Research Linked Incentive (RLI) proposed by the Government of India may prove to be a crucial step at this junction, but not without proper definitions and standards in place. For instance, what should define as R&D in Information and Communication Technology? At what stage of R&D should the RLI be offered? Should the Government of India establish its definitions for identification of R&D or should it follow the standard nomenclatures prescribed by Frascati and Oslo Manuals for OECD? These are among the many questions that the Government of India will be compelled to assess.

Further,  a robust strategy through cooperative federalism should be formulated for collecting private R&D spending data. While concerns about lower Gross Expenditure on R&D spending in India have already been raised, the lower contribution of R&D spending by the private sector further adds apprehension to the issue. One can merely speculate that India has not yet reached the threshold point beyond which the returns to Government R&D are diminishing. But even if one argues otherwise, it is beyond doubt that an optimal strategy mix of Dirigisme and Laissez-Faire is still required to create an impetus for private R&D spending.

Footnote is a weekly column that discusses issues relating to Tamil Nadu

Disclaimer: Opinions expressed within the content are solely the author’s and do not reflect the opinions and beliefs of the Government of Tamil Nadu. 

Devleena Chakravarty, associate vice-president, Guidance Tamil Nadu, S Krishnan, IAS, Additional Chief Secretary to Govt.Industries, Investment Promotion and Commerce Department, Govt of Tamil Nadu

Crucial step
Strengthening regional R&D landscapes will require dedicated cooperation from the Centre. RLI may prove to be a crucial step, but not without proper definitions and standards in place

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