Date: 15/04/2023

Relevance: GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

Key Phrases: Research And Development, , World War II, Cold War, National Security, Societal Welfare, Economic Growth, Laissez Faire, STIP, GERD, Global Innovation Index.

Context:

• In order to achieve strategic objectives and foster private-sector innovation, it is essential to strike a balance.

Introduction

• Research and development (R&D) has been considered a key driver of economic growth as it leads to innovation, technology advancements, and increased productivity.
• The government intervention in R&D has been widespread due to the public nature of knowledge, which is an externality of R&D, leading to positive spillovers in terms of innovation and economic growth.
  • Therefore, governments worldwide have been increasing their R&D spending to boost their economies.

The Era of Dirigisme: Guns and Butter

• The history of science and technology policies (STP) reveals that their objectives have not always been solely focused on economic growth.
  • In fact, the evolution of STP over time has seen a shift from military applications in 16th century England to civilian needs in 19th century Denmark.
• During the 'guns' phase, STP modified property rights and used public procurement as a tool to enhance national security.
  • Concurrently, the 'butter' policies aimed to spread knowledge of dairy techniques and led to the creation of the Agricultural University in Copenhagen in 1856.
• In the mid-20th century, many countries began to prioritize medical research, while the Soviet Union, China, and Western economies framed science policies with national prestige and ideological competition in mind.
• Consequently, scientific research (both basic and applied) became a means to achieve societal welfare, economic growth, and national security.

The Era of Laissez-Faire: Commercialisation

• With increasing government spending on R&D, a phenomenon contrary to the popular belief was also observed in many countries.
  • The returns to R&D spending beyond a certain point exhibited diminishing marginal returns as government R&D funding was found to be crowding out private R&D investments.
• Therefore, developed economies and governments adopted a laissez-faire approach, giving a more supportive role to the private sector in R&D.
• From the 1980s, developed economies started witnessing a paradigm shift wherein the share of private R&D in the pie of gross R&D spending started increasing.
• The intent of commercialisation started dominating the public discourse on scientific research. Technological innovation and private investment in R&D became a driving force of economic growth.

Science Policy in India

• The history of science policy in India can be traced back to 1958 with the release of the Science Policy Resolution 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, which aimed to increase R&D investments.
• After nearly a decade, the Department of Science and Technology (DST) of the Government of India has issued the 'Draft 5th Science, Technology and Innovation Policy (STIP)' for public review.
• The proposed National STIP, which is currently in draft form, seeks to attain technological self-sufficiency, foster human capital development, and enhance private sector research and development (R&D) spending through a systemic approach.
• The policy outlines a range of fiscal and non-fiscal measures to achieve these objectives. Similarly, the Government of Tamil Nadu has launched its R&D Policy in 2022, which seeks to double public and private R&D investment in the state through concrete interventions.

Finding the Optimal Mix of Public and Private R&D

• As state and national governments worldwide increase their R&D expenditures, it is important to recognize that there is a threshold beyond which government R&D spending yields diminishing returns.
  • Hence, a balanced allocation of public-private R&D investment is essential for enhancing regional and national innovation systems.
• According to the 2022 Global Innovation Index, India ranks 40th out of 132 nations, despite its low per capita Gross Expenditure on R&D (GERD). National and subnational governments are increasingly supporting R&D without direct involvement in the process.
  • However, the Central Government must also facilitate regional innovation systems by collecting commercial and government R&D spending data using cooperative federalism.
• Private R&D investment in India remains low, and a judicious blend of dirigisme and laissez-faire policies is necessary to boost them.
  • The government has proposed a research-linked incentive (RLI), which could be significant, but only if accompanied by clear definitions and standards.

Conclusion

• R&D drives innovation, productivity, and economic growth. R&D's externality- knowledge's non-excludable and non-rivalrous nature - has pushed governments worldwide to increase R&D spending to strengthen their economies.
• Regional and national innovation systems need the right combination of public and private R&D expenditure. India's new 5th Science, Technology, and Innovation Policy and Tamil Nadu's R&D Policy are positive steps.
• To boost innovation and economic growth, R&D investment data collection and analysis should be strengthened, as should science and technology policy governance.

Source: The Hindu BL

Mains Question:

Q. How can the optimal mix of public and private R&D spending be achieved to enhance regional and national innovation systems in India? Suggest some measures to accelerate the pace of innovation and overall economic growth in India. (150 words).