Incentivising Indigenous Research

 

The biggest policy impetus to indigenous industrial research in India, since the Independence, was provided by Vajpayeeji by introducing Section 80-IB (8A) of the I-T Act in 2002; which provided Income Tax break for ten years to companies that only sell research aka Intellectual Property (IP) output.

 

 

 

This brought disruptive indigenous technologies to our market, which were then usually licensed to manufacturers — for instance drug molecule, processor designs, engine designs, better-yield seeds for agriculture, switches, etc. These companies are non-service and non-manufacturing and help give impetus to manufacturing and services. India, generally, had very few companies selling technology research or IP till 2002 and through this policy impetus India built such companies on sustainable basis.

 

Building a sustainable technology research aka IP selling company is one of the most difficult businesses in the world. The chances of failure are high; the first field trials of product can fail and iterative incorporation of improvement till it succeeds can be time and fund consuming. And by the time the company gets it right, the opportunity may have vanished. This is the reason why India didn’t produce many scientific and industrial research companies and we have been dependent on imports for the same.

 

India is a market and cheap labour destination in the absence of our own industrial research capability. None of our chronic problems will be solved by outsiders, more so for our strategic sector. Vajpayee ji knew it well that GPS was denied to India during Kargil war or embargo after nuclear tests denied critical technology to our strategic sector. And only way forward for the nation was to build its own industrial research ecosystem. And as a leader he gave the impetus it deserved.

 

These companies had no political clout and no lobbying capability, which calls for deep pockets. Yet, Vajpayeeji knew that these are the entities that improved the quality of our citizens by offering technology solutions to problems that we encounters and also by paying taxes that they generate when they become sustainable; that would also lead to job creation; cost-effective price in our own country for the same class of products, reduction of imports, enabling higher education and building our nation’s capability.

 

India in 2002 under Prime Minister Vajpayee ji offered an attractive incentive under Section 80-IB (8A) of the Income Tax Act. This scheme was withdrawn in 2007, though some companies continued to avail the benefits till 2017. After Vajpayeeji, this impetus has been considered by establishment as a profit linked deduction instead of an investment in our Country’s high technology industrial research ecosystem, which isn’t a factually correct way of viewing it. Actually, the Government has earned more tax than it has given away in incentives through the implementation of this provision.

 

Here are some ballpark figures that make the point vivid. For Rs 187 crore deductions availed by just 14 companies in 2013-14, India has delivered industrial research valuing close to Rs 2,000 crores! This 2,000 crore has been generated from non-manufacturing and non-service companies and from sales of pure research output, that being the basic eligibility criteria to avail Section 80-IB (8A). We as a country saved Rs. 2000 crore worth of IP imports.

NITI Aayog deliberated on the issue in October 2016 and recommended reintroduction Section 80-IB (8A) of the Income Tax Act. The action on the recommendation is awaited and is works in progress. Vajpayee ji also announced May 11, the day we did our nuclear test, as the National Technology Day.