People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 19

May 09, 2004

       Research & Development (R&D) Not Shining



CONTINUING decline in the country’s national expenditure on research and development is one of the less discussed failures of the new economic policy (NEP). During the decade of nineties the national expenditure on R&D as a proportion of Gross National Product (GNP) declined from around 0.9 to 0.7 per cent in India. Even the latest available figures of 2003 confirm almost the same trend. Its significance is clearly observable when we compare these figures with the fact that the national R&D expenditure as a proportion of GNP rose for the world from 1.85 per cent in 1980 to 2.5 per cent in 1990s.


The policies of central government alone are responsible and the instruments of direct support that experienced the budgetary squeeze account for most of the observed decline in national expenditure. In India, the contribution of government matters most because it still bears 87.4 per cent of the national S&T expenditure. The share of central government is a key determinant of public investment in R&D. As the central government failed in making its due contribution, its failure has shown up in a big way. A major part of the decline observed in national expenditure is attributable to the budgetary squeeze that the civilian S&T departments experienced in particular. In addition, during this period the private sector also failed in making up for the shortfall in governmental expenditure. Its contribution failed to rise as per the expectations of the advocates of new economic policy. The policies of central government failed in inducing the private sector to increase its expenditure on R&D in a substantial way. The people of this country do not need to be reminded that the reins of the central government were for most of the time during the period in the hands of either the congress party or the NDA.


The NDA succeeded to bring a maximum amount of ruin to the sector of S&T during the period of its rule because the Vajpayee government wanted us to take pride in the nuclear weapon state status. Since May 1998 its budgets have right through meant a decline in the investments for civilian S&T. Its S&T budgets have been tilted to favour the departments undertaking defense related R&D work with more resources. For a latecomer nation that has to face the onslaught of MNCs which have in themselves a strong back up from the governments of developed capitalist nations this new orientation of publicly funded R&D is disastrous for the people. The talk of India becoming a developed nation is meaningless if its industry is technologically weak and remains uncompetitive.  The rate of growth of R&D expenditure in industry declined in the 1990s compared to the 1980s. R&D expenditure fell in 12 out of 28 broad industries in the 1990s and even where it rose, the R&D to sales ratios stagnated or declined. In house R&D Units have only risen at the rate of close to one per cent.  Even after thirteen years of reform the units numbering 1000 in 1990 have increased to a figure of around 1220. Private sector R&D expenditure is even today less than 15 per cent of total R&D expenditure in India, which amounts to less than 0.1 per cent of turnover. Combined R&D expenditure intensity (of both public and private sector) declined from 0.70 per cent to 0.64 per cent of turnover. Contrast these trends with the situation in developed countries that spend 3-4 per cent of turnover on R&D where the contributions of both public and private sector to R&D are almost equal in most cases. Does this not make quite clear that the NDA talk of India becoming a developed nation by 2020 does not have real substance?  It is an empty rhetoric that the NDA has invented to benefit itself in the elections.


In the nineties S&T policy changes have been skewed in their essential thrust. The policy changes were concentrated on the opening up of productive economy through the deregulation of technology imports. The new policy facilitated easy entry for foreign direct investment (FDI). Deregulation of FDI has meant an insertion of poor quality FDI into the economy. This policy has allowed the MNCs to occupy the place of production network organisers in high technology sectors. Domestic firms have preferred to indulge in the agreements that would not help them to acquire new technological capabilities of any importance. Low technology content of the technology agreements entered into by the firms in the nineties can be observed across most of the sectors. Implementation of the policies freeing private sector firms from the controls for indigenisation and ancillarisation resulted in an increase in the import of SKD/CKD imports, components & capital goods, and finished goods.  The impact of policy of governmental withdrawal from the creation of manufacture is that MNCs have been able to position themselves as network organizers in quite a few important manufacturing segments. Impact of the withdrawal of procurement preferences for the services of national consulting, engineering and design organizations has been largely adverse.  Innovation policies with ‘direct support’ orientation, which means all those policies that could give advantages to national firms under the new circumstances of liberalization and globalization, were unnecessarily eschewed on the grounds that this will interfere with the marketisation. In fact, the truth is that such policies have gained a lot of importance in the developed capitalist world during the nineties. And the target of their new support measures is directly by all means only the competitiveness of their own national firms.  The central governments that have ruled so far have been implementing the neo-liberal agenda of the IMF and World Bank. Only by reversing these policies we can hope to give a meaning to the aspiration of India becoming a developed nation.