Financing of Innovation in India Professor Sunil Mani Centre for Development Studies Prasantha Nagar Road Ulloor, Trivandrum Kerala, India April

Sunil Mani,April Outline  The background  Financial Instruments Research grants Tax incentives Financing techno entrepreneurship through venture capital  Effectiveness of the instruments –Case of tax incentives  Conditions under which financial incentives for innovation are successful

Sunil Mani,April The Background  Overall research intensity has decreased  Quantity and quality problems wrt to human resource in Science and Technology  Increasing privatisation of R&D  National innovation system dominated by the sectoral innovation system of the pharmaceutical industry  R&D outsourcing has increased  Some technology based sectors like telecommunications have been becoming an important contributer to the growth process

Sunil Mani,April Overall research intensity has decreased

Sunil Mani,April Overall thrust

Sunil Mani,April Where are the Indian venture capitalists investing in ?  IT and IT-enabled services  Software Products (Mainly Enterprise-focused)  Wireless/Telecom/Semiconductor  Banking  PSU Disinvestment  Media/Entertainment  Bio Technology/Bio Informatics  Pharmaceuticals  Contract Manufacturing  Retail

Sunil Mani,April The budget proposals  Overall thrust  Financing technology  Infrastructure for innovation  Growing high tech industries  Diffusion of new technologies  Promoting R&D outsourcing  Addressing the human resource issue

Sunil Mani,April Financing technology  tax incentives for R&D: Section 35(2AB) allows a weighted deduction of 150 per cent for expenditure relating to in-house research and development. I propose to extend the concession for five more years until March 31,  Venture capital: Venture capital funds are a useful source of risk capital, especially for start-up ventures in the knowledge-intensive sectors. Since such funds enjoy a pass- through status, it is necessary to limit the tax benefit to investments made in truly deserving sectors. Accordingly, I propose to grant pass-through status to venture capital funds only in respect of investments in venture capital undertakings in biotechnology; information technology relating to hardware and software development; nanotechnology; seed research and development; research and development of new chemical entities in the pharmaceutical sector; dairy industry; poultry industry; and production of bio-fuels. In order to promote business tourism, I also propose to allow this benefit to venture capital funds that invest in hotel-cum-convention centres of a certain description and size.  propose to extend the concessional rate of 5 per cent duty available to public funded research institutions to all research institutions registered with the Directorate of Scientific and Industrial Research.

Sunil Mani,April Infrastructure for innovation  Incubators: Ø exempt from service tax all services provided by technology business incubators. Similarly, their incubatees whose annual business turnover does not exceed Rs.50 lakhs will be exempt from service tax for the first three years. 

Sunil Mani,April Growing high tech industry  Ø the pharmaceutical and biotechnology sector, the duty on 15 specified machinery is proposed to ve reduced from 7.5 per cent to 5 per cent.

Sunil Mani,April Diffusion of new technology  E-governance: proposal to increase the allocation for e-governance from Rs.395 crore in to Rs.719 crore in The Central Government supports e-governance action plans at State levels, and I propose to increase the allocation for such support from Rs.300 crore in to Rs.500 crore in  Telecommunications industry- new committee to study the levies paid by the industry  Proposal to reduce the duty on drip irrigation systems, agricultural sprinklers and food processing machinery from 7.5 per cent to 5 per cent.  While specified medical equipment attract a concessional duty of 5 per cent, other equipment are taxed at 12.5 per cent. I propose to bring down the general rate of import duty on medical equipment to 7.5 per cent.

Sunil Mani,April Promoting R&D outsourcing Clinical trials: tax concessions will be introduced

Sunil Mani,April Addressing the human resource issue for S&T  Grants to two agricultural universities- Ø proposal to provide Rs.33 crore for a new scheme of manpower development for the software export industry. 1. Scholarships for science in higher education (Rs 100 crores)

Sunil Mani,April Complementarity between various financial schemes for promoting innovation

Sunil Mani,April Major research grants in India

Sunil Mani,April Actual operation of the R&D tax incentive in India

Sunil Mani,April Response of GERD to GDP ratio to tax incentives

Sunil Mani,April Distribution of R&D personnel in India according to place of work, 2000

Sunil Mani,April

Sunil Mani,April