A Comprehensive Study on Private Sector’s R&D Incentivization Landscape in USA and India: Lessons Drawn for India

Abstract

Research and Development (R&D) is one of the most essential attributes of national socio-economic growth. The United States of America (USA) is the global powerhouse and the world’s largest R&D spender with 581.6 Billion USD in PPP global R&D investments. Although, India is the 6^th largest R&D spender of the world and annually invests nearly 68 Billion USD in PPP investment in R&D which is nearly 80% less than that of the US. The US invests 2.8% of its GDP for R&D and India contributes only 0.69%. The unsatisfactory positioning of India in R&D parameters can be attributed to less than 50% participation of the private sector in the national R&D ecosystem in contrast to the US where private sectors contribute more than 70% of the total federal R&D investments. In order to enhance R&D investments in India, the private sector needs to be incentivized for stimulating its engagements in R&D. US executes strong financial support under its common programmes SBIR and STTR executed by each federal agency and creation of a Small Business Administration assemblage for business R&D. The Federal government also practices one of the most generous tax incentives on R&D expenditure incurred by the private sector across the globe. India has limited financial support provided by TDB and few ministerial departments and agencies such as DSIR and BIRAC. Moreover, India has radically truncated its tax incentivization scheme of 200% super deduction to 100% super deduction on private sector’ R&D expenditure. In the present study, a notable suggestion for enhancing private sector engagements in R&D has been drawn from the US system. The major recommendations include the introduction of target-based research credits, tax incentives on increased R&D expenditure to benefit all types of industries, creation of common industry R&D support programmes in each ministerial set up on lines of SBIR and STTR and enhancing the scope of eligibility of Industries and R&D expenditure as qualifying to avail government R&D incentives in India.