Changing role of the State in Innovative Activity The Indian Experience. Sunil Mani

Transcription

1 Changing role of the State in Innovative Activity The Indian Experience Sunil Mani

2 Outline The two manifestations of state intervention Manifestation 1: State involved directly in the creation of new technologies Manifestation 2: State creating the framework conditions for business enterprises to create technologies Two instances of manifestation 2 Patent policy R&D tax policy Effect of state intervention 2

3 Two manifestations of Government Intervention Innovative activity being directly conducted by government through research councils, GRIs, public universities and public sector enterprises Innovative activity being performed by business enterprises primarily in the private sector but government providing the framework conditions 3

4 Evolution of India s National System of Innovation (based on distribution of GERD by sector of performance) 4

5 Manifestation 1 Government organises its R&D through 12 major scientific agencies. Of these, in terms of R&D expenditure, the most important ones are the Defence Research and Development Organization (DRDO) followed by the Department of Space, Department of Atomic Energy, the Indian Council of Agricultural Research (ICAR), and the Council for Scientific and Industrial Research (CSIR). Over the period since 1991, on an average, research councils and scientific agencies have performed around 52 per cent of the GERD. Much of this R&D has little connection with business enterprises either in the public or private sectors. DRDO, the largest among these, alone accounts for about 17 per cent of the GERD. DRDO-FICCI initiative on Accelerated Technology Assessment and Commercialization (ATC) programme CSIR- very little interaction with industry 5

6 Growing prominence of manifestation 2 Discernible since 1991 Explicitly discernible since the announcement of STI policy of 2003[ Government will make necessary budgetary commitments for higher education and science and technology. It will, through its own resources and also through contribution by industry, raise the level of investment to at least 2% of GDP on science and technology by the end of the Tenth Plan. For this, it is essential for industry to steeply increase its investments in R&D. This will enable it to be competitive, achieve greater self-reliance and self-confidence, and fulfill national goals ] Continued in the STI policy of 2013 ( creating an environment for enhanced private sector participation in R&D ). Has put in place policies to promote investments in innovation by the private sector business enterprises A number of sectors where business enterprises were not encouraged has been now thrown open to private sector participation (eg., Aerospace and Defence) State is also involving business enterprises in joint technology development, eg., astronautics 6

7 Focus on two horizontal policies aiming at incentivizing the performance of in-house R&D in business enterprises 1. The Patents policy: Evolution of the patent regime over time- The process of TRIPS compliance in Effect of this policy on innovation in general and innovations in the pharmaceutical industry 2. The R&D tax incentive policy: Evolution of this policy over time- Effect of this policy 7

8 The Patent Policy 8

9 Evolution of the patent regime: 1856 through 1970 The establishment of IPR in India commenced in 1856 with the enactment of an Act of Protection of Inventions, based on the British Patent Law of 1852 when certain privileges were granted to the inventor for new methods of manufacture. The Patent Act of India 1911 was fairly liberal as patenting of products related to foods, pharmaceutical, chemicals, etc. was available with a full term of 16 years. This was directly in line with the British Patent Act of India follows the first-to-file system as in most countries. The Indian Patent 1970 brought in significant changes with restrictions related to patenting of inventions, in the area of chemicals, pharmaceuticals, agro chemicals, foods, in which product patents had been discontinued and patenting of processes with a restricted life of seven years from the date of filing of the complete specification (or five years from the date of sealing the patent, whichever is shorter) was introduced. 9

10 Long road to TRIPS compliance of India s patent regime: India did not come out with a new Patent Act in 2005, but merely amended its Patent Act 1970 three times in 1999, 2002 and finally in 2005 to make it TRIPS compliant. 10

11 Main differences between earlier patent regime and the TRIPS compliant regime 11

12 Introduction of TRIPS flexibilities (i) use of the transition period; (i) compulsory licensing; (i) public, non-commercial use of patents (government use); (i) parallel importation; (i) exception to patent rights; and (ii) exemptions from patentability 12

13 Actual use of TRIPS flexibilities Three flexibilities have actually been used 1. Transition period: Regarding the first flexibility, India has used up the entire ten year period of transition to the fullest extant as it made her IPR regime TRIPS compliant only in Compulsory licensing: Recently the country has invoked a compulsory licensing for the manufacturing of an anti cancer drug by an Indian pharmaceutical manufacturer. The domestic generic manufacturer was able to make a generic version of a patented anti cancer drug at 3 per cent of the cost of the original drug. This decision of using the compulsory license likely to send an important signal that despite the rigidities under TRIPS, it is still possible to have beneficial rulings in favour of domestic manufacturers. 3. Excemptions to patenting: However the one flexibility that has attracted considerable public attention and the one that is path breaking is the recent denial of patent to a MNC for again an anti cancer drug, Glivec. Basically taking refuge under the possibility of providing exceptions to patent rights, India has actually inserted a so called Section 3(d) in her amended Patent Act according to which a patent is issued for a new drug (for instance) only if the the therapeutic efficacy of the new drug is significantly more effective than previous versions of it. By inserting this section 3 (d), India has actually imposed a higher bar on inventiveness, which is one of the three criteria used by patent office to grant a patent to a new invention. 13

14 R&D Tax Policy 14

15 R&D tax policy This provision was introduced in the year 1997 and extended a number of times, and and presently the provision is available up to 31st March, The provision initially covered only six sectors of industry and over the years the scope of the provision has been enlarged to cover all sectors of industry except for a list of non-essential items. 15

16 Evolution of R&D tax incentives in India-1 16

17 Evolution of R&D tax incentives in India-2 17

18 Tax foregone as a result of R&D tax incentives (Rs in Crores) 18

19 Extent of subsidization of private sector R&D through R&D tax incentives (Value are in Rs Crores and Subsidisation Rate is in per cent) 19

20 India has the most generous tax regime for R&D, 2012 (Large Enterprises) Brazil United Kingdom Malaysia Denmark Netherlands Canadfa Tax Subsidy Rate B-index Spain Portugal France India

21 Effect of government intervention

22 Trends in GERD (Real GERD is in Rs in Crores at prices, Research intensity is in per cent) November 13, 2014 CDS 22

23 Distribution of BERD between public and private enterprises (based on percentage share of GERD) November 13, 2014 CDS 23

24 Share of top 3 industries in total industrial R&D in India (Top 3 industries are: pharmaceutical, automotive and IT) 24

25 Relative R&D performance of Infosys and BHEL (Ratio of Infosys to BHEL) Ratio

26 Average R&D cost of securing a USPTO patent (Millions of PPP$) November 13, 2014 CDS 26

27 The United States imports more R&D services from India compared to China (Millions of US $) 27

28 Increased patenting by Indian inventors in India and abroad 28

29 Number Total patents High technology patents November 13, 2014 CDS 29

30 Exports of high technology manufactured products from India Millions of US$ Aircarft Pharmaceutical Total High Tech November 13, 2014 CDS 30

31 World exports of aerospace products, 2012

32 Effect of TRIPS compliance on pharmaceutical innovations (Pharma continues to be the most important industry in terms of R&D investments accounting for 28 per cent of industrial R&D) 32

33 R&D intensity of Pharmaceutical and Agro Chemical enterprises: Post TRIPS 33

34 India s patenting performance wrt Pharma (Number of patents, US Patent Class 424) 34

35 Changing importance of pharma vs IT related patents (percentage shares) Share (%) Share of pharma Share of IT related November 13, 2014 CDS 35

36 Hub of frugal innovations most of the recorded instances of frugal innovations have emanated from the organised manufacturing and service sector firms. Most of these are large firms and sometimes even MNCs. most of examples of frugal innovation from the manufacturing industry involved fair amount of formal R&D efforts. their diffusion rate has varied quite significantly although it must be emphasised that the database for measuring their diffusion is very hard to come by. Even some of the most celebrated examples of frugal innovation (for instance the micro car, the Nano) do not appear to have been accepted by the market. a limited number of frugal innovations have been transferred to the west from India and most of the known cases are from the medical devices industry. 36

37 Share of FDI companies in total BERD Share of foreign companies (%) November 13, 2014 CDS 37

38 Share of MNCs and Indian inventors in USPTO patents from India November 13, 2014 CDS 38

39 Receipts, payments and net trade balance in the use of intellectual property rights Millions of US $ Receipts Payments Net trade balance November 13, 2014 CDS 39

40 Concluding remark Role of state in generating and diffusing innovations have moved from government itself doing it to government incentivizing it. The two most policy instruments for incentivizing R&D is the patent policy and the R&D tax policy One of the most important visible effect of this change in policy is the growing importance of business enterprises in performing innovations Further, India has improved its technological capability in a limited number of high technology manufacturing industries. However, much of the dynamism of the business enterprise sector may be attributed to the activities of FDI companies- operating mainly in the Information Technology Services industry. 40

41 Thank you 41