India needs more R&D spend for innovation but not from the government alone, says Economic Survey

• The Economic Survey says that while the government is already doing the “heavy lifting”, it's India’s private sector that needs to step up.
• The Indian government already has tax incentives for corporates contributing to R&D.
• The Chief Economic Advisor said that the tax incentives in the past have been more liberal than other countries but it didn’t bring about a great participation from India’s private sector.

Finance Minister Nirmala Sitharaman tabled the India Economic Survey 2020-21 in the Parliament today, which projected India’s growth chart in a post pandemic year.

While Chief Economic Adviser KV Subramanian forecasts an 11% GDP growth for FY22, he also highlighted the need for India to be the world’s third largest economy, it needs to focus more on innovation. And to boost innovation, India needs to place its focus on Research and Development (R&D).

However, the Economic Survey says that while the government is already doing the “heavy lifting”, it's India’s private sector that needs to step up. “India’s business sector needs to rise to the occasion and significantly ramp up its gross expenditure on R&D to a level commensurate to India’s status as the fifth largest economy in GDP,” said the report.

The Indian government already has tax incentives for corporates contributing to R&D. While a weighted deduction of 150% of expenditure incurred on scientific research, this was brought down to 100% of the expenditure from tax year a couple of years ago.

Tax experts believe that R&D could again be in focus during this Budget. “We do see there being a greater push for manufacturing in India and this time there will be a greater focus on R&D incentives,” Hemal Zobalia, Deloitte Haskins & Sells LLP told Business Insider in an interview.


However, if the Economic Survey is any signal for the upcoming budget, the government may not be in favour. Subramanisian’s document said that tax incentive being much more liberal than other countries, it didn’t bring about a great participation from India’s private sector. “Given the low level of contribution to Gross domestic expenditure on research and development (GERD) by the business sector despite the generous incentive regime prevailing earlier, businesses in India must focus on innovation to remain competitive in the new economy,” said the report.

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