In the last Budget, the government had taken some important initiatives to accelerate technology R&D in India. Some of these are
1. Extending the eligibility for claiming tax holidays and capital gains exemptions for startups by one more year.
2. Hydrogen Energy Mission in 2021-22 for generating hydrogen from green power sources
3. Budget outlay for Health R&D and outlay of 50,000 crores for National research foundation
Taking this further ahead, the government should look at the following 3 areas in this year's Budget and incentivize industry further.
Improving R&D incentives and increasing innovation
While India's rank in the Global Innovation Index improved to 48 last year, our gross R&D expenditure is still only 0.65 percent of the GDP. Taking this expenditure of 1.5 percent of the GDP is a critical step towards creating non-linear value and growth of GDP in the coming years. I hope this budget will take the right steps to accelerate that and also incentivize private participation in R&D activities to a larger extent.
This needs to start at the grass-root level with universities. We need to improve the standard of our Ph.D. programs by improving investments here and increasing multi-national involvement. In developing countries, it is a well-established practice to support the private sector and university partnerships in the R&D space through subsidies and grants. This is missing in India currently.
The government alone may not invest in our educational systems to enhance this part, at least not fast enough. While there is a tax incentive for inhouse R&D largely for manufacturing companies, such incentives should be extended for technology R&D expenses for working in collaboration with universities or external bodies/ companies. The government may also provide a matching grant for every rupee invested for such R&D initiatives.
Another aspect is that export for the purpose of R&D is taxed at the same rate as others today. This reduces the availability of technology solutions like chips or edge boxes to our campuses and startups or makes it expensive. This is an area for improvement in the budget.
The government has taken initial steps already in the semiconductor industry by providing 76,000-cr incentives for establishing this industry. This needs to be equally supported and incentivized through increased human resource supply & capability through private-academia partnerships to increase R&D initiatives. Connecting this initiative to improvements/investments in Industry 4.0 and manufacturing automation-related R&D will accelerate our manufacturing capability, which is important for local demographics.
Electrification and Intelligent transport
The second area worth focusing on is electrification. This is largely in the automotive domain but can include other areas such as industries and agriculture as well. Incentives provided to the automotive industry are already driving a lot of innovation and growth in the EV market. This can be further accelerated by improving our smart grid network and charging systems across the country.
The government recently allowed the setting up of public charging stations without a license, and this is a very positive step. The budget should look at improvising battery as a service model as well as battery swapping technologies. Improved solar solutions for charging platforms are another area to push for accelerated R&D and growth.
Government should start introducing frameworks to build autonomous intelligent transport in the country. We have one of the worst road eco-system today in terms of being friendly to autonomous and intelligent transportation. While this will take time, autonomous cars are the way to go and is a clear emerging trend. This will include passenger cars as well as urban air vehicles of the future. It is high time that government starts thinking about creating megacity infrastructure allowing for such technologies. This could start with a few identified megacities but need to start now.
Reducing carbon footprint and creating sustainable energy
The Indian government has taken up the bold initiative to reduce its carbon footprint by 30 to 35 percent. For this, we need to increase percentage of installed capacity for renewable sources of energy from 12 percent in 2019 to 50 percent in the year 2030.
The budget should take the right steps towards enabling this journey. We can not be dependent on imports to meet this increasing need for solar panels and new energy sources. The government imposed 40% basic customs duty (BCD) on solar modules and 25% on solar cells from 1 April 2022, making imports costlier and encouraging local manufacturing. The government is already discussing enhancing the funding under the production linked incentive to 24000 crores, which should be done at the earliest.
(Rajaneesh R Kini is SVP & CTO, Cyient)