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Technology policy

The technology policy that has evolved over the last four decades has sought to protect local technology/skills from imported ones and to generate technology through direct and indirect policy instruments.¹⁴

Technology import

Import of disembodied technology

India's technology import policy is guided by the Prime Minister's Foreign Investment Policy Statement of April 1949, which recognized the role of foreign skills where local skills were not available. Foreign investment was considered a channel of technology transfer. However, it was considered desirable that Indians should have majority ownership and effective control, and the need for careful regulation in the national interest was emphasized. Vital importance was attached to the rapid indigenization and absorption of technical skills through the training of local technical personnel and the replacement of expatriates.

Table 11. S&T outlay allocation in India's recent plans

Source: Planning Commission, Five Year Plans.

a. At base year prices.
b. Parentheses show anticipated levels.
NS = Not specified.

Table 12. S&T outlay allocation and growth and composition of value added in the recent plans

Source: Planning Commission, five Year Plans

a. R = Rate (%) of growth (annual compound) of GDP.
b. S = Share (%) in Gross Value Added.
c. STO = % allocation of total S&T outlay.
NS = not specified.

The foreign exchange crisis that the country faced in the late 1950s, coupled with a dearth of local entrepreneurs, led the government to adopt a more favourable attitude towards foreign collaboration and foreign investments. As the local fund of entrepreneurship, capital, and technology increased, the foreign collaboration policy was made more selective and restrictive in the late 1960s. The procedure of approvals of foreign collaboration proposals was streamlined in 1968.

A specialized body, the Foreign Investment Board (FIB), was created within the government to deal with all the cases involving foreign investment or collaboration except those in which total investment in share capital exceeded Rs.20 million and where the proportion of foreign equity exceeded 40 per cent; the latter were to be referred to the Cabinet Committee. A subcommittee of the FIB was empowered to approve cases of foreign collaboration in which the proportion of foreign-held equity did not exceed 25 per cent and total equity investment Rs.10 million. The administrative ministries were authorized to approve cases involving purely technical collaboration.

In addition, the government, through three lists, separated areas (a) where no foreign collaboration was considered necessary, (b) where foreign technical collaboration was permissible, and (c) where even financial collaboration could be considered. Such lists were to be kept updated periodically. With regard to technical collaboration, maximum rates of royalty were specified for different items, with a maximum ceiling of 5 per cent, for a duration of normally five years. In order to ensure that foreign collaboration was avoided in areas where local technology might be available, local scientific agencies were represented on FIB and other screening bodies. Another guideline issued by the government, also in 1968, was that wherever Indian consultancy was available, it was to be utilized exclusively. If foreign consultants were also required, Indian consultants were to be given the prime role.

The guidelines for foreign collaboration that evolved over time required the importer to furnish the reasons for preferring the particular technology and its source. The technology imported should also be available for sublicensing within the country and have no minimum guaranteed royalty or restrictive clauses with respect to exports, source of capital goods, raw materials, or spares. Foreign brand-names should not be used for internal sales, and there should be a limit to renewals or extension of the collaboration.¹⁵ In 1976, a Technical Evaluation Committee consisting of officials from the Council of Scientific and Industrial Research (CSIR), the Department of Science and Technology (DST), and the Directorate General of Technical Development (DGTD) was set up to assist the FIB in screening foreign collaboration proposals.

The government's decisions in 1970 regarding industrial policy, which were concretized in 1973, sought to restrict further the activities of foreign companies to a group of relatively complex technology and capital-intensive industries. The Foreign Exchange Regulation Act of 1973 imposed a general ceiling of 40 per cent on foreign shareholdings in Indian companies. Relaxations of this ceiling were given only to companies engaged in high technology or export-oriented activities.

The Technology Policy Statement (TPS) of 1983 placed emphasis on reducing technological dependence in key areas. Technology acquisition from abroad was not to be at the expense of the national interest, and due recognition and support was to be given to indigenous initiatives. The TPS contemplated the preparation and periodic updating of lists of technologies that had been adequately developed locally; normally no import of these would be permitted. The onus to demonstrate the necessity of that import was on the seeker. The TPS put a firm commitment on absorption, adaptation, and subsequent development of imported know-how through adequate investment in R&D, to which importers of technology were expected to contribute. A National Register on Foreign Collaboration (NRFC) was to be developed to provide analytical inputs at various stages of technological acquisition.

The initiatives taken as a follow-up to the TPS included a Technology Absorption and Adaptation Scheme (TAAS), which aimed at providing catalytic support for the accelerated absorption and adaptation of imported technologies. It was made mandatory for all importing firms to highlight steps taken towards the absorption of technology imports.¹⁶

Capital goods imports

Capital goods available locally are put on banned lists and cannot be imported. Some others, available on Open General Licences (OGL), can be imported by direct users. However, imports of more than Rs.1 million are permitted only after public advertisement, and when the authorities are satisfied that no local source exists.

In 1976, a Technical Development Fund was set up in the Ministry of Industry to promote the modernization of existing units. Under this scheme, an industrial unit can import US$500,000-worth of technical know-how, consultancy, design/drawings, or balancing equipment. In April 1985, the import duty on all project imports was slashed from 105 to 45 per cent; in the case of power equipment it was reduced to just 25 per cent, and was abolished on fertilizer equipment. Subsequently it was raised from 45 to 55 per cent.

Recent liberalization

Subsequent to the general trend of liberalization of the economy from 1979 onwards, the technology import policy has also been liberalized. The emphasis of the liberalization has been on modernization and the achievement of greater international competitiveness in order to increase manufactured exports. Capital goods imports policy has been liberalized by expanding OGL. Designs and drawings worth Rs. 200,000 could be imported against import replenishment (REP) licences without the government's prior approval. To encourage the modernization of exporting units, the Ministry of Commerce set up a Coordination Committee to sanction foreign exchange for the import of know-how, designs, and consultancy. The capital goods in respect of 13 specified core sector industries have been thrown open to global tender since 1978/79, irrespective of local availability. Policy guidelines were issued in November 1980 and subsequent months to streamline foreign collaboration approvals. Powers to approve technical collaboration agreements involving an outflow not exceeding Rs.500,000 were delegated to the administrative ministries.

Main features of technology import policy

Under the above technology import policies, a considerable volume of technology has entered the country over the last 38 years. Table 13 provides some indicators of technology imports for the period 1970/71 to 1985/86. It shows a significant increase in the volume of technology imported in the 1980s. The average number of foreign collaborations approved per year jumped from 270 for the period 1970/71 to 1979/80 to 660 for the period 1980/81 to 1985/86.

The technology import policy that evolved over the years has the following features. First, it is selective and seeks to provide protection to local technology where available. Local sources of all individual components of technology - consultancy, know-how, skills, and capital goods - receive protection from their foreign counterparts. Second. it seeks to reduce the direct and indirect costs of technology imports by regulating royalty and other payments. Third, it discourages packaged imports of technology. Technology import through foreign direct investments (foreign financial collaboration) is restricted only to select, relatively complex technology industries. Approvals of foreign financial collaboration are also subject to more stringent screening and attract ceilings on ownership. On the other hand, imports of designs/ drawings/capital goods are less restricted. Finally, there is emphasis on rapid absorption, indigenization, and updating of the acquired technology.

Table 13. Foreign collaborations approved and capital goods imports in India, 1970-1985

Source: Indian investment Centre; Government of India, Economic Survey (various years).
a. In Rs. millions.

Indigenous technological development

Parallel to the protection provided to the local technology, the government has taken several steps, in addition to its direct participation in scientific and technological development, to accelerate the pace of local technology generation. These steps include efforts to develop infrastructure for technological development, incentives to promote in-house R&D activity in industry, the enactment of a new Patent Act, and encouragement in the utilization of indigenous technology. The major initiatives taken in respect of each category are briefly discussed below.

Scientific and technological infrastructure

S&T MANPOWER TRAINING INSTITUTIONS. A large number of institutions training S&T personnel have been set up in the country, which now produces some 160,000 scientists and technologists per year (table 9).

POLICY BODIES. A number of policy-level bodies have also been set up to guide S&T programmes. The Scientific Advisory Committee to the Cabinet (SACC) was set up in 1956 and replaced by the Committee on Science and Technology (COST) in 1968. A National Committee on Science and Technology (NCST) was established in 1971 to formulate and continuously update comprehensive S&T plans. The first S&T plan formulated by NCST identified 24 major sectors for S&T development, and laid as much emphasis on the development of engineering, design, and fabrication skills as on the development of technology. The Science Advisory Committee to the Cabinet (SACC) was restored in 1981. In addition, there is a Cabinet Committee on Science and Technology. SACC has concerned itself with, among other things, the utilization of non-resident Indian technologists' support for S&T in the educational system, and the removal of regional disparities in scientific development.

NATIONAL LABORATORIES. A network of about 130 specialized laboratories and institutions, providing a variety of services such as testing, fabrication, consultancy, and measurements, have been established. Besides their own research, they operate within the framework of the research councils, i.e. the Indian Council of Agricultural Research (ICAR), the Council of Scientific and Industrial Research (CSIR), the Indian Council of Medical Research (ICMR), and other scientific departments such as the Department of Atomic Energy (DAE), the Department of Space, the Department of Electronics, the Department of Science and Technology (DST), the Department of Scientific and Industrial Research, the Department of Agricultural Research and Extension, and the Department of Environment, Defence Research, and Development Organization. These laboratories have proved to be the largest source of experienced scientists/technologists for in-house R&D activities in the industry.¹⁷

CONSULTANCY, ENGINEERING, AND DESIGN ORGANIZATIONS. The Indian government have taken initiatives to promote Consultancy, Engineering, and Design Organizations (CEDOs) in the country. In certain key technology-intensive sectors, CEDOs were promoted in the public sector, beginning in 1959 in metallurgy, with MECON (initially known as the Central Engineering and Design Bureau of the public sector Hindustan Steel Ltd.); in 1960 in fertilizers, with PDIL (initially the Planning and Development Division of the Fertilizer Corporation of India); in 1964 in general-purpose-machinery-utilizing sectors, with the National Industrial Development Corporation; and in 1965 in petroleum and related fields, with Engineers India Ltd. In addition, the government extended a variety of fiscal and other incentives to stimulate the growth of indigenous consultancy services. As a result, the country has about 300 firms offering a whole range of consultancy services, including project identification, techno-economic feasibility studies, market research, turnkey assignments, plant design and engineering, and project management, for almost any industry.¹⁸

Incentives to in-house R&D

Besides the creation of S&T infrastructure, the government has encouraged industries to take up in-house R&D activity through other policy instruments. In 1974, a scheme for the recognition of in-house R&D establishments of industrial units was started. The recognized R&D units get facilities for the import of equipment, raw material, samples, and prototypes under open general licence with no ceiling. The in-house R&D units are encouraged to work towards the following: import substitution, export promotion, process/product development and design improvement, development of new process/product technologies, and increased efficiency in the use of resources and fuels and the recycling of wastes.¹⁹ Expenditure incurred on approved scientific research programmes is 100 per cent tax-deductible.

Sometimes foreign collaboration approvals are granted on the understanding that the importer will undertake R&D activity to absorb the technology. The New Drugs Policy (1978) obliged foreign companies with a turnover in excess of Rs.50 million to have R&D facilities within the country with capital investment of at least 20 per cent of their net block and to spend at least 4 per cent of their turnover on R&D. It also specified a 1-2 per cent higher profit ceiling for drug companies engaged in approved R&D work. In addition, the government encouraged and supported industries in setting up research associations to take on work on common problems. To promote technological diffusion, the industrial policy encouraged subcontracting by large units to small-scale ancillary units.

The new Patent Act

In the 1960s, foreign firms had used vague provisions of the patent law to hamper the innovative activity of Indian chemical and pharmaceutical firms.²⁰

To avoid that possibility, a new Patent Act was enacted in 1970. The new Act abolished product patents in food, chemicals, and drugs and reduced the life of process patents from 16 to 7 years, and to 14 years in other cases. It contained provisions for a worldwide search of patent literature to establish the novelty of a product, or compulsory licensing after three years to preclude the situation in which foreign firms neither used their patents nor allowed them to be used.

The new Patent Act seems to have stimulated local innovative activity to a significant extent. The patent statistics provided in table 14 show that the number of patents filed and sealed in India has declined since 1970. This is, however, not a reflection of a decline in innovative activity but only of a reduction in the proportion of frivolous applications that were made in the past to block competition. On the contrary, the Act has led to a significant and widespread upsurge in adaptive research and the copying of technologies, even by smaller firms, for the manufacture of various drugs, insecticides, herbicides, and other agro-chemicals. The reduced term of patents and free import of chemicals and drug intermediates has allowed many Indian companies to manufacture hundreds of essential products not possible before. It has led to a reduction in the time gap between the discovery of a drug elsewhere and its manufacture in India.²¹

Table 14. Number of patents from persons in India and abroad, 1957-1984/85

Source: Controller-General of Patents, Designs, and Trade Marks, Annual Reports.
a. By Indian is meant a person or entity who/which has the status of a resident in India. Thus. non-radians are equivalent to "non-residents."
b. Including foreigners resident in India.

Incentives for utilization of indigenous technology

The government has promoted the National Research Development Corportion (NRDC) with the specific responsibility of transferring technology from R&D laboratories to industry. NRDC commercializes the technologies developed with government support, undertakes further work towards upscaling laboratory know-how, setting up pilot plant, etc., and even provides risk finance for development projects. In addition, indigenous R&D utilization is promoted by various other incentives. Products based on indigenous R&D qualify for excise duty exemption.

The drugs and medicines developed indigenously do not fall within the purview of the Drugs Price Control order (1980) for the first five years. A higher rate (35 per cent) of investment allowance and depreciation is applicable to plant and machinery installed (between 1977 and 1987) for the manufacture of goods based on indigenous technology. Such products are exempt from the provisions of industrial licensing. Proposals based on indigenous technology enjoy a preferential treatment in industrial licensing. Royalties earned by Indian companies abroad through the export of indigenous technologies are completely free of tax, and those earned within the country are given a 40 per cent rebate. Furthermore, to inculcate technological entrepreneurship in the country, the government has recently proposed to launch a Venture Capital Fund (VCF) and is setting up a number of Science and Technology Parks (STPs). The VCF will be funded by a 5 per cent cess to be levied on technology payments abroad.²²

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