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R&D and self-reliance

As a result of the S&T policies, national expenditure on R&D and related activities increased rapidly. Total estimated R&D expenditure was Rs. 14,278.7 million in 1983/84 compared to Rs. 46.8 million in 1951152 (table 15).²³ The major part of this expenditure was accounted for by the public sector, and as much as 80 per cent by the central government sector.

As a percentage of GNP, the R&D percentage has gone up from almost nothing in 1950/51 and 0.12 per cent in 1955/56 to 0.75 per cent in 1982/83 and 0.74 per cent in 1983/84. The percentage works out at 1.50 if we evaluate the R&D expenditure using the International Comparison Project conversion factors of the World Bank. Even before independence, eminent scientists had recommended allocating 1 per cent of national income per year to scientific research.²⁴ This goal has yet to be reached. Per capita real R&D expenditure increased from Rs. 0.25 in 1950/51 and 0.67 in 1955/56 to Rs. 6.45 in 1983/84, indicating a tenfold rise over 1955/56 and a twenty-six-fold rise over 1950/51.

Table 15. India: national expenditure on scientific R&D and related activities as percentage of GNP, 1950/51, 1955/56, 1965/66, and 1970/71 to 1983/84

Source: (1) Committee on Science and Technology, Report on Science and Technology; (2) Ministry of Information and Broadcasting, India. various annual issues; (3) CSO, National Accounts Statistics, 1970171 to 1983184. January 1984.

a Including central, state, and private sector.
b. Estimated.

In-house R&D units recognized by the Department of Scientific and Industrial Research (DSIR) numbered over 900 in 1983/84, including both the public and private sectors, compared to 11 at the time of independence, and 400 in the period 1975/76. They are estimated at present to have assets worth Rs. 6,000 million. These R&D units employed 45,000 people in 1983/84, compared to 13,000 in 1975/76. The main sectors covered by the units were chemicals, drugs, and pharmaceuticals (340), electrical and electronics (210), engineering industries (265), textiles (25), and others (84). As many as 226 units incurred expenditure of Rs. 2.5 million or more on R&D, including 71 that incurred expenditure of Rs. 10 million or more.²⁵

In attempting to evaluate India's performance, we shall confine ourselves to the industrial sector. This is because in other socioeconomic sectors, such as agriculture, atomic energy, space, or defence, there may be no alternative to local development or adaptation. In all these latter fields, India has achieved a considerable level of self-reliance. In agriculture, for instance, the successful application of new technology has enabled the country to achieve self-sufficiency in food.

There have been divergent views, from appreciative to highly critical, on the technological capability of India's industrial sector. This is because, first, a precise measurement of technological capability is not possible and value judgements are to some extent unavoidable. Second, there is much inter-industry variation in India's capabilities, depending upon factors such as the relative complexity of the technology involved, the rate of technological change, the market size, the rate of growth of industry in India, the market structure, government policy, S&T infrastructure, etc. Our purpose here, however, is to examine the trends with regard to the country's overall independence from foreign S&T inputs and the achievement of an autonomous S&T capability, which have been the principal objectives of S&T planning and policies.

Foreign technological dependence

There is no single precise indicator of foreign technological dependence, because technology is transferred under different forms, disembodied (such as foreign collaboration and transfers of designs and drawings) as well as embodied (capital goods and human skills). In a large country such as India, it is difficult to estimate the proportion of manufacturing output based on foreign or local technology. The number of foreign collaborations - purely technical ones as well as technical and financial - approved in a year is published by the government. But this can be a misleading indicator of technology import because a collaboration could be quite comprehensive, covering the entire product range, or it could be for a minor part or component. However, some idea of the extent of dependence on foreign resources by foreign collaborating firms can be gained from the relative significance of servicing payments remitted abroad. Table 16 summarizes the value of production and remittances and other earnings and expenditure in foreign exchange made by samples of companies having foreign collaborations in force from four successive Reserve Bank of India Surveys of Foreign Collaborations. It is apparent that total remittances in terms of dividends, royalty, technical fees, etc., by the foreign collaborating firms accounted for an average of 2.1 per cent of the value of production between 1960/61 and 1963/64. This proportion steadily came down to 1 per cent for foreign collaborations in force in the period 1977/78 to 1980/81. A part of this decline may be attributable to cost savings resulting from a possible improvement in India's bargaining capacity owing to the development of local technological capability. But in large measure it demonstrates that foreign collaborations have gradually become less broad-based and comprehensive. Alternatively, Indian firms over time may have become less dependent upon their foreign collaborators. This, in fact, is an important indicator of the capacity to unpackage technology imports.

Unpackaging of technology imports

Foreign direct investment (FDI) is considered to be a more packaged mode of technology transfer than licensing or purely technical collaboration agreements or imports of designs and drawings. Therefore, the relative importance of technology imports through FDI (or financial-cum-technical (F&T) collaborations) will reveal the trend towards unpackaging. Table 17 summarizes the proportion of F&T collaborations approved by the government of India between 1948 and 1985. It is apparent that the proportion of such collaborations has steadily fallen from an average of 6.36 per cent during the period 1961-1966 to 16.11 per cent for 1967-1979. The liberalization of policy during the 1980s has slightly increased their share to 19.27 per cent over the past five years. Part of this decline may be illusory, as in the early 1960s F&T collaborations were also favoured because of foreign exchange and capital scarcity. Nevertheless, it also shows that over the years Indian industry has acquired the capability gradually to unpackage technology imports.

Table 16. Remittances made by Indian companies in private sector having foreign collaboration

Source: Reserve Bank of India. Foreign Collaboration in Indian Industry (First, Second, Third and Fourth Survey Reports), Bombay: RBI, 1968 1974, 1985, and 1985 respectively.

Table 17. Foreign collaboration approvals, 1961-1985

Source: Department of Scientific and Industrial Research.

Absorptive capacity

A large component of technology is tacit, residing in the skills of technicians who implement the projects and operationalize them. The indigenization of technicians will, therefore, be an indicator of absorption of "know-how," if not of "know-why." Table 18 shows the number of foreign technicians employed by companies engaged in foreign collaboration, again compiled from the successive RBI surveys. It is apparent from the table that there was on average one foreign technician per Rs.6.1 million of value added during the period 1964/65 to 1969/70. The average value added per foreign technician amounted to Rs.168.5 million during the period 1977/78 to 1980/81, representing an increase of over 26 times. A part of this increase is, however, due to inflation, as value added is measured in current prices. The significance of total payments to foreign technicians in value added (both measured at current prices) is a better indicator of the extent of dependence on them. This proportion has fallen steadily from an average of 0.95 per cent during the second survey period to 0.05 in the latest survey - a trend that suggests a considerable decline in dependence on foreign manpower. The table also shows a decline in the number of Indian technicians sent abroad for training as a proportion of value added under foreign collaborations over the years.

Local consulting, design, engineering, and equipment fabrication capability

Over the past three decades the country has built up an engineering industry that can manufacture a very wide range of equipment in virtually every industry. The value added in capital goods industries increased by three-and-a-half times in real terms between 1960 and 1980. As a result of the development of the local capability to design, engineer, and fabricate equipment and of local consultancy services, the country's dependence on imports of capital goods has fallen drastically. Table 19 shows that imported machinery and equipment accounted for 61.7 per cent of gross domestic capital formation in machinery and equipment in 1960/61; the proportion at constant prices had come down to a mere 6.7 per cent by 1982/83.

Table 18. Foreign technicians employed and Indian personnel sent abroad for training by Indian companies having foreign collaboration

Source: Reserve Bank of India, Foreign Collaboration in Indian Industry (First. Second, Third and Fourth Survey Reports), Bombay: RBI, 1968, 1974, 1985, and 1985 respectively.

Table 19. Share of imports in India's fixed capital formation in machinery and equipment, 1960/61 to 1982/83 (Rs. millions at 1970/71 prices)

Source: CSO, National Accounts Statistics, various issues, and DGCI&S, Ministry of Commerce.
a. Deflators for column 3 based on 1968/69 base index until 1980/81 and on 1978/79 base index for the following years.

A World Bank team noted that the Indian non-electrical industrial machinery industry can supply complete, economic-sized units to the cement, sugar, and thermal power industries; about 80 per cent of the machinery requirements for large-sized paper and pulp plants; and 50 to 60 per cent of the machinery to chemical industries. The Indian machinery manufacturing plants were rated to be in very good condition and compared favourably with their Western counterparts in the use of labour and other inputs. The team was impressed with the "high quality and professional capability of management in all plants, whether owned by the private or the public sector." It also found the "status of manufacturing technology adequate for the type of product manufactured in each case, though the level of sophistication varied substantially among plants." Several leading plants "are technologically as competent as similar plants in the industrialized countries" and have been pre-qualified by international consulting engineers and contractors for the manufacture of mechanical equipment and participation in international competitive bidding. The leading manufacturers "produced equipment and machinery of competitive international quality and were up to the standard of world equipment producers in manufacturing capacities and in efficiency of raw material use."²⁶

To evaluate the economic efficiency of the Indian machinery industry, the team calculated the effective protection coefficient and domestic resource costs of local production. From these calculations, India emerges as an efficient manufacturer in all but three of the 19 categories of equipment studied. Despite higher domestic costs of inputs, the output prices for many items were found to be significantly lower in India than abroad. The situation would have been better had there not been net disincentives to the sector because of greater protection on inputs than on outputs.²⁷

A more recent study of Indian power and fertilizer equipment manufacturers has also revealed that, had the Indian manufacturers obtained inputs (steel, non-ferrous metals, alloys, power) and capital at the same price as their foreign counterparts, their prices would compare well with those of imported ones in the case of fertilizer equipment and would even be lower in the case of power equipment.²⁸ Therefore, the allegedly high prices of Indian-made capital goods, if they are indeed high, are due not so much to technological or economic inefficiency as to high input prices. In fact, it is on the strength of the well-diversified and competent engineering goods industry that India emerged as a significant exporter.

It is apparent from table 20 that exports of engineering goods rose from a negligible Rs.52 million in 1956/57 to Rs. 9,389 million in 1981/ 82. Subsequently the growth of exports of engineering and capital goods stagnated owing to the global recession, in particular in the Middle East countries. In some specific capital goods such as boilers (power), India accounted for about 2 per cent of world exports and was well ahead of other developing countries such as Brazil, Colombia, Argentina, the Republic of Korea, and even Spain and Yugoslavia.²⁹ In addition, Indian engineering firms have been exporting an increasing volume of consultancy services. Starting from exports worth a mere Rs.10 million in 1970/71, the figure rose to Rs.630 million in 1983/84.

Table 20, India's technology-linked exports, 1956/57, 1970/71, and 1973/74 to 1984/85 (Rs. millions at current prices)

Source: Columns 2 and 3: DGCIS. Ministry of Commerce. and Ministry of Commerce. Annual Reports: columns 4-7: Engineering Export Promotion Council (EEPC), Association of Indian Engineering Industry (AIEI), and Department of Electronics (Annual Reports).

a. Covering machinery (electrical and non-electrical) and transport equipment.
b. Including those of Santacruz Electronics Export Processing Zone (SEEPZ). part of column 4.
c. Parentheses in column 3 show estimates of EEPC/AIEI.
d. Refers to calendar year.

India, therefore, has acquired substantial consulting, design, engineering, and equipment fabrication capabilities, which have enabled it not only to become self-reliant to a considerable extent in the field of S&T, but also to export a significant volume of equipment and technology to co-developing countries.

Adaptation and indigenization capability

The technologies imported may not be appropriate to local factor proportions and available raw materials. Hence they have to be suitably adapted and indigenized to maximize their benefit to the nation. Furthermore, the process of adaptation is potentially an important source of knowledge and absorption of "know-why." There is evidence that considerable adaptation of the technologies being imported by Indian firms has been undertaken, for various reasons: to facilitate the substitution of imported raw materials by local ones; to adapt the product to the local climate, environment, or tastes; to scale down plant size to suit the size of the market; to upgrade the technology, etc. These adaptations have resulted in indigenization of the imported technologies.

An indicator of the indigenization of technologies is the evidence of technology exports from India to other developing countries through joint ventures and licensing agreements.³⁰ A survey of 52 Indian firms who undertook joint ventures abroad revealed that though 42 of them had obtained their initial technology from foreign sources, 47 of them had indigenized them beforehand.³¹ That locally adapted technology was exported to their affiliates is apparent from the fact that "Indian machinery" was the source of know-how in most of the Indian investments.³² The adaptations made in Indian technologies make them "most appropriate" for conditions in developing countries.³³ An empirical study for 12 four-digit Thai industries confirmed that Indian firms "often used absolutely efficient technologies; they operated to the left of the production isoquent with costs below the theoretical minimum cost."³⁴

Product development and innovations

The capacity to innovate is the highest stage in the accumulation of knowledge of technology by a country. The Indian S&T infrastructure - i.e. in house R&D units and national laboratories - as well as adapting and indigenizing foreign technologies, has started innovating. In some areas, these efforts have yielded tangible outcomes.

Table 21. Patents filed and sealed in India, 1968-1985

Source: Controller General of Patents, Designs. and Trade Marks, Annual Report.
a. Including foreigners resident in India.

For instance, of the 34 models of tractors sold in the country, as many as 16 are products of in-house R&D, and one was developed by a national laboratory.³⁵ Other significant product developments include battery-operated electric locomotives, electronic control equipment for diesel engines, and high-speed power thyristors; solar photovoltaic cells and solar-powered electronic controls for offshore oil-exploration vessels; instrumentation systems for improving the productivity of sugar mills; catalysts for the petroleum-refining and fertilizer industries; a whole range of modern pesticides with low residual effects; light compact aircraft³⁶; low-cost digital switching technology for telecommunications; and the technology for electronic-grade silicon. In the last two cases, the locally developed technology has proved to involve a much smaller capital outlay than the available imported alternatives, hence resulting in lower product costs.

An indicator of increasing innovative and product development capability is the proportion of patents held by nationals. Table 21 gives Indians' share of total patents for the period 1968 to 1984/85. Though the proportion fluctuates from year to year, the trend suggests that it has gone up significantly, from about 15 per cent during the early period (up to the early 1970s) to about 30 per cent in the 1980s. This doubling of resident Indians' share of patents suggests a significant improvement in India's capability to innovate and develop new products and processes. A part of the apparent increase may, however, be attributable to the amendment of Indian patent legislation, which has reduced the life of patents. It is possible that after the revision foreign firms find it less attractive to obtain a patent in India.

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