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The distribution of technological capabilities across different industries is uneven and depends upon several policy and structural factors. As a part of this study, detailed case-studies were made in the machine-tools, power-equipment, petroleum-refining, and fertilizer industries. These detailed industry studies assessed the level of S&T self-reliance achieved, and also the role played by different factors, especially government policy. The conclusions of these studies are summarized below.

Engineering industries

In engineering industries, broadly three successive stages in the development of S&T capability can be delineated: (a) the capability to manufacture products in accordance with the specifications laid down by foreign manufacturers; (b) the capability to absorb, adapt, and modify foreign designs to specific conditions in the factor and product markets in developing countries; and (c) the ability to understand and/ or develop basic principles of technology and to innovate.

A study of technological self-reliance in the machine-tools industry is of interest because it is an industry where engineering design rather than science-based innovation plays a crucial role in technological development. Besides, this industry has had a long history of growth in India, beginning as early as the 1940s.

In the early 1950s, the decision to protect the Indian machine-tools industry from competing imports gave an initial impetus to growth based on import substitution. The decision to set up Hindustan Machine Tools (HMT) at that time provided a nucleus for the generation of technological capabilities and skills. With regard to the prevailing industrial environment and the available skills and technologies, the creation of HMT not only provided the impetus for the machine-tools industry but also foreshadowed the development of the engineering industry in the country.

By the mid-1960s, this industry had acquired the capability to absorb imported technology and to manufacture machine tools to the specifications laid down by foreign collaborators. Under the pressure of the recession of the mid-1960s, the industry undertook the more complex tasks of modifying machine tools and developing variants of machines for which the design had been acquired by the purchase of licences.

The drastic import-control regime during the 1950s, 1960s and, to some extent, the 1970s led to high growth rates in production, but did not necessarily bring about adequate technological advances, and a technology gap developed. The cost-competitiveness of the industry also suffered a set-back owing to its lack of exposure to international competitive forces.

More recent changes in the tariff policy, import-control policy, and technology-import policy of the government has led to a correction of these distortions. The competing imports of machine tools were increasingly allowed on quality and cost considerations, leading to a greater consciousness of quality and costs on the part of domestic manufacturers. The more liberalized technology import policy is helping to bridge the technology gap. All these factors are putting pressures on the machine-tools industry to develop best-practice technology, either by importing or by generating their own. The availability of trained engineers at modest wages has contributed in no small way to the substantial design effort demonstrated by the machine-tools industry. Today, the same engineers can use technical information available in published or unpublished form to find solutions to problems.

The tariff policy in respect of components, raw materials and capital equipment has not been conducive to the generation of further capabilities in these product groups in recent years, as it has favoured the direct import of equipment by providing "negative" effective protection.

The tariff policies followed by the government in respect of the capital goods and machine-tools sector vis-à-vis other industry sectors have contributed to a relative lack of profitability in capital goods, leading to sluggishness in the growth in investment in this sector. It has also contributed to a smaller return on capital employed, and smaller profits have also contributed to less effort in R&D and design activities.

In spite of the above factors, the machine-tools industry has been one of the country's leaders in terms of R&D expenditure; this could be attributed to its fight for survival in the environment described above. Government policies have also not contributed any major incentives towards successful R&D efforts.

In the 1980s, the industry developed further, and was able to acquire know-why in machine-tools technology in order to reproduce and even develop new tools, particularly special-purpose machine tools. The human resources necessary for more complex technological development in the 1980s had been created in the earlier period of protection. As a result of the experience with the development of modified versions of machine tools manufactured under licence, the industry had created a pool of technical resources for independent development.

As measures of technological development, the study relied on indicators which could at least approximately reflect learning. For this reason, not only research intensity, but also the employment of engineers and the scope of R&D projects, as well as their duration and cost, were looked at. Of these, data on the scope of R&D projects gave the clearest indication of the extent of self-reliance in the Indian machine-tools industry. Our data show that the large majority of R&D in this industry is directed to exploiting an understanding of know-why in machine-tools technology in order to produce contemporary foreign machine tools. As a reflection of the important role that human resources play in machine-tools development, our data indicate a high rate of employment of engineers in the industry. By contrast, research intensity is modest, and remained unchanged in the last decade. The overall impression that one gets is that the industry has enhanced its technological capability over the previous decade.

To conclude, one can say that the Indian machine-tools industry has shown sustained progress in its acquisition of technological capability. It has created the human resources for further development, subject to market pressures providing the stimulus. In order to understand these transitions in self-reliance in the machine-tools industry, the role of the policy environment, as well as demand and supply conditions, were examined.

With regard to this industry, the Indian government used essentially three policy instruments: (a) the creation of Hindustan Machine Tools (HMT); (b) quantitative controls over imports of machine tools, and restrictions on the purchase of technology until 1983; and (c) the creation of the Central Machine Tools Institute (CMTI). The creation of HMT has proved to be effective in providing a nucleus for the generation of technological capabilities and skills. As already stated, it not only provided the impetus for the machine-tools industry, but also foreshadowed the development of the engineering industry in the country. Quantitative controls were effective for a short period between the mid-1960s and late 1970s, in that the industry could develop modified versions of machine tools manufactured under licence as substitutes for imports. However, these controls insulated the industry from contemporary developments in machine-tools technology, namely the introduction of electronic controls in the mid-1970s, and delayed the process of learning.

The restrictions on technology imports in the late 1960s helped the industry temporarily because it protected indigenous R&D from competition from imported technology. In the early 1980s, these restrictions were a barrier to learning because they deprived the industry of access to modern developments in its field.

We have found no evidence to suggest that CMTI played an important role in design and development. This is because design activity in the machine-tools sector is market-oriented, i.e. associated with specific user requirements, and, hence, is best pursued by manufacturing firms. However, CMTI has facilitated the technological development of the sector by providing high-quality machine and prototype testing services and technical information, and by the creation of human resources.

The changes in the structure demand have also played an important role in the growth of self-reliance in this industry. Between the mid-1960s and the late 1970s, the demand was restricted mainly to general-purpose machine tools. In such an environment, the industry could, at best, acquire the capability to develop modified versions of machine tools for which designs had been purchased under licence. In the

1980s, the demand for machine tools became more varied, and custom-designing has become necessary to meet user needs. In such an environment, there is scope for the development of new machine tools, or at least reproduced versions of foreign machine tools.

Self-reliance in coal-based power equipment takes place in a context in which large-scale expenditure in scientific research provides a crucial input for design and development. Moreover, engineering design is accompanied by huge expenditures on the testing and quality control of equipment. The scale of R&D expenditure, testing, and investment for the manufacture of large-sized equipment is a major barrier to entry into this industry. Moreover, electrical power equipment is dominated by a few multinational corporations, which enjoy the advantage of long experience in the development and manufacture of such equipment.

Thus, the nature of the industry is such that the absorption of contemporary technology is itself an important goal of self-reliance. The past record of the Indian electrical power-equipment sector shows that it has graduated from the manufacture of small-size units of a maximum of 150 MW in the 1960s to 210 MW in the 1970s and 500 MW in the mid-1980s. In terms of technological capability, the Indian manufactures have reached the second stage of development, i.e. where they are capable of absorbing, adapting, and modifying foreign designs to specific conditions and of undertaking trouble-shooting activities. The transition from the first to the second stage occurred around 1975, when a new corporate plan laid the basis for the formation of a company which could undertake scientific research for modification, adaptation, and trouble-shooting. The role of foreign collaborators became increasingly that of suppliers of basic designs and systems designs. In the 1980s, BHEL has made some initial attempts to graduate to the third stage, i.e. to acquire capabilities for new product development, systems engineering, and project management.

The unit sizes of equipment are relatively small in India. However, the use of modern technology, such as combined cycle cogeneration, has picked up. In fluidized bed combustion technology, India is one of a few countries in the world that have used the technology commercially for boilers up to 30 MW. In MHD also, India has joined a select band of countries able to harness the technology and has already developed a 5 MW (thermal) experimental test facility that has generated power.

In general, self-reliance has reached the stage where the Indian electrical power-equipment industry has acquired the ability to make rational choices of technology and effectively to absorb and adapt them. It has not, as yet, mastered the ability to develop and commercialize new products. This is because of the high costs of development and experimentation in this industry, and because it does not have the benefit of financial instruments to aid indigenous development. As long as the institutional facilities are not available for innovative technological development, one cannot expect higher levels of self-reliance in an industry with high barriers to entry created by high levels of R&D expenditure. Keeping in view these realities of the power-equipment sector, we can conclude that the Indian industry has achieved self-reliance.

To develop the local power-equipment industry, the government has devised three policy instruments: (a) creation of public sector enterprises, i.e. the erstwhile HE(I)L, and BHEL; (b) standardization of unit sizes; and (c) protection. The creation of public enterprises has been of prime importance for the development of the industry in India; but for them, the country would have had little chance of becoming a significant producer of large-sized power-generating equipment because of the high entry barriers facing the industry. The standardization of unit sizes of equipment protected local manufacturers and created conditions for the absorption of imported technology. Finally, protection from imports accorded until 1978 helped the domestic industry to develop without undue external pressures, such as dumping, which, owing to considerable over-capacity in the industry, has been commonly practiced by multinational corporations (MNCs) to capture markets. The subsequent liberalization of imports of power equipment partially accelerated the development of self-reliance, although the price-discrimination policies of MNCs halted this process in the mid-1980s.

The factors which have led to increased technological self-reliance in the coal-based power-equipment sector have been threefold. To start with, increased human learning has been a major factor. BHEL's engineers made a concerted effort in the early 1970s to learn from imported machinery installed in India, from the feedback data generated by the equipment installed by them as well as from interactions with foreign consultants who were associated with their foreign buyers. Increased human learning had a compounded effect when these capabilities enabled Indians to purchase superior technologies from the Western world and to learn from them. Secondly, the Indian government policy of standardization of unit sizes permitted the quick absorption of technology.

Thirdly, increased self-reliance was made possible by structural changes in the organization of BHEL, initiated in the mid-1970s, which introduced engineering development centres and a specialized R&D centre. This made it possible for the company management systematically to initiate technology development in the company.

Finally, the need to adapt technology to local raw materials has induced technological development. The high ash content in Indian coal necessitated better combustion methods to extract the maximum thermal energy. Since BHEL's foreign collaborators did not face this situation, the development of indigenous coal-combustion technologies was undertaken in the mid-1970s. This has been one of the most successful areas of R&D within BHEL, and has resulted in the development of fluidized bed boilers, the direct ignition of pulverized coals, and hot gas clean-up systems, as well as many other modifications in designs.

Similar need-based developments in the steam turbine area also resulted in the completely indigenous design and manufacture of 18 MW FDTR turbines.

Process industries

In process-based industries, as in the engineering industries, four successive stages in technological development are delineated: (a) ability to operate and maintain plants commissioned under turnkey contracts; (b) capability to undertake detailed engineering using a basic engineering package supplied by foreign licensors and to undertake project management; (c) capability to design a basic process package using a rudimentary flow sketch and catalyst information; and (d) the capability to develop new process technology or products. However, process industries, as opposed to engineering industries, are characterized by a greater degree of integration and interdependence between components, tailor-made design at a larger level of aggregation, fewer repetitions within a generation for a given growth in the country, a lower mortality rate, and, hence, slower penetration of newer technologies. These characteristics have certain implications for S&T self-reliance, as will be seen below.

From a modest beginning with the meagre capacity of 0.25 million tonnes per annum when planning began, the Indian petroleum-refining industry has come of age with an annual capacity of 45.55 million tonnes at the end of the sixth Five-Year Plan. The rapid expansion of refining capacity has enabled the country to achieve a considerable degree of self-sufficiency in petroleum products and has encouraged the creation of fertilizer, petrochemical, and tertiary downstream industries.

The Indian petroleum industry, which started in the mid-1950s with almost total dependence on foreign sources for know-how, plant and equipment, management, and operational skills, has achieved a considerable degree of indigenization in process know-how, detailed engineering, fabrication of plant, equipment, and manpower. This has been made possible because of the accumulation of technological learning and capability by the industry. Of the four successive stages of technological capability-building in process industries, India has acquired self-reliance in respect of plant operation and maintenance and a substantially complete capability in detailed engineering, equipment fabrication, and project management. In respect of basic engineering, India has acquired process design capability in a number of processes, such as crude and vacuum distillation, Amine treatment, visbreaking, and dewaxing, which have been put into operation successfully. Thus the industry has reached the stage in technological development where a complete plant can be set up with minimum information from process licensors. In some areas, where India's requirements are unique and where technological needs are repetitive, some innovation and process development activity has been started and pilot plants have been set up.

In acquisition of the technological capability, government policy has played a key role. In accordance with the Industrial Policy Resolution, 1956, which sought public control of industries of basic and strategic interest, the expansion of the Indian petroleum-refining industry took place in the public sector, which also took over the units owned by multinational oil companies in the 1970s. To facilitate technological self-reliance, the government created engineering, design and R&D institutions such as Engineers India Ltd (EIL) and the Indian Institute of Petroleum (IIP).

In-house R&D centres were also set up in major public sector enterprises active in the area. To ensure effective coordination and planning, a number of other institutions were created, such as the Technical Development Committee, the Petroleum Process Development Coordination Group, and the Scientific Advisory Committee of the Ministry of Petroleum. The effective coordination among public sector oil companies, design and engineering organizations (EIL), national laboratories (IIP and NCL), and in-house R&D units has played an important role in bringing about the present degree of technological self-reliance in the Indian petroleum-refining sector.

In addition, the rapid acquisition of technological self-reliance in the industry was facilitated by the relatively mature and stable nature of technology. Furthermore, in a process industry, the nature of links between the suppliers of process designs and special equipment fabricators has important consequences for the achievement of technological self-reliance. Negligible links between suppliers of process and equipment in the international industry have helped Indian attempts to achieve technological self-reliance. Many component units in refineries use equipment such as fabricated vessels, heat exchangers, fired heaters, pumps and compressors, and a variety of electrical equipment and instruments that are identical to those used by other process industries and thermal power plants. The refinery industry could make use of the existing facilities in the country for fabrication of this equipment, though development of these facilities to serve the needs of the refining sector alone would not, perhaps, be viable. Finally, the need to develop site-specific technologies, such as processes suited to crudes recovered in remote locations, has given impetus to the drive for technological self-reliance.

Like petroleum refining, the nitrogenous fertilizer industry in India is also of recent origin, as the bulk of the production facilities started commercial production in the 1970s.

In the period up to the early 1960s, the expansion of the industry took place almost exclusively through turnkey contracts awarded to foreign firms. But by the mid-1960s the Indian design and project engineering companies had reached the second stage of technological development, i.e. they had acquired the capability to construct integrated fertilizer plants, obtaining the minimum technical assistance from abroad for very specialized plant sections or process techniques. In the period following the late 1960s, local firms successfully built integrated fertilizer plants producing 600 tonnes per day (tpd) ammonia and 1,000 tpd urea as prime contractors. Their responsibilities in these projects included detailed engineering, procurement, erection, inspection, and commissioning of plants. The process know-how for ammonia synthesis, carbon dioxide removal, and urea were obtained from foreign firms. These firms were able to effect a high level of indigenization of equipment and foreign exchange savings in these plants. The stage has been reached where basic engineering designs for urea plants and for all but three sections (reforming, carbon dioxide removal, and ammonia synthesis) of ammonia plants, for which foreign licences are required, are locally available. Indigenous technology developments also attempted to substitute conventional petroleum-based feedstocks, which had to be imported, by abundantly available coal and to upgrade the plant size to 900 tpd ammonia and 1,500 tpd urea, in keeping with trends in the global industry. These developments were effected in five subsequent public sector plants built by local companies.

Fertilizer production is heavily dependent upon use of catalysts in almost every section. The catalysts used in chemical process industries are proprietary items with narrow markets. The development of indigenous capability by local firms to manufacture more stable catalysts is, therefore, an important aspect of the S&T self-reliance achieved by the country.

The impetus for local capability-building in the fertilizer sector was provided by the government in 1963 when it decided to strengthen the technological wing of the Fertilizer Corporation of India (FCI), in order that it might acquire the know-how, both of process and of design and fabrication, in the context of the expansion of fertilizer production capacity in the plans. The technology wing (later called Planning and Development Division) of FCI, which later grew into a separate company (PDIL), along with the Engineering and Development Division of another public sector corporation, Fertilizers and Chemicals, Tranvancore (i.e. FEDO), have spearheaded indigenous technology development in the sector. The technology absorption and indigenization was helped by the replication of plants of the same size. An important impulse for technological development came from the need to substitute imported feedstock by local coal in order to save foreign exchange. The proprietary and oligopolistic hold over the supply of catalysts also led local firms to develop local technology for their manufacture.

The study of the fertilizer industry also highlights the role that finance plays in technology selection. It has been shown that reliance on foreign financial resources has prevented the fuller utilization of local technological capabilities, especially in the more recent period, when the government decided on 1,350 tpd as the standard size for further plants in preference to 900 tpd, for which local technology was available.

From the analysis of S&T self-reliance at the overall level and the industry studies, a number of policy and structural factors in technological development emerge.

Policy factors

Industrialization itself is an important source of accumulation of technological learning. In this sense, the import strategy of the Indian government, which fostered the development of a wide range of industries, is particularly important, because the presence of these industries facilitated the unpackaging of technology imports, and hence helped absorption.

The expansion of infrastructure for technical and higher education under the Scientific Policy Resolution, 1958, which ensured an adequate supply of qualified S&T personnel, has been of great value for S&T self-reliance. It has facilitated the quick replacement of foreign personnel and absorption of imported technology. In addition, the network of national laboratories has proved to be a major source of expertise and of other technical services such as testing, standards, and technical information. The role of national laboratories in designing and innovations, however, varies from industry to industry. In petroleum refining, IIP in collaboration with EIL appears to have productionized a number of processes; CMTI, in machine tools, does not appear to have played an important role in designing. Though the observations made here do not warrant generalization, the two determinants of success of national laboratories appear to be the nature and extent of laboratory-industry interaction and the extent of market orientation of products. The more extensive the laboratory-industry linkage (as in petroleum refining), the greater is the likelihood that the laboratory will be an important source of innovations. And the greater the market orientation of the product (as in the case of machine tools, particularly the custom-made ones), the less is the chance of a laboratory being a successful innovator.

In all the industries studied, the public sector enterprises - i.e. HMT and BHEL in the engineering industries and CEDOs such as EIL, PDIL and FEDO in process industries - emerge to be the nuclei for technological development. This is particularly significant, because in all these areas, except machine tools, there were high entry barriers for innovation, as a result of a large minimum scale of R&D activity. Public sector industrial enterprises, because of the relatively large scale of their operations, were able to finance and coordinate the requisite level of technological activity.

The industry studies uphold the view that local technology development is like rearing an infant: the industry requires protection and support in the initial period, but finally grows up.⁵¹ In these areas, effective protection to local technology, at least until the late 1970s, facilitated the local ownership of user industries, as in power generation, petroleum refining, and fertilizers; and in the case of machine tools, this was achieved by quantitive controls over imports. The existing technology import regulations alone could not guarantee protection to local technology in general. For instance, in fertilizers almost all private sector plants were built by foreign companies on a turnkey basis, even after local design and plant fabrication capabilities became available. In this context, we have observed the inadequacy of general technology import policies in providing protection; in order to spur the generation and utilization of technology, the need to supplement the "stop-go" type of import regulation by price protection for local technology has been emphasized.

For process industries, the choice of unit size has an important bearing on the development of local technological capability. Standardization of unit sizes by the government in the case of power equipment, petroleum refining, and fertilizers has helped rapid absorption and mastery of technologies because it has made possible the frequent replication of similar plants.

Structural and industry-specific factors

S&T self-reliance is achieved more easily in industries with relatively mature and stable technologies, such as the process industries, than in those undergoing rapid technological change.

The nature of international markets, in respect of the seller concentration and the degree of vertical integration in an industry, affects national attempts to achieve S&T self-reliance. If the market of a particular technology is particularly oligopolistic, the technology may not be available in the desired mode, such as on a licensing basis. The choice of the mode of technology import has been found to influence local technological capability-building. Secondly, the degree of vertical integration of the technology suppliers or the nature of links between process (or design) suppliers and equipment suppliers also affects the attempt to achieve S&T self-reliance. Extensive links between process and equipment suppliers deny the local engineering industry the chance to fabricate equipment, and hence hinder attempts towards un-packaging the technology imports.

The need to develop or adapt the existing technology to suit local conditions or requirements turns out to be an important factor facilitating self-reliance. Our case-studies show that the need to adapt technology to Indian coal with its high ash content (in the case of the thermal power-equipment sector), the need to develop processes specifically suited to crudes recovered in remote locations (in the case of the petroleum-refining industry), and the need to replace the petroleum-based feedstock by coal (in the case of fertilizers) have provided important stimuli to the development of local technology in these areas.

The organizational structure of the enterprise can also have important consequences for technological development, as our study of the power-equipment industry demonstrates.

The study has been conducted in two stages, the one dealing with the overall economy level and the second analysing the process of technological development in four industries, two of which are engineering (machine tools and thermal power equipment) and two process-based industries (petroleum refining and chemical fertilizers). All the industries selected have enjoyed a key place in India's plans for import substitution and industrialization because of the intensive linkages they have with other sectors. The analysis, both at the overall macro level and in the industry case-studies, has attempted to assess the level of S&T self-reliance achieved, and to bring out the role of government policies and other factors in facilitating technological transformation.

India's planning for self-reliance in S&T has sought to reduce the country's dependence on imported S&T resources. In order to assess whether dependence has actually declined, the study analysed trends in a number of indicators proxying different aspects of dependence on foreign technology, charting the build-up of an autonomous capability to absorb, adapt, and indigenize imported technology, and to innovate and develop products and processes locally. The trends observed in each of these indicators reveal considerable progress towards the achievement of S&T self-reliance. In respect of the availability of skilled and technical manpower for operating plants and of design, engineering, and fabricating equipment, India has achieved almost total self-sufficiency, particularly in industries in which the rate of technological change is not fast.

Whether judged in terms of S&T infrastructure and other indicators of S&T development or in terms of performance (e.g. technology exports), the intercountry comparisons have grouped India with a few countries that have the most advanced S&T capabilities in the developing world.

The achievement of India in the sphere of S&T capability-building, though commendable, was found to fall short of expectations and potential. In the light of the determinants of innovative activity and utilization of local technology vis-à-vis imported ones, some directions for future technology policy have also been outlined.

The development of S&T capabilities is a complex process that is influenced by a wide array of social, cultural, economic, and external factors. This study has brought out a number of factors found to affect overall S&T development and technological capability-building in two engineering and two process industries in India. The findings suggest that public policy and direct governmental intervention have played a central role in capability-building. As there is considerable inter-industry variation in their relative roles, a fuller comprehension of the factors contributing to the technological development would necessitate further analysis of more industries, particularly those with different ownership characteristics and market structures, and growth profiles other than the ones studied here. Similarly, intercountry analyses may bring out the role of sociocultural factors in technological development. Nevertheless, it is hoped that the present study will lead to more extensive research on this subject of vital importance, and that it will prove useful in providing a conceptual framework for further work.

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