An encouraging report

Published : Sep 12, 2003 00:00 IST

The Review Committee that re-examined the provisions of the Technology Development Board Act and appraised the overall performance of the TDB submits its report.

AMONG the institutions and schemes created in the Indian Science and Technology (S&T) system since Independence for funding and enabling commercialisation of technology, the most successful has been the Technology Development Board (TDB) in the Ministry of Science and Technology. With its establishment in 1995, practically for the first time in the country, substantial funding from a government agency became available to individual entrepreneurs and to non-government-funded organisations for the commercialisation of technology developed indigenously.

The TDB was set up under the TDB Act of 1995, following the creation of the Fund for Technology Development in November 1994, to be administered by the Department of Science and Technology (DST). The Fund was to be formed out of the Research and Development (R&D) cess collected under the R&D Cess Act of 1986. An amendment to the Act allowed for the cess, levied at the rate of 5 per cent on all payments made for the import of technology in the form of lumpsum, royalty, dividend and so on, to flow into the Fund. The Fund came into effect in September 1996 and TDB entered into its first agreement for loan assistance in April 1997.

With the TDB having operated for more than five years, and its apparent success resulting in other funds attempting to copy its model (Frontline, June 21, 2002), the DST constituted a five-member Review Committee headed by P. Rama Rao, former Secretary of the Department, in August-September 2001. The review report was released recently. The committee's terms of reference included a re-examination of the provisions of the TDB Act and the rules made under it and to make recommendations in the light of the TDB's overall performance as well as of the increasing competitive pressure due to the liberalised economic policies and the rapid developments in S&T.

In its overall appraisal, the report said: "TDB's unique place in the country's innovation system and the efficacy of its low cost funds has unequivocally emerged...The situation in the country is such that, as of now, we do not see a financial institution that muster the technical acumen that TDB is inherently endowed to capture...nor has the country thrown up a funding mechanism that can provide low cost funds compared to what TDB has offered to its entrepreneurs...TDB's mode of operation and the readiness with which it has brought to bear diligent consideration of relevant factors in processing financial sanctions has been a refreshing new development."

The TDB provides mainly loan assistance to industrial concerns at 6 per cent (simple interest), up to 50 per cent of the approved project cost. Each project proposal undergoes an initial screening and a techno-economic evaluation by a Project Evaluation Committee (PEC), which includes experts in the relevant areas. During the pendency of the loan the beneficiary has to pay royalty on sales of the product developed with TDB assistance. Now, however, based on the recommendations of the Review Committee, the rate of interest has been reduced to 5 per cent and the payment of royalty has been abolished.

The TDB regulations also provide for the Board to subscribe by way of equity capital in a company during its commencement, start-up and growth stages up to 25 per cent of the project cost. The TDB may also provide financial assistance to R&D institutions engaged in the development and commercialisation of indigenous technology through grants.

As of March 2003, the TDB had concluded 114 agreements with a total project cost of Rs.1,643 crores. Towards these the TDB has sanctioned a total amount of Rs.475 crores of which Rs.415 crores has already been disbursed. Though the TDB could, in principle, commit up to 50 per cent of the project cost, the actual exposure has only been about 29 per cent, which is reflective of the TDB's effectiveness in being able to leverage funds from other sources, which in turn is evidence of the soundness of the TDB's project evaluation process and higher probability of the project succeeding. The largest amount of Rs.107 crores was disbursed during 2002-03. As funds are released depending on the state of progress of the projects, the year in a sense also marked a period of consolidation for the TDB, pointed out S.B. Krishnan, former principal adviser to the TDB and the member-secretary of the Review Committee. Many innovative products developed with the TDB's assistance in the last five years, largely with indigenously developed technology, have already hit the market and some are even exported.

The projects sanctioned so far include one case of equity investment and three cases of grants. According to the Board's regulations, equity and grants have to be approved by the full board (comprising 11 members). Interestingly, the committee has observed in its report that such approvals should follow very stringent scrutiny and that the TDB should not be considered a substitute for funding by the government or other appropriate institutions.

This remark has perhaps been provoked by the large grant of Rs.53.8 crores for the development and type certification of the 14-seater multirole Light Transport Aircraft (LTA) - called SARAS - being developed by the National Aerospace Laboratories (NAL) of the Council for Scientific and Industrial Research (CSIR). Against a total project cost of Rs.131.38 crores, the TDB has committed Rs.65.3 crores, Rs.11.5 crores being a loan. This is the only project launched by a public-funded laboratory for which the TDB has made an outright grant. This, in fact, is also the largest sum committed by the TDB for a single project. The first prototype of the aircraft was rolled out on February 4, 2003.

The government was originally supposed to fund the project, to be executed in association with a private firm. With government funds not forthcoming and the company too failing to invest, the CSIR had to turn to a government agency, the TDB. While the project is expected to herald the civilian aircraft industry in India, no private venture capital or financial institution could be expected to back a maiden civilian aircraft venture. The post-Pokhran sanctions too had impacted the SARAS project causing a delay as well as cost escalation due to rising exchange rates. Apparently, the CSIR had sought additional financial assistance from the TDB; the request was rejected on the grounds that, as the project was an ongoing one, the additional funding should be obtainable from the government.

The other grants include a 0.5-crores sanction to the Confederation of Indian Industry (CII) for setting up Technology Transfer Centres (TTCs). Already 15 such centres have come up. A Rs.2-crore grant has been made this year to Picopeta Simputers Pvt. Ltd., a company floated by the developers of the revolutionary low-cost computer, from the Indian Institute of Science (IISc), Bangalore, in which the IISc will also have a stake. With the TDB's financial assistance, the unit is expected to develop applications for Simputer as well as enter into system production in association with Bharat Electronics Ltd. (BEL).

The only commercial enterprise in which the TDB has equity participation is M/s Twenty First Century Battery Ltd., SAS Nagar, Punjab, with a subscription of Rs.5.9 crores against a total project cost of Rs.20.6 crores for the development and manufacture of `lithium-ion polymer batteries'.

The TDB is also partnering with the Unit Trust of India (UTI) to float the `India Technology Venture Unit Scheme' with a commitment (made in July 2000) to invest Rs.25 crores over a period of three years. The objective of the TDB's participation was apparently to synergise the development of advanced technology projects. This TDB investment has been able to leverage an additional Rs.78 crores from the Export Import Bank (EXIM), Life Insurance Corporation (LIC), New India Assurance, Bank of Baroda, UTI Bank, Andhra Bank and Syndicate Bank. The Fund has until March 2002 invested Rs.31.3 crores in eight companies, which are said to be doing well. However, the Review Committee has recommended that the TDB does not invest beyond the commitment already made in view of the venture capital nature of the company and the possible off-loading of equity of successful companies by it.

The TDB handles projects from all S&T sectors. Sector-wise assistance extended by the TDB provides an interesting profile. Its highest participation has been in the health and medical sector, which accounts for 27 projects with about 22 per cent of the total amount sanctioned by the TDB. This is followed closely by engineering (28 projects), road transport (nine projects) and air transport (two projects) sectors with about18 per cent, 16 per cent and 15 per cent share respectively. Major S&T sectors from the perspective of our economy, namely agriculture (16 projects), chemicals (16 projects) and Information Technology (six projects) account for only 5 per cent, 8 per cent and 1 per cent share of the TDB funding respectively, indicating that there was no major - technologically speaking - project in these areas calling for a higher level of TDB assistance.

About 81 per cent of the assistance committed by the TDB is by way of loans (for 109 of the 114 projects). Amongst these, the largest loan sanction of Rs.30 crores is for Telco (now Tata Motors) for the development and commercialisation of two variants of the Indica car, namely sedan and estate, against a total project cost of Rs.342 crores, the highest valued project to be executed by the TDB. Telco also won the Technology Day Award for the year 2000 for the development of Indica. Another successful project in the automotive sector includes Reva, the only electric car manufactured in the country, costing Rs.18 crores in which the TDB's assistance is Rs.4.65 crores. The smallest loan of Rs.0.25 crores (against a project cost of Rs.0.57 crores), was sanctioned to Sagrik Process Analysts Pvt. Ltd., to develop and market a software tool kit for waste water simulator.

COMMENDING the TDB's role in supporting new entrepreneurs and technology-based enterprises in their early stages - these account for over 20 per cent of the TDB's funding - the Review Committee has observed that the credibility gained by the TDB's funding has helped some of them to obtain funding from Financial Institutions (FIs) and commercial banks. "One of the major achievements of TDB," observes the Review Report, "is to be found in the financial assistance provided to private institutions for commercialisation of indigenous technologies. Such a measure was not in vogue prior to the advent of the Board."

Interestingly, the Review Committee's analysis is that industry in-house R&D units rank the highest among technology providers, accounting for 58 of the projects assisted by the TDB. In terms of the total project cost, they account for nearly 55 per cent, and in terms of the TDB's assistance, they amount to 45 per cent. Technology provided by the national laboratories, though they account for 22 projects, is well short of desired levels. In terms of TDB funding, they account only for 24 per cent of the total commitment, of which 14 per cent is accounted for by funding for the LTA. In fact, the report has observed that in the case of national laboratories (chiefly CSIR laboratories), though technologies were declared as ready for commercialisation, in many cases they were not mature enough to go for commercial production. As part of the review, the committee entrusted a survey of 65 agreements that were concluded during the three years between 1997-98 and 1999-2000 to the Administrative Staff College of India (ASCI), Hyderabad, the assumption being that three years is a sufficiently long period to yield results. Of these, a prima facie assessment revealed that 33 were successful in the sense that products have been released into the market and repayments to the TDB have started. Fifteen were found to be cases whose success was doubtful, five had failed and 12 had been foreclosed for various reasons. According to the Review Committee, the break-up is indicative of the TDB's assessment of entrepreneurs and monitoring of projects being effective. Even in the 12 cases of foreclosures, the money from nine cases has been returned in full. Of course, more complete measures of success in terms of sales growth, market share and profitability of the venture need to be evaluated in due course.

In terms of outgo of TDB funds, the analysis of the 65 agreements shows that over 75 per cent of funds have resulted in successful projects. "This is indeed a laudable performance, considering the inherent risk associated with new technology ventures," points out the report. "In the face of this impressive yield of successful projects, TDB funding, which provided the critical bridging inputs, can be stated to have had a positive impact in terms of commercialisation of indigenously developed technology," it adds.

Another significant feature that emerges from the analysis is that 24 of the 33 successful projects - over 70 per cent - were executed by industrial in-house R&D units and by individual entrepreneurs, without a formal involvement of any national laboratory or any other public-funded institution. "TDB funding has thus demonstrated a most important feature," notes the Review Report, "that Indian industry and private entrepreneurs are capable of indigenously developing technology and thereby coming up with products that can withstand competitive market forces. The new concept of TDB funding being made available to non-government entities as well stands thereby vindicated."

The ASCI sample study has also provided a general overall picture of the nature of the successful projects. The success rate is somewhat higher in the case of enterprises dealing with non-consumer products. It is also higher when an enterprise has a strong experimental background with a clear market focus and a marketing plan. Significantly, the success rate is higher when the technology originated from individuals or from in-house R&D. Performance of small enterprises is comparable, if not better, than the enterprises started by larger companies. In the case of the 32 projects that have not been quite successful, the success rate is lower in cases dealing with conventional engineering products and industrial intermediates.

There is an interesting case among the failed cases which had shown initial signs of success. This pertains to the conversion of commercial starch (maize/tapioca) into value-added derivatives - maltose, malto-dextrin, lactic acid and calcium lactate. The project was valued at Rs.12.71 crores, which included a TDB funding of technology of Rs.4.95 crores. The technology was provided by the CSIR's Mysore-based Central Food Technology Research Institute (CFTRI) and the project was executed by Pratishta Biotech, Secunderabad. However, in the final execution the technology failed. When approached by Pratishta, which suffered mounting losses, the CFTRI failed to rectify the process. As a result the company has been forced to be shut down.

The more interesting thing, however, is that the CFTRI, in association with two other CSIR labs, namely the National Chemical Laboratory, Pune, and the Indian Institute of Chemical Technology, Hyderabad, have now proposed the same project under the CSIR's New Millennium India Technology Leadership Initiatives (NMITLI) scheme. It is reliably learnt that the project is yet to be approved, with the chairman of the approval committee seeking an explanation from the scientists concerned why they proposed the same project after destroying an industrial concern with their unproven claims. It is also learnt that Pratishta plans to sue the CSIR for damages due to an unworkable technology.

As a case study of the impact of TDB funding, the example of Shantha Biotechnics (SB), the first beneficiary of TDB funding, stands out. During the 1990s, Hepatitis B vaccine was imported at a cost of about Rs.780 per dose. SB decided to develop this vaccine indigenously, and the TDB's assistance resulted in the realisation of India's first recombinant DNA (rDNA) health care product in 1997. With the impending development of an indigenous rDNA Hep-B vaccine, the price of imported vaccine dropped to Rs.520. SB, however, decided to market its vaccine at Rs.100, and the price of the imported vaccine too dropped to Rs.100! Today the vaccine is in the market at less than Rs.50 a dose, the latest indicated price being Rs.28 a dose.

There is yet another aspect which the report points out. In the face of the high cost of import, the vaccine requirement was grossly underestimated at 0.2 million doses. SB's annual sales, however, indicated an altogether different picture. In 2000-01, SB's sale was over 7.55m doses. Further, SB's pioneering effort and success has inspired three more successful rDNA Hep-B vaccine brands. One of them (Bharat Biotech) is also a TDB beneficiary. The three brands together today sell over 40m doses.

Even assuming that one dose saves the country Rs.50, the total savings for the country amount to Rs.200 crores. Besides, the immense social benefit of backing this indigenous venture is intangible. The success of Hep-B also encouraged SB to develop and market interferon alpha, a therapeutic drug for Hepatitis C and certain forms of cancer, which is India's second rDNA healthcare product. About 5 million cases are affected by Hep-C in the country and SB's product is priced at half the cost of the imported drug.

Another high-technology product like Hep-B vaccine that has had a dramatic impact on the domestic market is the CorDECT Wireless in Local Loop (WLL) technology developed by IIT-Madras, and the Chennai-based Midas Communications. CorDECT is now being widely used in India by both private and public operators. It has been deployed in over 2,000 locations in cities, towns and villages. Apparently, orders valued at over Rs.1,000 crores are pending. It has also been deployed in over 15 countries abroad. In all, it is manufactured by four companies in India and one in Singapore and one in Tunisia. It has proved to be a cost-effective wireless system and has helped bring down the cost per line to Rs.18,000 against the prevailing cost of imported systems of over Rs.30,000.

As part of its recommendations, the Review Committee has advised the TDB to undertake studies in the area of information and communication technology (ICT) hardware for future choice of products and technologies for TDB support. The objective is to make use of excess Integrated Circuit (IC) chip foundry capacity abroad and enable India to catch up with advanced countries in the field and seriously begin to bridge the digital divide.

Another important recommendation made by the committee is that products born out of new Indian technologies also be purchased by government departments and government undertakings (subject to usual quality, price and delivery conditions) without invoking the provenness clause. The present rules requiring industrial concerns to have three to five years experience selling products to government establishments prevent them from submitting quotations in response to tender notifications.

A case in point is that of the Hep-B vaccine by SB. The vaccine had undergone all the requisite trials and approval by the Drug Controller-General of India for selling across the counter. But the company could not sell the approved vaccine to government hospitals. Other examples are those of corDECT WLL and the cable manufactured by Nicco Corporation Ltd., Kolkata. The provenness clause is thus a hindrance to indigenous products, notes the report. "Such insistence will only be counterproductive and discourage emergence of indigenous technology. This may also result in foregoing reduction in expenditure," the report has observed.

Of the total of Rs.625.17 crores from cess collection, the government has made available to the TDB a cumulative sum of Rs.333.7 crores. This works out to an average of Rs.47.7 crores a year. The committee has noted that in the years to come, the flow of funds from the government needs to be increased substantially. "A stage is likely to be reached soon," says the Report, "requiring the full transfer of funds collected under the cess during the year and also liquidation of some of the accumulated amounts of cess."

The most important recommendation of the committee relates to administrative and organisational matters of the TDB. The success of the TDB, notes the report, is in no small measure due to the compact organisation and the choice of the first Chief Executive. So far, the TDB has been availing itself of the services of officers from the DST. The committee has noted that this cannot be a long-term arrangement. It has also called for immediate action to fill the posts, on deputation or on contract.

Interestingly, the post of the Chief Executive of the TDB has been lying vacant for many months now, and though the post was advertised in January, the selection is yet to be made. According to V. S. Ramamurthy, Secretary DST, the selection has recently been made but the appointments committee of the Cabinet will take a minimum of eight weeks to clear it. As far as other officers of the TDB - for which officers of the DST double up at present - are concerned the posts have not even been advertised. These seem to be already impacting the functioning of the TDB and the perception about the TDB in entrepreneurs' minds.

In the year 2002-03, for instance, only 11 projects have been approved, and that too of a very low total value of Rs51.9 crores, the lowest in all these years. But the finances and assets to be handled have gone up. The initial screening, let alone project evaluation, has of late begun to take inordinately long owing to the lack of human resource. Already the perception that the TDB is slowly slipping from being an efficient organisation into the state of a government agency like any other, is gaining ground. The powers that be should ensure that this does not happen. For, once lost, to get back entrepreneurs' confidence in the TDB could become next to impossible.

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